<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 13, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
RENTAL SERVICE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 7353 33-0569350
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH AMOUNT MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share......... 5,750,000 $16.00 $92,000,000 $31,724
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 750,000 shares subject to an over-allotment option granted to the
Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933 based upon the high
point of the range of estimated initial public offering prices as
specified in the Prospectus contained herein.
---------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
RENTAL SERVICE CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING
IN FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
---------------------------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus................................ Facing Page and Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges.............. Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... Principal and Selling Stockholders; Certain
Relationships and Related Transactions
8. Plan of Distribution....................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered. Prospectus Summary; Description of Capital Stock
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information with Respect
to the Registrant......................... Outside and Inside Front Cover Pages; Prospectus
Summary; Risk Factors; Use of Proceeds;
Dividend Policy; Capitalization; Dilution;
Unaudited Pro Forma Consolidated Financial
Information; Selected Consolidated Financial
Information and Operating Data; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Business;
Management; Principal and Selling Stockholders;
Certain Relationships and Related Transactions;
Description of Capital Stock; Shares Eligible for
Future Sale; Underwriting; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not applicable
</TABLE>
<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 JUNE , 1996
PROSPECTUS
5,000,000 SHARES
RENTAL SERVICE CORPORATION
COMMON STOCK
Of the 5,000,000 shares of Common Stock offered hereby, 4,659,000 are being
sold by Rental Service Corporation ("RSC" or the "Company") and 341,000 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- ---------------------------------------------------------------------------------------------
<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 750,000 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 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.
2
<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 57 for 1 stock split of
the Company's outstanding shares of Common Stock to be effective , 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 June 11, 1996, the
Company has acquired 16 businesses comprised of 65 locations and has opened 25
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, a compounded annual growth rate of
60.4%. 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 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........ 341,000
Shares Outstanding Immediately After the Offering. 11,390,415(1)
Use of Proceeds to the Company.................... To redeem all outstanding
shares of the Company's
Series A redeemable
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) 256,044 shares subject to options outstanding on the date
hereof pursuant to the Company's Stock Option Plan at a weighted average
exercise price of $4.14 per share and (ii) 154,356 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 LOCATION AND UTILIZATION DATA AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -----------------------------
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 $83,482 $ 7,578 $19,656 $20,979
Sales of parts,
supplies and
equipment............. 2,042 8,394 14,040 18,747 28,763 4,261 7,541 8,362
------ ------- ------- ------- ------- ------- ------- -------
Total revenues.......... 4,187 25,632 41,815 65,917 112,245 11,839 27,197 29,341
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 1,153 11,405 16,284 27,854 53,974 4,476 12,449 13,502
Depreciation, equipment
rentals .............. 245 2,161 4,020 7,691 13,828 1,317 3,633 3,946
Cost of sales of parts,
supplies and
equipment............. 1,898 5,959 10,298 12,617 19,703 2,806 5,067 5,572
------ ------- ------- ------- ------- ------- ------- -------
Total cost of revenues.. 3,296 19,525 30,602 48,162 87,505 8,599 21,149 23,020
------ ------- ------- ------- ------- ------- ------- -------
Gross profit............ 891 6,107 11,213 17,755 24,740 3,240 6,048 6,321
Selling, general and
administrative
expense................ 341 2,683 4,747 6,421 9,019 1,097 2,734 2,755
Depreciation and
amortization, excluding
equipment rental
depreciation........... 11 211 504 1,186 1,908 159 571 603
Amortization of
intangibles(2)......... 321 2,635 2,078 718 1,782 155 561 636
Other charges(3)........ -- -- -- -- 956 -- -- --
------ ------- ------- ------- ------- ------- ------- -------
Operating income........ 218 578 3,884 9,430 11,075 1,829 2,182 2,327
Interest expense, net... 77 407 731 3,314 4,273 355 1,639 966
------ ------- ------- ------- ------- ------- ------- -------
Income before income
taxes and non-recurring
and extraordinary
items.................. 141 171 3,153 6,116 6,802 1,474 543 1,361
Provision for income
taxes.................. 81 465 1,177 2,401 2,673 575 213 535
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before
non-recurring and
extraordinary items.... 60 (294) 1,976 3,715 $ 4,129 899 330 $ 826
======= =======
Extraordinary item(4)... -- -- -- (478) -- --
------ ------- ------- ------- ------- -------
Net income (loss)....... 60 (294) 1,976 3,237 899 330
Redeemable preferred
stock accretion ....... 133 1,013 1,646 1,717 420 554
------ ------- ------- ------- ------- -------
Net income (loss)
available to common
stockholders........... $ (73) $(1,307) $ 330 $ 1,520 $ 479 $ (224)
====== ======= ======= ======= ======= =======
Income (loss) before
non-recurring and
extraordinary items per
common share........... $ (.01) $ (.18) $ .05 $ .30 $ .35 $ .07 $ (.03) $ .07
======= =======
Extraordinary items per
common share........... -- -- -- (.07) -- --
------ ------- ------- ------- ------- -------
Net income (loss) per
common share........... $ (.01) $ (.18) $ .05 $ .23 $ .07 $ (.03)
====== ======= ======= ======= ======= =======
Weighted average common
shares(5).............. 7,193 7,246 6,987 6,557 11,634 6,560 6,999 11,592
SELECTED OPERATING DATA:
Beginning locations .... -- 11 21 25 25 49
Locations acquired .... 11 11 1 26 2 9
Locations opened....... -- -- 3 9 -- 5
Locations closed or
sold.................. -- (1) -- (2) -- --
Ending locations held
for sale(6)........... -- -- -- (9) -- --
Ending locations ....... 11 21 25 49 27 63
Total capital
expenditures........... $1,372 $ 6,618 $17,043 $23,632 $ 3,917 $18,933
Equipment
utilization(7)......... 72% 79% 77% 72% 72%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Net book value of rental equipment...................... $ 72,726 $ 76,717
Total assets............................................ 168,351 178,462
Total debt.............................................. 74,106 57,589
Redeemable Preferred Stock.............................. 36,455 --
Common Stockholders' equity............................. 7,209 70,292
</TABLE>
5
<PAGE>
- --------
(1) Gives effect to (i) all of the 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 and the
repurchase of the Citicorp Warrant, (iv) 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) and (v) the elimination of an annual
monitoring fee paid to an affiliate of the Company, 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 March 31, 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 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 (Net) 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 June 11,
1996, nine of such locations continued to be held for sale. Locations held
for sale are the remaining Holdings' California locations included in
"assets held for sale" in the Company's consolidated financial statements.
(7) For the years ended December 31, 1993 and 1994 and the three months ended
March 31, 1995 and 1996, equipment utilization is calculated by dividing
equipment rental revenues for such period into the original cost of the
average rental equipment fleet during the period. For the year ended
December 31, 1995, equipment utilization is a weighted average giving
effect to the Holdings Acquisition (Net). At the time of the Company's
acquisition of Holdings, Holdings' equipment utilization rates were lower
than the Company's. Equipment utilization data for the period ended
December 31, 1992 is not meaningful as it represents only a partial year.
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.
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 25 start-up
locations through June 11, 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 USA);
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 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 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
7
<PAGE>
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."
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."
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 52.3%
of the Company's outstanding Common Stock (49.0% 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
8
<PAGE>
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."
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.
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. 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."
9
<PAGE>
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and 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 11,390,415 shares of Common Stock (12,104,978 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 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 each 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."
10
<PAGE>
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 $11.20 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
Company, acquired in June 1993 with two locations in Alabama; and Rental
Service Company, acquired in August 1993 with nine locations in Georgia. 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 seven 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,
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 18 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 May 31, 1996, the Company had sold one of these
California locations and closed another and currently anticipates selling,
closing or otherwise disposing of the remaining nine California locations by
September 30, 1996. The remaining California rental locations are classified
as "assets held for sale" in the Company's consolidated financial statements.
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
($73.8 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, including 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 $84.9 million
principal amount of indebtedness was outstanding at June 11, 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 March 31, 1996 on (i) a historical basis, (ii) a pro forma
combined basis to reflect the Company's acquisitions consummated after March
31, 1996 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>
MARCH 31, 1996
-------------------------------
PRO
FORMA PRO FORMA
ACTUAL COMBINED AS ADJUSTED
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Bank debt.................................. $ 61,381 $ 69,031 $ 56,197
Notes payable.............................. 11,676 11,676 343 (1)
Capital leases............................. 381 381 381
Equipment contracts payable................ 668 668 668
-------- -------- --------
Total debt............................... 74,106 81,756 57,589
Redeemable Preferred Stock, cumulative par
value $.01 per share; 350,000 shares
authorized, 319,805 shares outstanding,
actual and pro forma combined; $36,798,000
aggregate liquidation preference, actual and
pro forma combined; 350,000 authorized and
none outstanding, pro forma as adjusted..... 36,455 36,455 --
Stockholders' equity:
Preferred Stock, par value $.01 per share;
none authorized or outstanding, actual or
pro forma combined; 500,000 authorized and
none outstanding, pro forma as adjusted...
Common Stock, par value $.01 per share;
11,400,000 authorized and 6,731,415
outstanding, actual and pro forma
combined; 11,400,000 authorized and
11,390,415 outstanding, pro forma as
adjusted(2)............................... 67 67 114
Additional paid-in capital................. 7,402 7,402 70,438
Accumulated (deficit)...................... (260) (260) (260)
-------- -------- --------
Total stockholders' equity............... 7,209 7,209 70,292
-------- -------- --------
Total capitalization................... $117,770 $125,420 $127,881
======== ======== ========
</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) Excludes (i) 256,044 shares subject to options outstanding on the date
hereof pursuant to the Company's Stock Option Plan at a weighted average
exercise price of $4.14 per share and (ii) 154,356 shares reserved for
issuance pursuant to the Company's Stock Option Plan. See "Management--
Stock Option Plan."
14
<PAGE>
DILUTION
At March 31, 1996, the Company had a net tangible book deficiency of $(19.8)
million, or $(2.94) 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 March 31, 1996. Without taking
into account any changes in the net tangible book value after March 31, 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 March 31, 1996, would have been $43.3 million, or $3.80 per
share of Common Stock. This represents an immediate increase in pro forma net
tangible book value of $6.74 per share to existing stockholders and an
immediate dilution of $11.20 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.. (2.94)
Increase attributable to new investors...................... 6.74
-----
Pro forma net tangible book value per share after the
offering..................................................... 3.80
------
Dilution per share to new investors........................... $11.20
======
</TABLE>
The following table summarizes, as of March 31, 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)....... 6,731,415 59.1% $ 7,586,838 9.8% $ 1.13
New investors(1)............... 4,659,000 40.9 69,885,000 90.2 15.00
---------- ----- ----------- -----
Total........................ 11,390,415 100.0% $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 6,390,415 or 56.1% (6,354,978
or 52.5% 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 5,000,000 or 43.9% (5,750,000 or 47.5% 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 April 1, 1996 there were options outstanding to purchase a total of
256,044 shares of Common Stock at a weighted average exercise price of $4.14
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 three months ended March 31,
1996, and the unaudited pro forma consolidated balance sheet at March 31,
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), net 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 (Net)"), (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) (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
three months ended March 31, 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 at March 31, 1996 has been adjusted
to give effect to the acquisitions of B & S and ERS, which occurred after
March 31, 1996. 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 three months ended March 31, 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 to reduce amounts outstanding under the revolving credit
facility and to repay the Citicorp Loan, (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 and
(v) the elimination of an annual monitoring fee payable to an affiliate of the
Company, 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 (v) 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 March 31, 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 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 FORMA PRO PRO FORMA
HISTORICAL ACQUISITION 1995 OTHER 1996 ACQUISITION FORMA OFFERING PRO FORMA
COMPANY (NET)(1) ACQUISITIONS ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- ----------- ------------ ------------ ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $47,170 $21,369 $1,270 $13,673 $ -- $83,482 $ -- $ 83,482
Sales of parts,
supplies and
equipment............. 18,747 4,672 121 5,223 -- 28,763 -- 28,763
------- ------- ------ ------- ------- ------- ------ --------
Total revenues......... 65,917 26,041 1,391 18,896 -- 112,245 -- 112,245
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 27,854 15,675 835 9,610 -- 53,974 -- 53,974
Depreciation,
equipment rentals..... 7,691 2,967 212 2,305 653 (5) 13,828 -- 13,828
Cost of sales of
parts, supplies and
equipment............. 12,617 3,645 99 3,342 -- 19,703 -- 19,703
------- ------- ------ ------- ------- ------- ------ --------
Total cost of revenues. 48,162 22,287 1,146 15,257 653 87,505 -- 87,505
------- ------- ------ ------- ------- ------- ------ --------
Gross profit........... 17,755 3,754 245 3,639 (653) 24,740 24,740
Selling, general and
administrative expense. 6,421 2,218 39 1,959 (1,383)(6) 9,254 (235)(10) 9,019
Depreciation and
amortization, excluding
equipment rental
depreciation........... 1,186 353 32 337 -- 1,908 -- 1,908
Amortization of
intangibles............ 718 130 206 -- 803 (7) 1,857 (75)(11) 1,782
Other charges(2)....... -- 956 -- -- -- 956 -- 956
------- ------- ------ ------- ------- ------- ------ --------
Operating income
(loss)................. 9,430 97 (32) 1,343 (73) 10,765 310 11,075
Interest expense, net.. 3,314 7,484 7 400 (3,473)(8) 7,732 (3,459)(12) 4,273
------- ------- ------ ------- ------- ------- ------ --------
Income (loss) before
income taxes and non-
recurring and
extraordinary item..... 6,116 (7,387) (39) 943 3,400 3,033 3,769 6,802
Provision for income
taxes.................. 2,401 1,635 -- 444 (3,288)(9) 1,192 1,481 (9) 2,673
------- ------- ------ ------- ------- ------- ------ --------
Income (loss) before
non-recurring and
extraordinary item(3).. 3,715 (9,022) (39) 499 6,688 1,841 2,288 4,129
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 $(9,022) $ (39) $ 499 $ 6,688 $ 124 $4,005 $ 4,129
======= ======= ====== ======= ======= ======= ====== ========
Income before non-
recurring and
extraordinary item per
common share........... $ .02 $ .35
Weighted average common
shares(4).............. 7,057(14) 11,634(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 (i)
has been presented net of the results of operations of such California
rental locations and (ii) represents the results of Holdings (net) for
the period from January 1, 1995 through September 11, 1995, the date of
its acquisition by the Company. Results of Holdings (net) subsequent to
the date of its acquisition are included in the Historical Company's
results for the year ended December 31, 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 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 (Net) and Holdings' related
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 $5,286,000 and the Company's estimate of $5,939,000 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 $653,000.
(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 (Net),
1995 Other Acquisitions and 1996 Acquisitions and the Company's estimate
of goodwill and covenants not to compete for the above acquisitions of
$1,139,000 as if the transactions were consummated at the beginning of
the period presented. As a result, pro forma amortization expense
increased by $803,000.
(8) Represents the elimination of historical interest expense of $7,894,000
for the Holdings Acquisition (Net), 1995 Other Acquisitions and 1996
Acquisitions and the effects on interest expense from borrowing to fund
the above acquisitions of $4,421,000 as if the transactions were
consummated at the beginning of the period presented. As a result, pro
forma interest expense decreased by $3,473,000.
(9) Represents the adjustment to effect pro forma adjustments for the
Company's effective tax rate of 39.3%.
(10) Represents elimination of an 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.
(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.
(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.
(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.
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 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..... $19,656 $1,323 $ -- $20,979 $ -- $20,979
Sales of parts,
supplies and
equipment............ 7,541 820 -- 8,362 -- 8,362
------- ------ ----- ------- ------ -------
Total revenues.......... 27,197 2,143 -- 29,341 -- 29,341
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation......... 12,449 1,276 (224)(2) 13,502 -- 13,502
Depreciation,
equipment rentals.... 3,633 172 141 (3) 3,946 -- 3,946
Cost of sales of
parts, supplies and
equipment............ 5,067 505 -- 5,572 -- 5,572
------- ------ ----- ------- ------ -------
Total cost of revenues.. 21,149 1,953 (83) 23,020 23,020
------- ------ ----- ------- ------ -------
Gross profit............ 6,048 190 83 6,321 6,321
Selling, general and
administrative expense. 2,734 80 -- 2,814 (59)(7) 2,755
Depreciation and
amortization,
excluding equipment
rental depreciation.... 571 32 -- 603 -- 603
Amortization of
intangibles............ 561 -- 80 (4) 641 (5)(8) 636
------- ------ ----- ------- ------ -------
Operating income........ 2,182 78 3 2,263 64 2,327
Interest expense, net... 1,639 18 174 (5) 1,831 (865)(9) 966
------- ------ ----- ------- ------ -------
Income (loss) before
income taxes........... 543 60 (171) 432 929 1,361
Provision (benefit) for
income taxes........... 213 58 (101)(6) 170 365 535
------- ------ ----- ------- ------ -------
Net income (loss)....... 330 2 (70) 262 564 826
Redeemable preferred
stock accretion........ 554 -- -- 554 (554)(10) --
------- ------ ----- ------- ------ -------
Net income (loss)
available to common
stockholders........... $ (224) $ 2 $ (70) $ (292) $1,118 $ 826
======= ====== ===== ======= ====== =======
Net income per common
share.................. $ (.04) $ .07
Weighted average common
shares................. 7,016 (11) 11,592(12)
</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 THREE MONTHS ENDED MARCH 31, 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 three months ended March 31, 1996.
(2) Represents the elimination of certain officers' salaries associated with
the 1996 Acquisitions as these officers will not be employed by the
Company.
(3) Represents the elimination of the historical carrying value rental
depreciation of $172,000 and the Company's estimate of $313,000 for
rental depreciation assuming the rental fleet acquired was stepped-up to
fair market value at the beginning of the period presented. As a result,
pro forma depreciation increased by $141,000.
(4) Represents the Company's estimate of goodwill and covenants not to
compete for the 1996 Acquisitions of $80,000, as if the 1996 Acquisitions
were consummated at the beginning of the period presented.
(5) Represents the elimination of historical interest expense of $1,657,000
for the 1996 Acquisitions and the effects on interest expense from
borrowing to fund the 1996 Acquisitions of $1,831,000, as if the
transactions were consummated at the beginning of the period presented.
As a result, pro forma interest expense increased by $174,000.
(6) Represents the elimination of the historical provision for income taxes
of $58,000 and the Company's effective income tax rate which created a
benefit of $159,000 as if the transactions were consummated at the
beginning of the period presented. As a result, pro forma benefit for
income taxes decreased by $101,000.
(7) Represents elimination of an 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.
(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.
(10) 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.
(11) Share numbers with respect to Pro Forma Combined reflect 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.
(12) Share numbers with respect to Pro Forma As Adjusted give 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. See Note 1 to the Company's
Consolidated Financial Statements.
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT MARCH 31, 1996
------------------------------------------------------------------------------
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>
ASSETS:
Cash and cash
equivalents........... $ 1,478 $ 489 $ (489)(2) $ 1,478 $ 2,461 $ 3,939
Accounts receivable,
net................... 15,231 767 -- 15,998 -- 15,998
Other receivables and
prepaid expense....... 4,645 112 (112)(2) 4,645 -- 4,645
Parts and supplies
inventories, net...... 6,980 656 -- 7,636 -- 7,636
Assets held for sale... 17,496 -- -- 17,496 -- 17,496
Deferred taxes......... 7,309 -- -- 7,309 -- 7,309
Rental equipment, net.. 72,726 2,441 1,550 (3) 76,717 -- 76,717
Operating property and
equipment, at cost,
net................... 12,393 681 (188)(2) 12,886 -- 12,886
Intangible assets...... 27,009 40 1,703 (4) 28,752 -- 28,752
Other assets........... 3,084 441 (441)(2) 3,084 -- 3,084
-------- ------ ------- -------- -------- --------
$168,351 $5,627 $ 2,023 $176,001 $ 2,461 $178,462
======== ====== ======= ======== ======== ========
LIABILITIES AND COMMON
STOCKHOLDERS' EQUITY:
Accounts payable....... $ 18,507 $ 215 $ (215)(2) $ 18,507 $ -- $ 18,507
Payroll and other
accrued expenses...... 21,178 118 (118)(2) 21,178 -- 21,178
Accrued interest
payable............... 768 -- -- 768 -- 768
Income taxes payable... 313 194 (194)(2) 313 -- 313
Deferred taxes......... 9,815 23 (23)(2) 9,815 -- 9,815
Bank debt and long term
obligations........... 73,725 730 6,920 (5) 81,375 (24,167)(7) 57,208
Obligations under
capital leases........ 381 -- -- 381 -- 381
-------- ------ ------- -------- -------- --------
Total liabilities...... 124,687 1,280 6,370 132,337 (24,167) 108,170
Redeemable preferred
stock................. 36,455 -- -- 36,455 (36,455)(8) --
Common stockholders'
equity (deficit)......
Common stock........... 67 42 (42)(6) 67 47 (9) 114
Additional paid-in
capital............... 7,402 281 (281)(6) 7,402 63,036 (9) 70,438
Accumulated earnings
(deficit)............. (260) 4,024 (4,024)(6) (260) -- (260)
-------- ------ ------- -------- -------- --------
Total common
stockholders' equity
(deficit)............. 7,209 4,347 (4,347) 7,209 63,083 70,292
-------- ------ ------- -------- -------- --------
$168,351 $5,627 $ 2,023 $176,001 $ 2,461 $178,462
======== ====== ======= ======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT MARCH 31, 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 Acquisitions. Purchase accounting values have been
assigned to the 1996 Acquisitions on a preliminary basis in the Pro Forma
Acquisition Adjustments. Management expects the final purchase accounting
valuation to be completed before December 31, 1996.
(2) Represents assets not acquired or liabilities not assumed in the 1996
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 Acquisitions.
(6) Represents the elimination of the equity accounts of the 1996
Acquisitions.
(7) Represents the use of $12,900,000 of proceeds from the offering to
paydown the Company's revolving credit facility and the use of
$11,267,000 of such proceeds to repay the Citicorp Loan.
(8) The Company's Redeemable Preferred Stock is to be redeemed with a portion
of the net proceeds to the Company from the sale of the Common Stock
offered hereby.
(9) 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 SELECTED OPERATING DATA AND PER SHARE AMOUNTS)
The following selected consolidated financial information for the years
ended December 31, 1993, 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 results of operations and financial position as of December 31,
1992 has been derived from audited financial statements of the Company that
are not included in this Prospectus. The selected consolidated financial
information for the three months ended March 31, 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 three months ended March 31, 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>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- ----------------------------
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 $83,482 $ 7,578 $19,656 $20,979
Sales of parts,
supplies and
equipment............. 2,042 8,394 14,040 18,747 28,763 4,261 7,541 8,362
------ ------- ------- ------- ------- ------- ------- -------
Total revenues.......... 4,187 25,632 41,815 65,917 112,245 11,839 27,197 29,341
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 1,153 11,405 16,284 27,854 53,974 4,476 12,449 13,502
Depreciation, equipment
rentals .............. 245 2,161 4,020 7,691 13,828 1,317 3,633 3,946
Cost of sales of parts,
supplies and
equipment............. 1,898 5,959 10,298 12,617 19,703 2,806 5,067 5,572
------ ------- ------- ------- ------- ------- ------- -------
Total cost of revenues.. 3,296 19,525 30,602 48,162 87,505 8,599 21,149 23,020
------ ------- ------- ------- ------- ------- ------- -------
Gross profit............ 891 6,107 11,213 17,755 24,740 3,240 6,048 6,321
Selling, general and
administrative
expense................ 341 2,683 4,747 6,421 9,019 1,097 2,734 2,755
Depreciation and
amortization, excluding
equipment rental
depreciation........... 11 211 504 1,186 1,908 159 571 603
Amortization of
intangibles(2)......... 321 2,635 2,078 718 1,782 155 561 636
Other charges(3)........ -- -- -- -- 956 -- -- --
------ ------- ------- ------- ------- ------- ------- -------
Operating income........ 218 578 3,884 9,430 11,075 1,829 2,182 2,327
Interest expense, net... 77 407 731 3,314 4,273 355 1,639 966
------ ------- ------- ------- ------- ------- ------- -------
Income before income
taxes and non-recurring
and extraordinary
items.................. 141 171 3,153 6,116 6,802 1,474 543 1,361
Provision for income
taxes.................. 81 465 1,177 2,401 2,673 575 213 535
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before
non-recurring and
extraordinary items.... 60 (294) 1,976 3,715 $ 4,129 899 330 $ 826
======= =======
Extraordinary item(4)... -- -- -- (478) -- --
------ ------- ------- ------- ------- -------
Net income (loss)....... 60 (294) 1,976 3,237 899 330
Redeemable preferred
stock accretion ....... 133 1,013 1,646 1,717 420 554
------ ------- ------- ------- ------- -------
Net income available to
common stockholders.... $ (73) $(1,307) $ 330 $ 1,520 $ 479 $ (224)
====== ======= ======= ======= ======= =======
Income before non-
recurring and
extraordinary items per
common share........... $ (.01) $ (.18) $ .05 $ .30 $ .35 $ .07 $ (.03) $ .07
======= =======
Extraordinary items per
common share........... -- -- -- (.07) -- --
------ ------- ------- ------- ------- -------
Net income (loss) per
common share........... $ (.01) $ (.18) $ .05 $ .23 $ .07 $ (.03)
====== ======= ======= ======= ======= =======
Weighted average common
shares(5).............. 7,193 7,246 6,987 6,557 11,634 6,560 6,999 11,592
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
7/17/92 YEARS ENDED THREE MONTHS ENDED
(INCEPTION) DECEMBER 31, MARCH 31,
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 49
Locations acquired .... 11 11 1 26 2 9
Locations opened....... -- -- 3 9 -- 5
Locations closed or
sold.................. -- (1) -- (2) -- --
Ending locations held
for sale(6)........... -- -- -- (9) -- --
Ending locations ....... 11 21 25 49 27 63
Total capital
expenditures........... $1,372 $6,618 $17,043 $23,632 $ 3,917 $ 18,933
Equipment
utilization(7)......... 72% 79% 77% 72% 72%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Net book value of rental equipment...................... $ 72,726 $ 76,717
Total assets............................................ 168,351 178,462
Total debt.............................................. 74,106 57,589
Redeemable Preferred Stock.............................. 36,455 --
Stockholders' equity.................................... 7,209 70,292
</TABLE>
- -------
(1) Gives effect to (i) all of the 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 and the
repurchase of the Citicorp Warrant, (iv) 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) and (v) the elimination of an annual
monitoring fee paid to an affiliate of the Company, 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 March 31, 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 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 (Net) 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 June 11, 1996,
nine of such locations continued to be held for sale. Locations held for
sale are the remaining Holdings' California locations included in "assets
held for sale" in the Company's consolidated financial statements.
(7) For the years ended December 31, 1993 and 1994 and the three months ended
March 31, 1995 and 1996, equipment utilization is calculated by dividing
equipment rental revenues for such period into the original cost of the
average rental equipment fleet during the period. For the year ended
December 31, 1995, equipment utilization is a weighted average giving effect
to the Holdings Acquisition (Net). At the time of the Company's acquisition
of Holdings, Holdings' equipment utilization rates were lower than the
Company's. Equipment utilization data for the period ended December 31, 1992
is not meaningful as it represents only a partial year.
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 25 start-up locations through June
11, 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, a compounded annual growth rate
of 60.4%. 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 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. Although
the Company is currently discussing a number of possible transactions, there
can be no assurance that such discussions will result in any particular
transaction being consummated.
The Company is also involved in discussions regarding the sale of Holdings'
California operations which have been classified as "assets held for sale" in
the Company's consolidated financial statements. In addition to the locations
which have already been closed or disposed of, the Company is discussing with
various potential purchasers the sale of the remaining nine locations.
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 three months
ended March 31, 1996, the Company's capital expenditures aggregated $6.6
million, $17.0 million, $23.6 million and $18.9 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 $3.6 million for the years ended December 31,
1993, 1994 and 1995 and for the three months ended March 31, 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.
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 one California rental location and closed another. The Company
anticipates selling, closing or otherwise disposing of the remaining nine
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 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
revolving credit facility. The redemption of the Redeemable Preferred Stock
will eliminate the 6% cumulative dividend payable thereon. For the year ended
December 31, 1995 and three months ended March 31, 1996 the accreted value of
preferred stock dividends was $1.7 million and $554,000, respectively. At
March 31, 1996, approximately $11.3 million was outstanding under the Citicorp
Loan and approximately $61.4 million was outstanding under the Company's
revolving credit facility. In addition, upon completion of the offering, the
obligation of the Company to pay Brentwood Buyout Partners, L.P., 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)
----------------------------------------- --------------------------------------
THREE MONTHS
ENDED THREE MONTHS
YEAR ENDED DECEMBER 31, MARCH 31, ENDED
------------------------- -------------- MARCH 31,
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% 64.0% 72.3% 61.1% 69.8% 159.4%
Sales of parts,
supplies and
equipment............. 32.7 33.6 28.4 36.0 27.7 67.3 33.5 77.0
------- ------- ------- ------ ------
Total revenues.......... 100.0 100.0 100.0 100.0 100.0 63.1 57.6 129.7
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 44.5 39.0 42.3 37.8 45.8 42.8 71.1 178.1
Depreciation, equipment
rentals............... 8.4 9.6 11.7 11.1 13.4 86.0 91.3 175.9
Cost of sales of parts,
supplies and
equipment............. 23.3 24.6 19.1 23.7 18.6 72.8 22.5 80.6
------- ------- ------- ------ ------
Total cost of revenues.. 76.2 73.2 73.1 72.6 77.8 56.7 57.4 146.0
------- ------- ------- ------ ------
Gross profit............ 23.8 26.8 26.9 27.4 22.2 83.6 58.3 86.7
Selling, general and
administrative expense. 10.5 11.4 9.7 9.3 10.1 76.9 35.3 149.2
Depreciation and
amortization, excluding
equipment rental
depreciation........... 0.8 1.2 1.8 1.4 2.1 138.9 135.3 259.1
Amortization of
intangibles............ 10.2 4.9 1.1 1.3 2.0 (21.1) (65.4) 261.9
------- ------- ------- ------ ------
Operating income........ 2.3 9.3 14.3 15.4 8.0 572.0 142.8 19.3
Interest expense, net... 1.6 1.8 5.0 3.0 6.0 79.6 353.4 361.7
------- ------- ------- ------ ------
Income before income
taxes and extraordinary
item................... 0.7% 7.5% 9.3% 12.4% 2.0% 1,743.9 94.0 (63.2)
======= ======= ======= ====== ======
Other Data:
Rental gross profit.... 21.3% 26.9% 24.6% 23.6% 18.2% 103.5 55.6 100.2
Sales gross profit..... 29.0% 26.7% 32.7% 34.1% 32.8% 53.7 63.8 70.0
</TABLE>
27
<PAGE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
Revenues. Total revenues for the three months ended March 31, 1996 increased
by 129.7% to $27.2 million from $11.8 million in the same period in 1995. This
increase was primarily due to the inclusion of revenues from acquisitions of
six businesses and the opening of 14 start-up locations subsequent to March
31, 1995. Equipment rental revenues increased by 159.4% to $19.7 million from
$7.6 million due to a larger rental fleet as a result of acquisitions, the
partial period impact of $18.9 million in capital expenditures during the
first quarter of 1996 and the full period impact of $23.6 million in capital
expenditures in 1995. Sales of parts, supplies and equipment increased by
77.0% to $7.5 million from $4.3 million due primarily to the increased number
of rental locations selling these items.
Gross Profit. Gross profit for the three months ended March 31, 1996
increased to $6.0 million or 22.2% of total revenues from $3.2 million or
27.4% of total revenues in the same period in 1995. Gross margin on equipment
rentals decreased to 18.2% of equipment rental revenues from 23.6%.
Approximately 60% of the decline in gross margins on equipment rentals was due
to increases in direct operating expenses including direct wages, facility
rent and equipment re-rent expense. Approximately 22% of the decline in gross
margins on equipment rentals was attributable to higher depreciation,
primarily as a result of substantial capital expenditures in 1995 and 1996.
Additionally, an increase in region level expense associated with the addition
of 15 locations versus two locations added in the first quarter of 1995,
contributed to approximately 18% of the decline in gross margins on equipment
rental during the current period. Gross margin on sales of parts, supplies and
equipment decreased to 32.8% of sales from 34.1% due primarily to a change in
the product mix of parts, supplies and equipment.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the three months ended March 31, 1996 was $2.7
million or 10.1% of total revenues compared to $1.1 million or 9.3% of total
revenues in the same period in 1995. The increase of $1.6 million is
attributable to higher selling, general and administrative expense of $1.7
million associated with the Holdings acquisition. Prior to the acquisition,
Holding's selling, general and administrative expense was approximately 16% of
its total revenues.
Depreciation and amortization, excluding equipment rental
depreciation. Depreciation and amortization, excluding equipment rental
depreciation, for the three months ended March 31, 1996 was $571,000 or 2.1%
of total revenues compared to $159,000, 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 spending on
rental locations in order to standardize their appearance.
Amortization of intangibles. Amortization of intangibles expense for the
three months ended March 31, 1996 was $561,000, or 2.0% of total revenues
compared to $155,000 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 March 31, 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 three months ended
March 31, 1996 was $1.6 million compared to $355,000 in the same period in
1995. This increase was a result of the Company's increased average debt
outstanding for the quarter ended March 31, 1996 compared to the quarter ended
March 31, 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.
Provision for Income Taxes. Provision for income taxes was $213,000 for the
three months ended March 31, 1996 compared to $575,000 in the same period in
1995. The Company's effective tax rate was 39.2% in the quarter ended March
31, 1996 compared to 39.0% in the quarter ended March 31, 1995.
28
<PAGE>
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 nine 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, to a lesser extent, to a higher
number of acquisitions and start-ups in 1995, with correspondingly higher
start-up and acquisition expenses. 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.
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
29
<PAGE>
year impact of the two locations acquired in Alabama in June 1993 and the nine
locations acquired in Georgia in August 1993, along with 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. The primary reason for the percentage increase was the impact of
improved fleet utilization rates. 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 $1.5 million at March 31, 1996 and at December 31, 1995.
During the three months ended March 31, 1996, the Company's operating
activities provided net cash flow of $8.4 million as compared to $1.2 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
30
<PAGE>
$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 $2.7 million for the three months ended
March 31, 1996 compared to $1.3 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 $28.2 million in the three months
ended March 31, 1996 as compared to $4.3 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 $1.7 million and $12.0 million in the three months ended
March 31, 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 three months ended March 31, 1996 includes the U-Rent-M and
Sun acquisitions completed in the first quarter 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 $3.9 million and
$18.9 million in the respective 1995 and 1996 three month periods. Capital
expenditures were primarily for purchases of rental equipment.
Net cash provided by financing activities was $3.2 million for the three
months ended March 31, 1995 as compared to $19.9 million for the three months
ended March 31, 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 new revolving credit facility 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 a $95.0 million senior
secured revolving credit facility (the "Revolver") among the Company's
subsidiaries and certain financial institutions. The Revolver 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 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
31
<PAGE>
addition, certain subsidiaries of the Company are guarantors of the
obligations under the Revolver. At June 11, 1996, the principal amount
outstanding under the Revolver was $84.9 million.
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. After giving effect to the offering,
the Company believes that cash flow from operations, together with its present
sources of liquidity, the unused portion of its credit facility and its
anticipated borrowing capacity subsequent to the offering, will be sufficient
to finance its growth and satisfy its general business and capital liquidity
requirements for the next twelve months. To finance future acquisitions and
start-up locations, the Company expects to utilize borrowings and cash flow
from operations and could issue additional equity securities. Such 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 June 11, 1996, the Company 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 $554,000 for the years ended December 31, 1994 and December 31, 1995 and
the three months ended March 31, 1996, respectively. At March 31, 1996,
Redeemable Preferred Stock was $36.5 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 March 31, 1996, related to the removal of
underground tanks and remediation expenses. 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 one location, closed one
location and anticipates selling, closing or disposing of the remaining nine
locations by September 30, 1996.
COMMITMENTS TO PURCHASE EQUIPMENT
As of March 31, 1996, the Company had commitments to purchase $7.1 million
of equipment. Such purchases are expected to be made through borrowings under
the Revolver.
32
<PAGE>
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 three months ended March 31, 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>
1996
QUARTER
1994 QUARTERS ENDED 1995 QUARTERS ENDED ENDED
---------------------------------- ---------------------------------- --------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
-------- ------- -------- ------- -------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <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
Sales of parts,
supplies and
equipment............. 3,112 3,495 3,150 4,283 4,261 3,943 4,567 6,232 7,541
------ ------- ------- ------- ------- ------- ------- ------- -------
Total revenues.......... 8,509 10,040 10,760 12,506 11,839 12,592 16,461 24,921 27,197
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
Depreciation, equipment
rentals............... 799 926 1,112 1,183 1,317 1,558 1,881 2,935 3,633
Cost of sales of parts,
supplies and
equipment............. 2,128 2,429 2,230 3,511 2,806 2,683 3,157 4,227 5,067
------ ------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues.. 6,385 7,272 7,689 9,256 8,599 9,308 12,227 18,284 21,149
------ ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 2,124 2,768 3,071 3,250 3,240 3,644 4,234 6,637 6,048
Selling, general and
administrative expense. 890 912 1,831 1,114 1,097 1,159 1,413 2,752 2,734
Depreciation and
amortization, excluding
equipment rental
depreciation........... 90 113 143 158 159 193 237 597 571
Amortization of
intangibles............ 580 573 521 404 155 157 14 392 561
------ ------- ------- ------- ------- ------- ------- ------- -------
Operating income........ 564 1,170 576 1,574 1,829 2,135 2,570 2,896 2,182
Interest expense, net... 100 89 228 314 355 456 890 1,613 1,639
------ ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes and extraordinary
item................... 464 1,081 348 1,260 1,474 1,679 1,680 1,283 543
Provision for income
taxes.................. 173 404 130 470 575 660 659 507 213
------ ------- ------- ------- ------- ------- ------- ------- -------
Income before
extraordinary item..... 291 677 218 790 899 1,019 1,021 776 330
Extraordinary item, net
of income tax benefit
of $305,000............ -- -- -- -- -- -- 478 -- --
------ ------- ------- ------- ------- ------- ------- ------- -------
Net Income.............. 291 677 218 790 899 1,019 543 776 330
Redeemable preferred
stock accretion........ 408 416 422 400 420 426 432 439 554
------ ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)
available to common
stockholders........... $ (117) $ 261 $ (204) $ 390 $ 479 $ 593 $ 111 $ 337 $ (224)
====== ======= ======= ======= ======= ======= ======= ======= =======
Weighted average common
and common equivalent
shares................. 7,415 7,406 6,560 6,560 6,560 6,560 6,560 6,548 6,999
Income (loss) before
extraordinary item per
common share........... $ (.02) $ .04 $ (.03) $ .06 $ .07 $ .09 $ .09 $ .05 $ (.03)
Extraordinary item per
common share........... -- -- -- -- -- -- (.07) -- --
------ ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) per
common shares.......... $ (.02) $ .04 $ (.03) $ .06 $ .07 $ .09 $ .02 $ .05 $ (.03)
====== ======= ======= ======= ======= ======= ======= ======= =======
Net increase in
locations at period
end.................... 0 2 2 0 1 1 18 4 14
</TABLE>
33
<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.
34
<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 25 start-up locations through June 11, 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 revenues were
approximately $13 billion in 1993, which the publisher 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 45 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
35
<PAGE>
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. 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 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 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
36
<PAGE>
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. 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 25 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."
37
<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
38
<PAGE>
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.
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 quarter 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 124 field-based commissioned salespeople and 159
store-based salespeople as of June 9, 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."
39
<PAGE>
LOCATIONS
At June 11, 1996, the Company operated 78 rental locations in the following
nine states: Alabama (7), Arkansas (5), Florida (14), Georgia (16), Louisiana
(5), Mississippi (8), South Carolina (3), Tennessee (4) and Texas (16). In
addition, as of such date, the Company had nine California rental locations
classified as "assets held for sale."
The following table shows the increase in number of RSC locations since the
Company's formation in 1992:
<TABLE>
<CAPTION>
THREE MONTHS APRIL 1,
YEARS ENDED DECEMBER 31, ENDED 1996-
------------------------------- MARCH 31, JUNE 11,
1992 1993 1994 1995 1996 1996
------ ------ ------ ------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Beginning locations..... -- 11 21 25 49 63
Locations acquired..... 11 11 1 26 9 7
Locations opened....... -- -- 3 9 5 8
Locations closed or
sold.................. -- (1) -- (2) --
Ending locations held
for sale(1)........... -- -- -- (9) --
------ ------ ------ ------ --- ---
Ending locations........ 11 21 25 49 63 78
====== ====== ====== ====== === ===
</TABLE>
- --------
(1) In connection with the acquisition of Holdings, the Company decided to
sell, close or dispose of Holdings' California locations. As of June 11,
1996, nine of such locations continued to be held for sale. Locations held
for sale are the remaining Holdings' California locations included in
"assets held for sale" in the Company's consolidated financial statements.
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 USA);
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.
40
<PAGE>
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, 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 June 9, 1996, the Company employed 1,014 people, including 283
salespeople, 623 operational employees and 108 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.
41
<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........... 48 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......... 56 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 named Chairman of the Board and Chief Executive Officer
of the Company in June 1994. 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. 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.
42
<PAGE>
JAMES R. BUCH has served as a director of the Company since October 31,
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 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 23,
1996. Mr. Quigley is a founding member of Nassau Capital, L.L.C. 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 its
formation in 1992. 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 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. Promptly following the consummation of the offering, the
Board of Directors will establish an audit committee (the "Audit Committee").
The Audit Committee will be established 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 will initially consist of three
directors, a majority of which shall be independent directors.
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.
Stock Option Committee. Promptly following the consummation of the offering,
the Board of Directors will establish a stock option committee (the "Stock
Option Committee") to determine grants under the Company's Stock Option Plan.
The Stock Option Committee will initially consist of two independent
directors. See "--Stock Option Plan."
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.
43
<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 -- 21,204
David G. Ledlow
Regional Vice President of
Operations................... 85,827 38,472 -- 21,204
</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
($7,342) for life insurance and disability policies covering Mr. Waugaman.
44
<PAGE>
Stock Options Granted in Fiscal 1995
The following table sets forth information concerning individual grants of
stock options made by the Company during the fiscal year ended December 31,
1995 to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
---------------------------------------------------------- ASSUMED ANNUAL RATES OF
NUMBER OF PERCENT OF TOTAL STOCK PRICE APPRECIATION
SECURITIES OPTIONS GRANTED EXERCISE OR FOR OPTION TERM
UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION -----------------------------
NAME OPTIONS GRANTED(#) IN FISCAL YEAR ($/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.......... 21,204 12.9% $.01 2005 $133 $338
David G. Ledlow
Regional Vice President
of Operations.......... 21,204 12.9% $.01 2005 $133 $338
</TABLE>
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.......... -- -- -- 21,204 -- $317,848
David G. Ledlow
Regional Vice President
of Operations.......... -- -- -- 21,204 -- $317,848
</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.
45
<PAGE>
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, 410,400 shares of Common Stock 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
46
<PAGE>
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 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.
47
<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,
L.P.(4)................ 4,726,839 70.2% 233,836 73.1% -- 4,726,839 41.5% -- --
William M. Barnum,
Jr.(4)................. 4,726,839 70.2 233,836 73.1 -- 4,726,839 41.5 -- --
Frederick J. Warren(4).. 4,726,839 70.2 233,836 73.1 -- 4,726,839 41.5 -- --
Christopher A.
Laurence(4)............ -- -- -- -- -- -- -- -- --
Nassau Capital Partners,
L.P.(5)................ 900,657 13.4 50,000 15.6 -- 900,657 7.9 -- --
Martin R. Reid(6)(7).... 270,237 4.0 -- -- 40,398 229,839 2.0 -- --
Douglas A.
Waugaman(6)(7)......... 82,764 1.2 -- -- -- 82,764 * -- --
James R. Buch(6)(8)..... -- -- -- -- -- -- -- -- --
John G. Quigley(5)(6)... 900,657 13.4 50,000 15.6 -- 900,657 7.9 -- --
Ronald Halchishak(6)(8). 7,068 * -- -- -- 7,068 * -- --
David G. Ledlow(6)(8)... 5,985 * -- -- -- 5,985 * -- --
Heller Financial,
Inc.(9)................ 103,626 1.5 5,125 1.6 103,626 -- -- -- --
Thomas R. Lamia(10)..... 118,161 1.8 5,844 1.8 118,161 -- -- -- --
John F. Jastrem(11)..... 78,815 1.2 -- -- 78,815 -- -- -- --
All directors and
executive officers as a
group (9
persons)(4)(5)(8)...... 5,993,550 89.0 283,836 88.8 40,398 5,993,550 52.3 -- --
</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 714,563 shares to be
issued and sold by the Company, 27,161 shares to be sold by Martin R. Reid
and 8,276 shares to be sold by Douglas A. Waugaman.
(3) For purposes of this table, information as to shares of Common Stock
assumes that (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
48
<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
and Mr. Warren 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 disclaims beneficial
ownership of such shares. The Redeemable Preferred Stock owned by Nassau
Capital Partners, L.P. 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. 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 - 11,400 shares; Mr. Halchishak - 28,386 shares; and Mr.
Ledlow - 29,469 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.
49
<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 pursuant to the Services Agreement 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.
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 these leasehold 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 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,
50
<PAGE>
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.
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 shares of Common Stock,
par value $.01 per share and 350,000 shares of preferred stock, par value $.01
per share. As of June 11, 1996, 319,805 shares of Redeemable Preferred Stock
and 6,731,415 shares of Common Stock were issued and outstanding, and 256,044
shares of Common Stock were issuable upon exercise of outstanding options,
44,061 of which are immediately exercisable. 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, 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."
51
<PAGE>
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
110,352 shares of Common Stock of the Company at an exercise price of $3.81
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 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 .
52
<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have outstanding an
aggregate of 11,390,415 shares of Common Stock (12,104,978 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 6,390,399 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 410,400 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 256,044 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
53
<PAGE>
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 each of the Company's other
present stockholders have, 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 Common
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 450,300 shares held by
non-affiliates may be freely tradable and 5,940,099 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."
54
<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.......................................................... 5,000,000
=========
</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 750,000 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 each 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, or file with the Commission any registration statement in respect of
any of the foregoing, 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
55
<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 the Company as of December 31, 1994
and 1995 and for each of the three years in the period ended December 31,
1995, included in this Prospectus and elsewhere in the Registration Statement
have been audited by Ernst & Young LLP, independent auditors as set forth in
their report 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.
56
<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 March 31,
1996 (unaudited)....................................................... F-3
Consolidated Statements of Operations--for the years ended December 31,
1993, 1994 and 1995, and for the three months ended March 31, 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 three months ended March 31, 1995 and 1996
(unaudited)............................................................ F-5
Consolidated Statements of Cash Flows--for the years ended December 31,
1993, 1994 and 1995, and for the three months ended March 31, 1995 and
1996 (unaudited)....................................................... F-6
Notes to Consolidated Financial Statements--December 31, 1995 and March
31, 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................. F-22
Consolidated Statements of Operations--for the years ended December 31,
1992, 1993 and 1994.................................................... F-23
Consolidated Statements of Shareholders' Deficit--for the years ended
December 31, 1992, 1993 and 1994....................................... F-24
Consolidated Statements of Cash Flows--for the years ended December 31,
1992, 1993 and 1994.................................................... F-25
Notes to Consolidated Financial Statements--December 31, 1994........... F-27
Financial Statements of Equipment Rental Supply, Inc.
Report of Independent Auditors.......................................... F-38
Balance Sheets--December 31, 1995 and March 31, 1996 (unaudited)........ F-39
Statements of Operations--For the year ended December 31, 1995, and the
three months ended March 31, 1996 (unaudited).......................... F-40
Statements of Stockholders' Equity--For the year ended December 31,
1995, and the three months ended March 31, 1996 (unaudited)............ F-41
Statements of Cash Flows--For the year ended December 31, 1995, and the
three months ended March 31, 1996 (unaudited).......................... F-42
Notes to Financial Statements--December 31, 1995 and March 31, 1996 (un-
audited)............................................................... F-43
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--May 31, 1993.......................... F-49
</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.
ERNST & YOUNG LLP
Phoenix, Arizona
April 30, 1996, except as to Note 11,
as to which the date is , 1996
The foregoing report is in the form that will be signed upon the completion
of the stock split described in Note 11 to the consolidated financial
statements.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
June 13, 1996
F-2
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------- MARCH 31
1994 1995 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Cash and cash equivalents............ $ 653,000 $ 1,455,000 $ 1,478,000
Accounts receivable, net of allowance
for doubtful accounts of $956,000 in
1994 and $1,791,000 at December 31,
1994 and 1995 respectively and
$2,415,000 at March 31, 1996........ 6,512,000 14,427,000 15,231,000
Other receivables and prepaid
expense............................. 371,000 2,178,000 4,645,000
Parts and supplies inventories, net
of reserve for obsolescence of
$280,000 and $603,000 at December
31, 1994 and 1995 respectively and
$648,000 at March 31, 1996.......... 3,296,000 5,997,000 6,980,000
Assets held for sale (Note 2)........ -- 16,054,000 17,496,000
Deferred taxes (Note 10)............. 1,965,000 7,310,000 7,309,000
Rental equipment, principally
machinery, at cost, net of
accumulated depreciation of
$5,816,000 and $11,747,000 at
December 31, 1994 and 1995
respectively and $13,565,000 at
March 31, 1996 (Notes 5 and 8)...... 24,138,000 52,818,000 72,726,000
Operating property and equipment, at
cost, net (Note 3).................. 5,189,000 10,629,000 12,393,000
Intangible assets, net (Note 4)...... 5,136,000 24,154,000 27,009,000
Other assets, primarily deferred
financing costs, net................ 838,000 2,810,000 3,084,000
----------- ------------ ------------
$48,098,000 $137,832,000 $168,351,000
=========== ============ ============
LIABILITIES, REDEEMABLE PREFERRED
STOCK,AND COMMON STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
Accounts payable..................... $ 4,211,000 $ 10,185,000 $ 18,507,000
Payroll and other accrued expenses... 2,920,000 19,839,000 21,178,000
Payables to related parties.......... 128,000 -- --
Accrued interest payable............. 30,000 771,000 768,000
Income taxes payable (Note 10)....... 488,000 220,000 313,000
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 73,725,000
Obligations under capital leases
(Note 8)............................ 509,000 645,000 381,000
----------- ------------ ------------
Total liabilities.................... 22,888,000 109,385,000 124,687,000
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
March 31, 1996, respectively,
($27,095,000, $28,758,000, and
$36,798,000 aggregate liquidation
preference at December 31, 1994
and 1995 and March 31, 1996,
respectively)..................... 27,861,000 28,401,000 36,455,000
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--11,400,000
Issued and outstanding shares--
5,922,072, 5,380,458, and
6,731,415 at December 31, 1994
and 1995 and March 31, 1996,
respectively.................... 59,000 54,000 67,000
Treasury--855,000 common stock
shares at December 31, 1994....... (523,000) -- --
Additional paid-in capital......... 40,000 28,000 7,402,000
Accumulated deficit................ (1,050,000) (36,000) (260,000)
----------- ------------ ------------
Total common stockholders' equity
(deficit)........................... (1,474,000) 46,000 7,209,000
----------- ------------ ------------
$48,098,000 $137,832,000 $168,351,000
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------------ -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $17,238,000 $27,775,000 $47,170,000 $ 7,578,000 $19,656,000
Sales of parts,
supplies and
equipment............. 8,394,000 14,040,000 18,747,000 4,261,000 7,541,000
----------- ----------- ----------- ----------- -----------
Total revenues.......... 25,632,000 41,815,000 65,917,000 11,839,000 27,197,000
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 11,405,000 16,284,000 27,854,000 4,476,000 12,449,000
Depreciation, equipment
rentals............... 2,161,000 4,020,000 7,691,000 1,317,000 3,633,000
Cost of sales of parts,
supplies and
equipment............. 5,959,000 10,298,000 12,617,000 2,806,000 5,067 000
----------- ----------- ----------- ----------- -----------
Total cost of revenues.. 19,525,000 30,602,000 48,162,000 8,599,000 21,149,000
----------- ----------- ----------- ----------- -----------
Gross profit............ 6,107,000 11,213,000 17,755,000 3,240,000 6,048,000
Selling, general and
administrative expense. 2,683,000 4,747,000 6,421,000 1,097,000 2,734,000
Depreciation and
amortization, excluding
equipment rental
depreciation........... 211,000 504,000 1,186,000 159,000 571,000
Amortization of
intangibles............ 1,854,000 2,078,000 718,000 155,000 561,000
Write-off of
intangibles............ 781,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
Operating income........ 578,000 3,884,000 9,430 000 1,829,000 2,182,000
Interest expense, net... 407,000 731,000 3,314,000 355,000 1,639,000
----------- ----------- ----------- ----------- -----------
Income before income
taxes and extraordinary
item................... 171,000 3,153,000 6,116,000 1,474,000 543,000
Provision for income
taxes (Note 10)........ 465,000 1,177,000 2,401,000 575,000 213,000
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item..... (294,000) 1,976,000 3,715,000 899,000 330,000
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 3,237,000 899,000 330,000
Redeemable preferred
stock accretion........ 1,013,000 1,646,000 1,717,000 420,000 554,000
----------- ----------- ----------- ----------- -----------
Net income (loss)
available to common
stockholders........... $(1,307,000) $ 330,000 $ 1,520,000 $ 479,000 $ (224,000)
=========== =========== =========== =========== ===========
Earnings (loss) per
common and common
equivalent share:
Income (loss) before
extraordinary item.... $ (.18) $ .05 $ .30 $ .07 $ (.03)
Extraordinary item..... -- -- (.07) -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ (.18) $ .05 $ .23 $ .07 $ (.03)
=========== =========== =========== =========== ===========
Weighted average common
and common equivalent
shares................. 7,245,958 6,987,401 6,556,820 6,559,901 6,999,115
=========== =========== =========== =========== ===========
</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
TREASURY TREASURY PAID-IN ACCUMULATED
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 $ -- 5,700,000 $57,000 $ -- $ 40,000 $ (73,000) $ 24,000
Issuance of
preferred stock,
net of issuance
costs of $203,000. 150,018 14,799,000 -- -- -- -- -- -- --
Issuance of common
stock............. -- -- -- 222,072 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 -- 5,922,072 59,000 -- 40,000 (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) 5,922,072 59,000 (523,000) 40,000 (1,050,000) (1,474,000)
Issuance of common
stock............. -- -- -- 353,001 4,000 -- (4,000) -- --
Retirement of
treasury stock.... (11,256) (1,177,000) 1,177,000 (894,615) (9,000) 523,000 (8,000) (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 -- 5,380,458 54,000 -- 28,000 (36,000) 46,000
Issuance of
preferred stock
(unaudited)....... 75,000 7,500,000 -- -- -- -- -- -- --
Issuance of common
stock, net of
issuance costs of
$113,000
(unaudited)....... -- -- -- 1,350,957 13,000 -- 7,374,000 -- 7,387,000
Redeemable
preferred stock
accretion
(unaudited)....... -- 554,000 -- -- -- -- -- (554,000) (554,000)
Net income
(unaudited)....... -- -- -- -- -- -- -- 330,000 330,000
------- ----------- ----------- --------- ------- --------- ---------- ----------- -----------
Balance at March 31,
1996 (unaudited)... 319,805 $36,455,000 $ -- 6,731,415 $67,000 $ -- $7,402,000 $ (260,000) $ 7,209,000
======= =========== =========== ========= ======= ========= ========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31 31
---------------------------------------- -------------------------
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 $ 899,000 $ 330,000
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 1,631,000 4,765,000
Extraordinary item..... -- -- 478,000 -- --
Interest paid in kind.. -- -- 710,000 -- 576,000
Provision for losses
on accounts
receivable............ 484,000 621,000 1,040,000 181,000 330,000
Gain on sale of rental
equipment............. (418,000) (920,000) (1,948,000) (702,000) (1,179,000)
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) (241,000) 233,000
Other receivables and
prepaid expenses.... (438,000) 200,000 (1,182,000) (129,000) (2,435,000)
Cost in excess of net
assets acquired and
other assets........ (155,000) (192,000) 1,351,000 758,000 (778,000)
Parts and supplies
inventories......... (437,000) (469,000) (1,403,000) (537,000) (344,000)
Accounts payable..... 1,252,000 1,599,000 1,866,000 (37,000) 8,323,000
Payroll and other
accrued expenses and
related party
payables............ 162,000 410,000 (1,000,000) 267,000 (82,000)
Accrued interest
payable............. (34,000) (18,000) 737,000 (6,000) (4,000)
Assets held for sale. -- -- 2,652,000 -- (1,442,000)
Income taxes payable. 244,000 211,000 (375,000) (271,000) 94,000
Deferred taxes, net.. 81,000 223,000 132,000 (623,000) 1,000
------------ ------------ ------------ ----------- ------------
Net cash provided by
operating activities... 3,920,000 7,409,000 12,544,000 1,190,000 8,388,000
INVESTING ACTIVITIES
Acquisitions of rental
operations, net of cash
acquired............... (9,741,000) (20,000) (42,057,000) (1,671,000) (11,997,000)
Cash purchases of rental
equipment and operating
property and equipment. (6,618,000) (17,043,000) (23,632,000) (3,917,000) (18,933,000)
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 1,329,000 2,703,000
------------ ------------ ------------ ----------- ------------
Net cash used in
investing activities... (17,828,000) (13,823,000) (61,563,000) (4,259,000) (28,227,000)
FINANCING ACTIVITIES
Proceeds from bank debt. 9,540,000 20,557,000 114,826,000 7,854,000 55,154,000
Payments on bank debt... (9,164,000) (11,125,000) (69,108,000) (4,246,000) (49,815,000)
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) (403,000) (100,000)
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) (49,000) (264,000)
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 -- -- -- 7,387,000
------------ ------------ ------------ ----------- ------------
Net cash provided by
financing activities... 13,568,000 6,500,000 49,821,000 3,156,000 19,862,000
------------ ------------ ------------ ----------- ------------
Net increase (decrease)
in cash and cash
equivalents............ (340,000) 86,000 802,000 87,000 23,000
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 $ 740,000 $ 1,478,000
============ ============ ============ =========== ============
Supplemental disclosure
of cash flow
information
Cash paid for interest.. $ 441,000 $ 749,000 $ 1,863,000 $ 269,000 $ 1,068,000
Cash paid for income
taxes.................. $ 140,000 $ 777,000 $ 1,545,000 $ 479,000 $ 53,000
</TABLE>
See accompanying notes.
F-6
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND MARCH 31, 1996
(THE INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTH PERIODS
ENDED MARCH 31, 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, 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.
Equipment Rental Revenue
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.
Credit Policy
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.
The Company has diversified its customer base by operating rental locations in
eight 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, $141,000 and $178,000 in advertising costs
during the years ended December 31, 1993, 1994, and 1995 and the three months
ended March 31, 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 March 31, 1996 and the
consolidated statements of operations and cash flows for the three-month
periods ended March 31, 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 March
31, 1996, there were no 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 proforma 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 proforma net income per common and common
equivalent share would have been $.42 for the year ended December 31, 1995,
and $.07 for the three months ended March 31, 1996, respectively based upon
8,733,967 and 10,397,309 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>
THREE
MONTHS
YEARS ENDED DECEMBER 31 ENDED
----------------------------------- MARCH 31,
1993 1994 1995 1996
----------- -------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Assets acquired.............. $ 7,893,000 $113,000 $ 50,109,000 $10,524,000
Goodwill and covenants not to
compete..................... 4,418,000 (91,000) 19,513,000 2,894,000
Less: liabilities assumed.... (2,570,000) (2,000) (27,565,000) (1,421,000)
----------- -------- ------------ -----------
Cash purchase price.......... $ 9,741,000 $ 20,000 $ 42,057,000 $11,997,000
=========== ======== ============ ===========
Number of acquisitions....... 2 1 5 3
</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>
YEARS ENDED DECEMBER 31
-------------------------------------- MARCH 31
1993 1994 1995 1996
----------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues.......... $32,825,000 $85,712,000 $104,566,000 $27,453,000
Income (loss) before
non-recurring and
extraordinary items.... (971,000) (2,451,000) 1,802,000 276,000
Net income (loss)....... (971,000) (2,451,000) 47,172,000(a) 276,000
Earnings (loss) per
share:
Income (loss) before
non-recurring and
extraordinary items.. (.27) (.59) .01 (.04)
Net income (loss)..... (.27) (.59) 6.44(a) (.04)
</TABLE>
(a) Net income in 1995 includes non-recurring and extraordinary items related
to Holdings' prepackaged bankruptcy of $45,170,000 ($6.40 per share),
including a gain on extinguishment of debt of $52,079,000 and charges for
fresh start accounting adjustment and reorganization items of $6,909,000.
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 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 March 31, 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 three months ended March 31, 1996 was
$172,000 which included allocated interest expense of $286,000 and gain on
disposal of assets of $460,000, and was charged to the accrual.
3. OPERATING PROPERTY AND EQUIPMENT
Operating property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------- MARCH 31
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Vehicles, machinery and equipment........ $2,844,000 $ 7,010,000 $ 8,769,000
Leasehold improvements................... 332,000 1,284,000 1,403,000
Furniture, fixtures and computer
equipment............................... 1,575,000 2,663,000 2,927,000
Land and building........................ 1,059,000 1,634,000 1,634,000
---------- ----------- -----------
Total.................................... 5,810,000 12,591,000 14,733,000
Less: accumulated depreciation and
amortization............................ 621,000 1,962,000 2,340,000
---------- ----------- -----------
$5,189,000 $10,629,000 $12,393,000
========== =========== ===========
</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
---------------------- MARCH 31
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Covenants not to compete................. $ 350,000 $ 141,000 $ 929,000
Goodwill................................. 5,313,000 24,685,000 27,080,000
---------- ----------- -----------
Total.................................... 5,663,000 24,826,000 28,009,000
Less: accumulated amortization........... 527,000 672,000 1,000,000
---------- ----------- -----------
$5,136,000 $24,154,000 $27,009,000
========== =========== ===========
</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
----------------------- MARCH 31
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 monthly,
or Eurodollar rate plus 3%, due on de-
mand, at the Company's option, princi-
pal due September 12, 1998. The inter-
est rate in effect at December 31,
1995 was 8.9% and at March 31, 1996
was 8.7%.............................. $ -- $56,042,000 $61,381,000
$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 11,286,000
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............... 588,000 393,000 390,000
Equipment contracts payable, interest
at 7-11%, payable in various monthly
installments through May 1999,
collateralized by equipment........... 1,131,000 765,000 668,000
----------- ----------- -----------
$12,243,000 $67,910,000 $73,725,000
=========== =========== ===========
</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 March 31, 1996, were
$56,042,000 and $61,381,000 with approximately $6,815,000 and $12,218,000
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 March 31, 1996, the Company was in compliance with the covenants
related to the Revolver.
Certain subsidiaries of the Company are subject to the Revolver agreement
which limit cash dividends and loans to RSC. At December 31, 1995 and March
31, 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 110,352 shares of common stock at a purchase price
of $3.81 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 March 31, 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. REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
Redeemable 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 350,000 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 March 31, 1996, 244,805
and 319,805, respectively shares of Series A preferred stock. The 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 preferred stock
is being recorded through periodic accretions.
The 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 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 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 preferred stockholders of the full preferential
amounts, the common stockholders are entitled to all remaining assets of the
Company to be distributed. The cumulative 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 855,000 shares of
common stock at $1 per share and 471,447 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 (855,000) 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 39,615 shares of outstanding unvested
stock of the former president at $.01 per share which was subsequently
canceled.
At December 31, 1995 and March 31, 1996, there were 183,397 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
410,400. 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 December 31, 1995 and 1996 if the employee
and the Company achieve certain performance targets, as determined by the
Company's option committee.
At April 1, 1996, 154,356 shares of common stock were reserved for issuance,
pursuant to the Stock Option Plan. At December 31, 1995 and April 1, 1996,
256,044 options were outstanding at exercise prices ranging from $.01 to
$11.14, of which no options were exercisable at December 31, 1995 and 44,061
options were exercisable at April 1, 1996.
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 three months ended March 31, 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, $260,000 and $644,000 for the years ended December 31, 1993, 1994
and 1995 and the three months ended March 31, 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 $2,926,000, 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 March 31, 1996, the Company was obligated, under
noncancellable purchase commitments, to purchase $8,938,000 and $7,117,000,
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 operating results or
financial position.
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 $252,000 for the three months ended
March 31, 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 three
months ended March 31, 1995, rerent revenue received by the Company from
Holdings was $111,000, $230,000, $72,000 and $17,000, respectively, and rerent
expense paid by the Company to Holdings was $151,000, $39,000, $27,000, and
$6,000, 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 three months ended
March 31, 1995 and 1996 totaled $203,000, $0, $691,000, $0 and $213,000,
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
three months ended March 31, 1995 and 1996 totaled $39,000, $235,000,
$235,000, $59,000 and $59,000, 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 April 1, 1996, the Company granted 77,520 options to purchase common
stock of the Company at $11.14 per share pursuant to the Stock Option Plan.
On , 1996, the Company's Board of Directors increased the
authorized number of shares of common stock, declared a 57-for-one stock split
of the common stock, made conforming adjustments on the terms of all
outstanding common stock equivalents and authorized a new class of preferred
stock. 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
--------------------------
1993 1994
------------ ------------
<S> <C> <C>
ASSETS (NOTE 3)
Cash and cash equivalents (Note 1)................. $ 599,000 $ 3,183,000
Accounts receivable, net of $1,097,000 in 1993 and
$1,352,000 in 1994 allowance for doubtful
accounts.......................................... 9,025,000 9,145,000
Other receivables.................................. 164,000 316,000
Receivables from related parties (Note 7).......... 220,000 138,000
Parts and supplies inventories (Note 1)............ 1,453,000 1,180,000
Prepaid expenses................................... 609,000 585,000
Rental equipment, principally machinery, at cost,
net of accumulated depreciation of $32,515,000 in
1993 and $32,576,000 in 1994 (Notes 1, 3 and 6)... 33,027,000 28,277,000
Operating property and equipment, at cost, net of
accumulated depreciation of $3,505,000 in 1993 and
$3,856,000 in 1994 (Notes 1 and 3)................ 3,931,000 3,067,000
Goodwill, net of accumulated amortization of
$724,000 in 1993 and $869,000 in 1994 (Note 1).... 3,646,000 3,501,000
Other assets, net (Notes 1 and 6).................. 3,830,000 3,001,000
------------ ------------
$ 56,504,000 $ 52,393,000
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable................................... $ 3,369,000 $ 2,720,000
Unfunded disbursements............................. 1,214,000 1,635,000
Payroll and other accrued expenses................. 7,240,000 8,804,000
Accrued interest payable........................... 763,000 5,398,000
Income taxes payable (Note 9)...................... 230,000 99,000
Deferred taxes based on income (Note 9)............ 425,000 375,000
Obligations under capital leases (Note 6).......... 990,000 685,000
Senior Notes....................................... 77,566,000 77,618,000
Senior secured borrowings (Note 3)................. 5,839,000 5,058,000
------------ ------------
Total liabilities.................................. 97,636,000 102,392,000
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--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.................................... 1,000 1,000
Additional paid-in capital........................ 724,000 724,000
Accumulated deficit............................... (44,857,000) (53,724,000)
------------ ------------
Total shareholders' deficit........................ (41,132,000) (49,999,000)
------------ ------------
$ 56,504,000 $ 52,393,000
============ ============
</TABLE>
See accompanying notes.
F-22
<PAGE>
ACME HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1992 1993 1994
----------- ------------ -----------
<S> <C> <C> <C>
Revenues:
Equipment rentals (Note 1)............ $58,423,000 $ 55,504,000 $57,444,000
Sales of parts, supplies and used
equipment............................ 10,166,000 7,985,000 10,890,000
----------- ------------ -----------
Total revenues......................... 68,589,000 63,489,000 68,334,000
Costs and expenses:
Operating expenses.................... 36,134,000 40,454,000 37,912,000
Cost of sales of parts, supplies and
used equipment....................... 7,074,000 6,087,000 8,188,000
General and administrative expense.... 7,106,000 7,338,000 11,180,000
Depreciation and amortization expense. 10,494,000 11,347,000 9,933,000
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
----------- ------------ -----------
Operating income (loss)................ 7,781,000 (4,504,000) 1,121,000
Interest expense....................... 8,422,000 9,279,000 9,927,000
----------- ------------ -----------
Loss before income taxes............... (641,000) (13,783,000) (8,806,000)
Provision for income taxes (Note 9).... 427,000 274,000 61,000
----------- ------------ -----------
Net loss............................... $(1,068,000) $(14,057,000) $(8,867,000)
=========== ============ ===========
</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)
========= ========== ======= ====== ======== ============ ============
</TABLE>
See accompanying notes.
F-24
<PAGE>
ACME HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1992 1993 1994
----------- ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................ $(1,068,000) $(14,057,000) $(8,867,000)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization..... 10,327,000 11,394,000 9,985,000
Interest payable financed through
borrowings....................... 2,648,000 421,000 --
Provision for doubtful accounts... 726,000 1,252,000 816,000
(Gain) loss on sale of equipment.. (409,000) 1,666,000 (679,000)
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)
Decrease in income tax refund
receivable..................... 211,000 -- --
Increase in other and related
party receivables.............. (153,000) (52,000) (70,000)
(Increase) decrease in parts and
supplies inventories........... (201,000) 367,000 273,000
(Increase) decrease in prepaid
expenses....................... (115,000) (97,000) 24,000
(Increase) decrease in other
assets......................... 37,000 (97,000) 259,000
Increase (decrease) in accounts
payable and unfunded
disbursements.................. (405,000) 83,000 (228,000)
Increase (decrease) in payroll
and other accrued expenses..... (1,205,000) 3,042,000 1,564,000
Increase (decrease) in accrued
interest payable............... 1,219,000 (1,066,000) 4,635,000
Increase (decrease) in income
taxes payable.................. 349,000 (119,000) (131,000)
----------- ------------- ------------
Net cash provided by operating
activities......................... 9,887,000 3,091,000 6,595,000
INVESTING ACTIVITIES
Proceeds from sale of rental
equipment and operating plant and
equipment.......................... 1,500,000 2,194,000 5,122,000
Cash purchases of rental equipment
and operating plant and equipment.. (3,287,000) (4,219,000) (5,653,000)
Financed purchases of rental
equipment and operating equipment.. (3,163,000) (3,789,000) (2,394,000)
----------- ------------- ------------
Net cash used in investing
activities......................... (4,950,000) (5,814,000) (2,925,000)
</TABLE>
See accompanying notes.
F-25
<PAGE>
ACME HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Borrowings under revolving facility.. $ 71,325,000 $ 40,238,000 $ 55,078,000
Payments under revolving facility.... (71,840,000) (53,336,000) (55,952,000)
Proceeds from secured borrowings..... 3,015,000 2,765,000 2,242,000
Payments on secured borrowings....... (9,387,000) (28,664,000) (2,149,000)
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
Payments on capital lease
obligations......................... (324,000) (648,000) (457,000)
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)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................... 196,000 (702,000) 2,584,000
Cash and cash equivalents at
beginning of year................... 1,105,000 1,301,000 599,000
------------ ------------ ------------
Cash and cash equivalents at end of
year................................ $ 1,301,000 $ 599,000 $ 3,183,000
============ ============ ============
</TABLE>
See accompanying notes.
F-26
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Operations
In 1992, 1993 and 1994, Holdings had operating income (loss) of $7,781,000,
($4,504,000) and $1,121,000 and net loss of $1,068,000, $14,057,000 and
$8,867,000, respectively. The losses are primarily attributable to the
interest expense associated with Holdings' debt level. The 1994 results
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, and has not made, the interest payment on the Senior
Notes in the amount of $4,582,500 which was due December 1, 1994. The failure
to make such a payment constitutes an event of default under the terms of the
indenture to the Senior Notes (the Indenture) (Note 3).
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, 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 interest payment on the Senior Notes constitutes an event of
default under the terms of the New Credit Facility. Currently, Citicorp is
making discretionary advances to Holdings under the terms of the New Credit
Facility. No assurances can be given, however, that Citicorp will 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). Currently,
Holdings is in discussions with an unofficial committee representing holders
of the Senior Notes relative to a possible recapitalization of the Senior
Notes.
F-27
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Equipment Rental Revenue
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.
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.
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 in 1992, 1993 and 1994 is $175,000,
$167,000 and $145,000, 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 at December 31:
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Recapitalization and deferred finance costs, net of
accumulated amortization of $277,000 in 1993 and
$726,000 in 1994..................................... $2,813,000 $2,364,000
Noncompetition and consulting agreements, net of
accumulated amortization of $1,951,000 in 1993....... 121,000 --
Other, primarily deposits............................. 896,000 637,000
---------- ----------
$3,830,000 $3,001,000
========== ==========
</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 in 1992, 1993 and 1994 is
$919,000, $1,217,000 and $574,000, respectively, of other assets amortization
expense.
F-28
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................. $4,550,000 $9,924,000 $5,240,000
Income taxes............................. 160,000 282,000 381,000
</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, the restructuring
reserve was $255,000 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 at December 31:
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Bank debt under revolving advances.................. $ 1,919,000 $ 1,045,000
Equipment contracts payable......................... 3,920,000 4,013,000
----------- -----------
Senior secured borrowings........................... 5,839,000 5,058,000
11.75% senior notes due 2000........................ 77,566,000 77,618,000
----------- -----------
$83,405,000 $82,676,000
=========== ===========
</TABLE>
F-29
<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), at Holdings' option. As
of December 31, 1994, availability on the revolving facility and principal
borrowings outstanding were $5,027,000 and $1,045,000, respectively.
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 at December 31, 1994.
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, 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 March 30,
1995, Citicorp is making discretionary advances under the New Credit Facility.
Holdings cannot be assured that Citicorp will continue to 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-30
<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
F-31
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
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.
In August 1994, Holdings retained 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.
Holdings is currently in discussions with an unofficial committee representing
holders of the Senior Notes regarding a possible recapitalization of the
Senior Notes. No assurances can be given that any agreement regarding a
recapitalization will be reached.
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
F-32
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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 in 1992,
1993 or 1994.
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.
F-33
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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 and
$4,380,000 for the years ended December 31, 1992, 1993 and 1994, 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.
Purchase Commitments
As of December 31, 1994, Holdings had commitments to purchase approximately
$2,395,000 of equipment.
F-34
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 and $121,000 for the
years ended December 31, 1992, 1993 and 1994, 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 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. 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 and $1,496,000 for the years ended December 31, 1992,
1993 and 1994, 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, rerent revenue received by Holdings from AAC
was $13,000, $151,000 and $39,000, respectively, and rerent expense paid by
Holdings to AAC was $37,000, $111,000 and $230,000, 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
F-35
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
F-36
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 as of December
31, 1994 are as follows:
<TABLE>
<CAPTION>
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>
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>
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-37
<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-38
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash................................................... $ 392,000 $ 275,000
Accounts receivable, net of allowance for doubtful
accounts of $24,000 at December 31, 1995 and $24,000
at March 31, 1996..................................... 286,000 375,000
Other receivables and prepaid expenses................. 5,000 5,000
Parts and supplies inventories, net of reserve for
obsolescence of $32,000 at December 31, 1995, and
$32,000 at March 31, 1996............................. 573,000 558,000
Rental equipment, principally machinery, at cost, net
of accumulated depreciation of $1,480,000 at December
31, 1995 and $1,432,000 at March 31, 1996............. 1,024,000 944,000
Operating property and equipment, at cost, net......... 367,000 358,000
Other assets, principally cash surrender value of
officer life insurance, net of related loans.......... 440,000 440,000
---------- ----------
$3,087,000 $2,955,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable....................................... $ 217,000 $ 165,000
Payroll and other accrued expenses..................... 60,000 70,000
Income taxes payable................................... 203,000 124,000
Deferred taxes......................................... 23,000 23,000
Note payable to stockholder............................ 100,000 --
Notes and contracts payable............................ 348,000 273,000
---------- ----------
Total liabilities 951,000 655,000
Commitments
Stockholders' Equity:
Common stock, $100 par value
Authorized shares--200...............................
Issued and outstanding shares--100................... 10,000 10,000
Retained earnings..................................... 2,126,000 2,290,000
---------- ----------
Total stockholders' equity............................. 2,136,000 2,300,000
---------- ----------
$3,087,000 $2,955,000
========== ==========
</TABLE>
See accompanying notes.
F-39
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31
DECEMBER 31 -------------------
1995 1995 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Equipment rentals............................. $1,255,000 $ 288,000 $ 355,000
Sales of parts, supplies and used equipment... 2,270,000 615,000 579,000
---------- --------- ---------
Total revenues................................. 3,525,000 903,000 934,000
Cost of revenues:
Cost of equipment rentals, net of equipment
rental depreciation.......................... 771,000 95,000 119,000
Depreciation, equipment rentals............... 350,000 41,000 41,000
Cost of sales of parts, supplies and used
equipment.................................... 1,574,000 431,000 363,000
---------- --------- ---------
Total cost of revenues......................... 2,695,000 567,000 523,000
---------- --------- ---------
Gross profit................................... 830,000 336,000 411,000
Selling, general and administrative expense.... 277,000 127,000 129,000
Depreciation and amortization, nonrental....... 58,000 6,000 6,000
---------- --------- ---------
Operating income............................... 495,000 203,000 276,000
Interest expense, net.......................... 24,000 4,000 6,000
---------- --------- ---------
Income before income taxes..................... 471,000 199,000 270,000
Provision for income taxes..................... 200,000 78,000 106,000
---------- --------- ---------
Net income..................................... $ 271,000 $ 121,000 $ 164,000
========== ========= =========
</TABLE>
See accompanying notes.
F-40
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------- RETAINED
SHARES AMOUNT EARNING 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
Net income (unaudited).................... -- -- 164,000 164,000
--- ------- ---------- -----------
Balance at March 31, 1996 (unaudited)..... 100 10,000 2,290,000 2,300,000
=== ======= ========== ===========
</TABLE>
See accompanying notes.
F-41
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31
DECEMBER 31 --------------------
1995 1995 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................. $ 271,000 $ 121,000 $ 164,000
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Depreciation............................... 408,000 47,000 47,000
Provision for losses on accounts
receivable................................ 20,000 -- --
Write-off of uncollectible accounts
receivable................................ (23,000) -- --
Gain on sale of rental equipment........... (25,000) -- (53,000)
Provision for obsolete inventory........... 29,000 -- --
Changes in operating assets and
liabilities:
Accounts receivable....................... 38,000 (79,000) (88,000)
Other receivables and prepaid expenses.... 1,000 -- --
Parts and supplies inventories............ (147,000) (23,000) 14,000
Other assets.............................. (27,000) -- --
Accounts payable.......................... (83,000) (167,000) (53,000)
Payroll and other accrued expenses........ 5,000 (22,000) 12,000
Income taxes payable...................... 58,000 (35,000) (79,000)
Deferred taxes, net....................... (3,000) 26,000 --
--------- --------- ---------
Net cash provided (used) by operating
activities................................. 522,000 (132,000) (36,000)
INVESTING ACTIVITIES
Proceeds from the sale of used equipment.... 36,000 -- 132,000
Cash purchases of rental equipment and
operating property and equipment........... (756,000) (46,000) (38,000)
--------- --------- ---------
Net cash used for investing activities...... (720,000) (46,000) 94,000
FINANCING ACTIVITIES
Proceeds from notes and contracts payable... 735,000 274,000 --
Principal repayments of notes and contracts
payable.................................... (356,000) -- (175,000)
--------- --------- ---------
Net cash provided (used) by financing
activities................................. 379,000 274,000 (175,000)
--------- --------- ---------
Net increase (decrease) in cash............. 181,000 96,000 (117,000)
Cash at beginning of period................. 211,000 211,000 392,000
--------- --------- ---------
Cash at end of period....................... $ 392,000 $ 307,000 $ 275,000
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest...................... $ 28,000 $ 3,000 $ 7,000
Cash paid for income taxes.................. $ 146,000 $ 15,000 $ 185,000
</TABLE>
See accompanying notes.
F-42
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND MARCH 31, 1996
(THE INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
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.
Equipment Rental Revenue
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.
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 ERSs 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-43
<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 and $5,000 and $2,000 for the three
months ended March 31, 1995 and 1996, respectively.
Impact of Recently Issued Accounting Standards
In March 1995, the FASB issued Statement 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. ERS has adopted Statement
No. 121 in the first quarter of 1996 and, based on current circumstances, the
effect of adoption was not material.
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.
Interim Financial Statements
The accompanying balance sheet at March 31, 1996 and the statements of
operations and cash flows for the three-month periods ended March 31, 1995 and
1996 are unaudited and have been prepared on the same basis as the audited
financial statements included herein. In the opinion of management, such
unaudited financial statements include all adjustments necessary to present
fairly the information set forth therein. These adjustments consist of normal
recurring adjustments. The results of operations for such interim period are
not necessarily indicative of results for the full year.
F-44
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. OPERATING PROPERTY AND EQUIPMENT
Operating property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Vehicles........................................... $164,000 $161,000
Furniture, fixtures and computer equipment......... 106,000 106,000
Land and building.................................. 444,000 444,000
-------- --------
Total.......................................... 714,000 711,000
Less accumulated depreciation and amortization..... 347,000 353,000
-------- --------
$367,000 358,000
======== ========
</TABLE>
3. NOTES AND CONTRACTS PAYABLE
Notes and contracts payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Notes payable to bank, interest at 8.75%-9.75%,
secured by rental equipment, due in monthly
installments of $22,000, including interest...... $302,000 $241,000
Installment purchase contract, noninterest
bearing, secured by rental equipment............. 46,000 32,000
--------- --------
$ 348,000 273,000
========= ========
</TABLE>
The aggregate annual maturities of notes and contracts payable as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
1996.............................................................. $191,000
1997.............................................................. 48,000
1998.............................................................. 52,000
1999.............................................................. 57,000
--------
$348,000
========
</TABLE>
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 and the
three months ended March 31, 1995 and 1996, the total amount of sales to these
commonly controlled entities were $144,000, $55,000 and $175,000,
respectively.
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 and the three months ended March 31, 1995 and 1996,
ERS received rental income of $9,000, $2,000 and $3,000, respectively 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.
F-45
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 agreed to sell substantially all of its assets and
transfer certain liabilities to Rental Service Corporation for approximately
$2,650,000, of which $2,177,000 was in cash with the remainder to be paid over
3 years.
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
FOR THE 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, net of 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, nonrental............................................. 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.
Equipment Rental Revenue
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.
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>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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.................................................................. 35
Management................................................................ 42
Principal and Selling Stockholders........................................ 48
Certain Relationships and Related Transactions............................ 50
Description of Capital Stock.............................................. 51
Shares Available for Future Sale.......................................... 53
Underwriting.............................................................. 55
Legal Matters............................................................. 56
Experts................................................................... 56
Additional Information.................................................... 56
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[LOGO OF 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.................................................. *
Nasdaq National Market Listing Fees.............................. *
Accounting Fees and Expenses..................................... *
Legal Fees and Expenses (other than Blue Sky).................... *
Blue Sky Fees and Expenses....................................... *
Printing and Engraving Expenses.................................. *
Transfer Agent Fees and Expenses................................. *
Miscellaneous Expenses........................................... *
-------
Total.......................................................... *
=======
</TABLE>
- --------
*To be completed by amendment.
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 Eleventh 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 57 for 1 stock split to be effective , 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 Series A 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 Series A 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 Series A 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.
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 $215.75 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 Form of 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>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
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 Regional Managers.
10.18 Form of Amended Incentive Stock Option Agreement for Regional
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
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-5).
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
(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.
II-4
<PAGE>
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 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Scottsdale, State of Arizona, on June 13, 1996.
RENTAL SERVICE CORPORATION
By: /s/ Martin R. Reid
_____________________________________
Martin R. Reid
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Martin R.
Reid and Douglas A. Waugaman and each or any of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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>
/s/ Martin R. Reid Chairman of the Board and June 13, 1996
____________________________________ Chief Executive Officer
Martin R. Reid (Principal Executive Officer)
/s/ Douglas A. Waugaman Vice President, Chief June 13, 1996
____________________________________ Financial Officer, Secretary
Douglas A. Waugaman and Treasurer (Principal
Financial and Accounting
Officer)
/s/ William M. Barnum, Jr. Director June 13, 1996
____________________________________
William M. Barnum, Jr.
/s/ James R. Buch Director June 13, 1996
____________________________________
James R. Buch
/s/ Christopher A. Laurence Director June 13, 1996
____________________________________
Christopher A. Laurence
/s/ John G. Quigley Director June 13, 1996
____________________________________
John G. Quigley
/s/ Frederick J. Warren Director June 13, 1996
____________________________________
Frederick J. Warren
</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 , 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.
ERNST & YOUNG LLP
Phoenix, Arizona
April 30, 1996, except for Note 3
to Schedule I, as to which the
date is , 1996
The foregoing report is in the form that will be signed upon the completion
of the stock split described in Note 3 to Schedule I.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
June 13, 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, in which $56,042,000 is outstanding at December 31, 1995.
3. SUBSEQUENT EVENT
On June , 1996, the Company's Board of Directors increased the authorized
number of shares of common and preferred stock, declared a 57-for-one stock
split of the common stock, made conforming adjustments on the terms of all
outstanding common stock equivalents and authorized a new class of preferred
stock. 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 Form of 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 Regional
Managers.
10.18 Form of Amended Incentive Stock Option Agreement for
Regional 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
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-5).
27.1 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
<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 ______________ ( ),
consisting of _________
<PAGE>
( ) shares of Common Stock, par value $.01 per share, and _________ ( )
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 _______ ( )
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 _______ 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 holders of record of the Cumulative Preferred Stock as they
shall appear on the stock register
2
<PAGE>
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").
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
3
<PAGE>
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 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.
4
<PAGE>
(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 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
5
<PAGE>
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.
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.
6
<PAGE>
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 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.
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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.
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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 _____ day of June, 1996.
RENTAL SERVICE CORPORATION
By:
---------------------------------
Martin R. Reid
Chief Executive Officer
ATTEST:
By:
-----------------------------
Douglas A. Waugaman
Secretary
9
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EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
of
RENTAL SERVICE CORPORATION
<PAGE>
AMENDED AND RESTATED
BYLAWS
of
RENTAL SERVICE CORPORATION
a Delaware Corporation
ARTICLE I
OFFICES
Section 1.01 REGISTERED OFFICE. The registered office of Rental
Service Corporation (hereinafter called the "Corporation") shall be at such
place in the State of Delaware as shall be designated by the Board of Directors
(hereinafter called the "Board").
Section 1.02 PRINCIPAL OFFICE. The principal office for the
transaction of the business of the Corporation shall be at such location, within
or without the State of Delaware, as shall be designated by the Board.
Section 1.03 OTHER OFFICES. The Corporation may also have an office or
offices at such other place or places either within or without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of
the Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
Section 2.02 SPECIAL MEETINGS. Except as otherwise required by law and
subject to any provision fixed by, or pursuant to, the Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation"), special
meetings of the stockholders of the Corporation for any purpose or purposes may
be called at any time by the Board pursuant to a resolution approved by a
majority of the entire Board, or by the Chairman of the Board or the Chief
Executive Officer of the Corporation or by a committee of the Board (duly
authorized and empowered by the Board to call such meetings), but such special
meetings shall not be called by any other person or persons.
Section 2.03 PLACE OF MEETINGS. All meetings of the stockholders shall
be held at such places, within or without the State of Delaware, as may from
time to time be designated by the person or persons calling the respective
meetings and specified in the respective notices or waivers of notice thereof.
In the absence of any such designation, stockholders' meetings shall be held at
the principal executive offices of the Corporation.
<PAGE>
Section 2.04 NOTICE OF MEETINGS. Except as otherwise required by law,
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of record entitled to vote at such meeting by
delivering a typewritten or printed notice thereof to him personally, or by
depositing such notice in the United States mail, in a postage prepaid envelope,
directed to him at his address furnished by him to the Secretary of the
Corporation for such purpose or, if he shall not have furnished to the Secretary
his address for such purpose, then at his address last known to the Secretary,
or by transmitting a notice thereof to him at such address by telegraph, cable
or wireless. Except as otherwise expressly required by law, no publication of
any notice of a meeting of the stockholders shall be required. Every notice of a
meeting of the stockholders shall state the place, date and hour of the meeting,
and, in the case of a special meeting, shall also state the purpose or purposes
for which the meeting is called. Except as otherwise expressly required by law,
notice of any adjourned meeting of the stockholders need not be given if the
time and place thereof are announced at the meeting at which the adjournment is
taken.
Section 2.05 QUORUM. The holders of record of a majority in voting
interest of the shares of stock of the Corporation entitled to be voted, present
in person or by proxy, shall constitute a quorum for the transaction of business
at any meeting of the stockholders of the Corporation or any adjournment
thereof. The stockholders present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. In the
absence of a quorum at any meeting or any adjournment thereof, a majority in
voting interest of the stockholders present in person or by proxy and entitled
to vote thereat or, in the absence therefrom of all the stockholders, a majority
of the voting stock represented in person or by proxy may adjourn such meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present or represented. At any such adjourned meeting at which
a quorum is present or represented any business may be transacted which might
have been transacted at the meeting as originally called. If the adjournment if
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote thereat.
Section 2.06 VOTING.
(a) At each meeting of the stockholders, each stockholder shall
be entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation which has voting rights on the matter in question,
unless the question is one upon which by express provision of Statute or the
Certificate of Incorporation or these Bylaws, a different vote is required, in
which case such express provisions shall govern and control the decision of such
question.
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Section 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the entire duration thereof, and may be inspected by any stockholder who
is present.
Section 2.08 INSPECTOR OF ELECTION. If at any meeting of the
stockholders a vote by written ballot shall be taken on any question, the
chairman of such meeting may appoint an inspector or inspectors of election to
act with respect to such vote. Each inspector so appointed shall first subscribe
an oath faithfully to execute the duties of an inspector at such meeting with
strict impartiality and according to the best of his ability. Such inspectors
shall decide upon the qualification of the voters and shall report the number of
shares represented at the meeting and entitled to vote on such question, shall
conduct and accept the votes, and, when the voting is completed, shall ascertain
and report the number of shares voted respectively for and against the question.
Reports of the inspectors shall be in writing and subscribed and delivered by
them to the Secretary of the Corporation. Inspectors need not be stockholders of
the Corporation, and any officer of the Corporation may be an inspector on any
question other than a vote for or against a proposal in which he shall have a
material interest.
Section 2.09 ADVANCE NOTICE OF STOCKHOLDER PROPOSALS BEFORE ANY
MEETING OF STOCKHOLDERS. To be properly brought before any meeting of
stockholders, business must be specified in the notice of meeting (or any
supplement or amendment thereto) given by or at the direction of the Board,
otherwise properly brought before the meeting by or at the direction of the
Board of Directors or otherwise properly brought before the meeting by a
stockholder. In addition, for business to be properly brought before any meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to, or mailed and received at, the principal executive
offices of the Corporation not less than fifty (50) days nor more than seventy-
five (75) days prior to the annual meeting; provided, however, that in the event
less than sixty (60) days' notice or prior public disclosure of the date of the
annual meeting is given or made to stockholders, notice by the stockholder to be
timely must be received not later than the close of business on the tenth (10th)
day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made, whichever first occurs. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought and the reasons for conducting such
business at the annual meeting; (ii) the name and record address of the
stockholder proposing such business and any other stockholders known by such
stockholder to be supporting such proposal; (iii) the class, series and number
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of shares of the Corporation which are beneficially owned by the stockholder and
by any other stockholders known by such stockholder to be supporting such
proposal; and (iv) any material or financial interest of the stockholder in such
business. Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2.09. The Chairman of the Board or other
presiding officer of the annual meeting shall, if the facts warrant, determine
and declare at any meeting of the stockholders that business was not properly
brought before the meeting in accordance with the provisions of this Section
2.09, and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
Section 2.10 STOCKHOLDER ACTION WITHOUT MEETINGS. Unless otherwise
provided in the Certificate of Incorporation, any action required by the General
Corporation Law of Delaware to be taken at any annual or special meeting of the
stockholders, or any action which may be taken at any annual or special meeting
of the stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing setting forth the action so taken shall
be signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 GENERAL POWERS. The property, business and affairs of the
Corporation shall be managed by or under the direction of the Board, which may
exercise all of the powers of the Corporation, except such as are by the
Certificate of Incorporation, by these Bylaws or by law conferred upon or
reserved to the stockholders.
Section 3.02 NUMBER. The authorized number of the directors of the
Corporation shall be established from time to time by the Board. Until changed
by an amendment to this Section 3.02, the authorized number of directors of the
Corporation shall be six (6). Directors need not be stockholders of the
Corporation.
Section 3.03 ELECTION OF DIRECTORS. The directors shall be elected by
the stockholders of the Corporation, and at each election the persons receiving
the greatest number of votes, up to the number of directors then to be elected,
shall be the persons then elected. The directors shall be elected at the annual
meeting of stockholders, except as provided in Section 3.06 of this Article, and
each director elected shall hold office until his successor is elected and
qualified; provided, however, that unless otherwise restricted by the
Certificate of Incorporation or by law, any director or the entire Board may be
removed, with or without cause, from the Board at any meeting of stockholders by
a majority of the stock represented and entitled to vote thereat.
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Section 3.04 NOMINATION OF DIRECTORS. Nomination of persons for
election to the Board, other than those made by or at the direction of the Board
or by any nominating committee or person appointed by the Board, shall be made
by a stockholder only if timely written notice of such nomination or nominations
has been given to the Secretary of the Corporation. To be timely, such notice
shall be delivered to or mailed and received at the principal executive offices
of the Corporation not less than fifty (50) days nor more than seventy-five (75)
days prior to the annual meeting; provided, however, that in the event that less
than sixty (60) days' notice or prior public disclosure of the date of the
annual meeting is given or made to stockholders, notice by the stockholder to be
timely must be received not later than the close of business on the tenth (10th)
day following the day of which such notice of the date of the annual meeting was
mailed or such public disclosure was made. Each such notice to the Secretary
shall set forth: (i) the name and address of record of the stockholder who
intends to make the nomination or nominations; (ii) the class and number of
shares of capital stock of the Corporation that are beneficially owned by the
stockholder and a representation that the stockholder intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice; (iii) the name, age, business address and residence address, and
principal occupation or employment of each nominee; (iv) the class and number of
shares of capital stock of the Corporation that are beneficially owned by each
nominee; (v) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons pursuant to which
the nomination or nominations are to be made by the stockholder; (vi) such other
information regarding each nominee as would be required to be disclosed and
included in a proxy statement pursuant to the proxy rules then in effect
promulgated by the Securities Exchange Act of 1934, as amended; and (vii) the
consent of each nominee to serve as a director of the Corporation if so elected.
The Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as a director of the Corporation.
The Board may reject any nomination by a stockholder not timely made
or otherwise not in accordance with the terms of this Section 3.04. If the Board
determines that the information provided in the stockholder's notice does not
satisfy the informational requirements of this Section 3.04 in any material
respect, the Secretary of the Corporation shall promptly notify such stockholder
of the deficiency in writing. The stockholder shall have an opportunity to cure
the deficiency by providing additional information to the Secretary within such
period of time, not to exceed ten (10) days from the date such deficiency notice
is given to the stockholder, as the Board shall determine. If the deficiency is
not cured within such period, or if the Board of Directors reasonably determines
that the additional information provided by the stockholder, together with the
information previously provided, does not satisfy the requirements of this
Section 3.04 in any material respect, then the Board may reject such
stockholder's nomination. The Secretary of the Corporation shall notify a
stockholder in writing whether his nomination has been made in accordance with
the requirements of this Section 3.04.
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Section 3.05 RESIGNATIONS. Any director of the Corporation may resign
at any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time is not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 3.06 VACANCIES. Except as otherwise provided in the
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors, or
any other cause, may be filled by vote of the majority of the remaining
directors, although less than a quorum, or by a sole remaining director. Each
director so chosen to fill a vacancy shall hold office until the next annual
election of directors and his successor shall have been elected and shall
qualify or until he shall resign or shall have been removed. If there are no
directors in office, then an election of directors may be held in the manner
prescribed by statute. No reduction of the authorized number of directors shall
have the effect of removing any director prior to the expiration of this term of
office. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding have the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
Upon the resignation of one or more directors from the Board,
effective at future date, a majority of the directors then in office, including
those who have so resigned, shall have the power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective, and each director so chosen shall hold office as
provided hereinabove in the filling of other vacancies.
Section 3.07 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING. The Board
may hold any of its meetings at such place or places within or without the State
of Delaware as the Board may from time to time by resolution designate or as
shall be designated by the person or persons calling the meeting or in the
notice or waiver of notice of any such meeting. Directors may participate in any
regular or special meeting of the Board, or any committee designated by the
Board, by means of conference telephone or similar communications equipment
pursuant to which all persons participating in the meeting can hear each other,
and such participation shall constitute presence in person at such meeting.
Section 3.08 FIRST MEETING. The Board shall meet as soon as
practicable after each annual election of directors and notice of such first
meeting shall not be required.
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Section 3.09 REGULAR MEETINGS. Regular meetings of the Board may be
held at such times as the Board shall from time to time by resolution determine.
If any day fixed for a meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting shall be held at the same hour and place
on the next succeeding business day which is not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
Section 3.10 SPECIAL MEETINGS. Special meetings of the Board may be
called at any time by the Chief Executive Officer or Chairman of the Board on
forty-eight hours' notice to each director, either personally or by mail or by
telegram; special meetings shall be called by the Secretary in like manner and
on like notice on the written request of two directors unless the Board consists
of only one director, in which case special meetings shall be called by the
Secretary in like manner or on like notice on the written request of the sole
director.
Section 3.11 QUORUM AND ACTION. Except as otherwise provided in these
Bylaws or by law, the presence of a majority of the authorized number of
directors shall be required to constitute a quorum for the transaction of
business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given. If only one
director is authorized, such sole director shall constitute a quorum. The
directors shall act only as a Board, and the individual directors shall have no
power as such.
Section 3.12 ACTION BY CONSENT. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or such committee. Such
action by written consent shall have the same force and effect as the unanimous
vote of such directors.
Section 3.13 COMPENSATION. No stated salary need be paid to directors,
as such, for their services but, as fixed from time to time by resolution of the
Board, the directors may receive directors' fees, compensation and reimbursement
for expenses for attendance at directors' meetings, for serving on committees
and for discharging their duties; provided that nothing herein contained shall
be construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
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Section 3.14 COMMITTEES. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have any power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending these Bylaws; and unless the resolution of the Board expressly so
provides, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger. Any such committee shall keep written minutes of its
meetings and report the same to the Board when required.
In the absence or disqualification of any member of any such
committee, the members thereof present at any meeting and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of such absent or
disqualified member.
A majority of the members, or replacements thereof, of any such
committee shall constitute a quorum for the transaction of business. Every act
or decision done or made by a majority of the members, or replacements thereof,
of any such committee shall be regarded as the act or decision of the entire
committee.
Section 3.15 OFFICERS OF THE BOARD. The Board shall have a Chairman of
the Board and may, at the discretion of the Board, have one or more Vice
Chairmen. The Chairman of the Board and the Vice Chairmen shall be appointed
from time to time by the Board and shall have such powers and duties as shall be
designated by the Board.
ARTICLE IV
OFFICERS
Section 4.01 OFFICERS. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer or a President, a Secretary and
a Treasurer. The Corporation may also have, at the discretion of the Board, one
or more Vice Presidents, one or more Assistant Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers and such other officers
as may be appointed in accordance with the provisions of Section 4.03 of these
Bylaws. One person may hold two or more offices, except that the Secretary may
not also hold the office of President. The salaries of all officers of the
Corporation shall be fixed by the Board.
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Section 4.02 ELECTION. The officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of Section 4.03
or Section 4.05 of these Bylaws, shall be chosen annually by the Board, and each
shall hold his office until he shall resign or shall be removed or otherwise
disqualified to serve, or until his successor shall be elected and qualified.
Section 4.03 SUBORDINATE OFFICERS. The Board may appoint, or may
authorize the Chief Executive Officer to appoint, such other officers as the
business of the Corporation may require, each of whom shall have such authority
and perform such duties as are provided in these Bylaws or as the Board or the
President from time to time may specify, and shall hold office until he shall
resign or shall be removed or otherwise disqualified to serve.
Section 4.04 REMOVAL AND RESIGNATION. Any officer may be removed, with
or without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the Board, or, except in case of an officer chosen
by the Board, by the Chief Executive Officer upon whom such power of removal may
be conferred by the Board. Any officer may resign at any time by giving written
notice to the Board, the Chairman of the Board, the President or the Secretary
of the Corporation. Any such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 4.05 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the Bylaws for the regular appointments to such office.
Section 4.06 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of
the Corporation shall, subject to the control of the Board, have general
supervision, direction and control of the business and affairs of the
Corporation. He shall preside at all meetings of stockholders and the Board. He
shall have the general powers and duties of management usually vested in the
chief executive officer of a corporation, and shall have such other powers and
duties with respect to the administration of the business and affairs of the
Corporation as may from time to time be assigned to him by the Board or as
prescribed by the Bylaws. In the absence or disability of the President, the
Chief Executive Officer, in addition to his assigned duties and powers, shall
perform all the duties of the President and when so acting shall have all the
powers and be subject to all restrictions upon the President.
Section 4.07 PRESIDENT. The President shall exercise and perform such
powers and duties with respect to the administration of the business and affairs
of the Corporation as may from time to time be assigned to him by the Chief
Executive Officer (unless the President is also the Chief Executive Officer) or
by the Board or as is prescribed by the Bylaws. In the absence or disability of
the Chief Executive Officer, the President shall perform all of the duties of
the Chief Executive Officer and when so acting shall have all the powers and be
subject to all the restrictions upon the Chief Executive Officer.
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Section 4.08 VICE PRESIDENT. The Vice President(s), if any, shall
exercise and perform such powers and duties with respect to the administration
of the business and affairs of the Corporation as from time to time may be
assigned to each of them by the President, by the Chief Executive Officer, by
the Board or as is prescribed by the Bylaws. In the absence or disability of the
President, the Vice Presidents, in order of their rank as fixed by the Board, or
if not ranked, the Vice President designated by the Board, shall perform all of
the duties of the President and when so acting shall have all of the powers of
and be subject to all the restrictions upon the President.
Section 4.09 SECRETARY. The Secretary shall keep, or cause to be kept,
a book of minutes at the principal office for the transaction of the business of
the Corporation, or such other place as the Board may order, of all meetings of
directors or stockholders, with the time and place of holding, whether regular
or special, and if special, how authorized and the notice thereof given, the
names of those present at directors' meetings, the number of shares present or
represented at stockholders' meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office
for the transaction of the business of the Corporation or at the office of the
Corporation's transfer agent, a share register, or a duplicate share register,
showing the names of the stockholders and their addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the stockholders and of the Board required by these Bylaws or by law
to be given, and he shall keep the seal of the Corporation in safe custody, and
shall have such other powers and perform such other duties as may be prescribed
by the Board or these Bylaws. If for any reason the Secretary shall fail to give
notice of any special meeting of the Board called by one or more of the persons
identified in Section 3.10 of these Bylaws, or if he shall fail to give notice
of any special meeting of the stockholders called by one or more of the persons
identified in Section 2.02 of these Bylaws, then any such person or persons may
give notice of any such special meeting.
Section 4.10 TREASURER. The Treasurer shall keep and maintain or cause
to be kept and maintained, adequate and correct accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
shares. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a reduction of capital, shall be classified according to source and
shown in a separate account. The books of account at all reasonable times shall
be open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of the Corporation with such depositories as may be designated
by the Board. He shall disburse the funds of the Corporation as may be ordered
by the Board, shall render to the President, to the Chief Executive Officer and
to the directors, whenever they request it, an account of all of his
transactions as Treasurer and of the financial condition of the
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Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board or these Bylaws. If required by the Board, he
shall give the Corporation a bond, in such sum and with such surety or sureties
as shall be satisfactory to the Board, for the faithful performance of his
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
ARTICLE V
SHARES AND THEIR TRANSFER
Section 5.01 CERTIFICATES FOR STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, in such
form as the Board shall prescribe, certifying the number and class of shares of
the stock of the Corporation owned by him. The certificates representing the
shares of such stock shall be numbered in the order in which they shall be
issued and shall be signed in the name of the Corporation by the Chairman of the
Board, the President or a Vice President and by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any or all of the
signatures on the certificates may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon any such certificate shall thereafter have ceased to be such officer,
transfer agent or registrar before such certificate is issued, such certificate
may nevertheless be issued by the Corporation with the same effect as though the
person who signed such certificate, or whose facsimile signature shall have been
placed thereupon, were such officer, transfer agent or registrar at the date of
issue. A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, respectively, and the
respective dates of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be cancelled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been cancelled, except in cases provided
for in Section 5.04 of these Bylaws.
Section 5.02 TRANSFER OF STOCK. Transfer of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a transfer clerk or a
transfer agent appointed as provided in Section 5.03 of these Bylaws, and upon
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon. The person in whose name shares of stock
stand on the books of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation. Whenever any transfer of shares shall be
made for collateral security, and not absolutely, such fact shall be stated
expressly in the entry of transfer if, when the certificate or certificates
shall be presented to the Corporation for transfer, both the transferor and
transferee request the Corporation to do so.
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Section 5.03 REGULATIONS. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. The Board may appoint, or authorize any officer or
officers to appoint, one or more transfer clerks or one or more transfer agents
and one or more registrars, and may require all certificates for stock to bear
the signature or signatures of any of them.
Section 5.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. In
any case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sums as the Board may direct; provided, however, that a
new certificate may be issued without requiring any bond when, in the judgment
of the Board, it is proper to do so.
Section 5.05 RECORD DATE. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of the
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any other change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. If, in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders, the Board shall not fix such a record date, the record date for
determining stockholders for such purpose shall be the close of business on the
day on which the Board shall adopt the resolution relating thereto. A
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of such meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
Section 5.06 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
President or any Vice President and the Secretary or any Assistant Secretary of
this Corporation are authorized to vote, represent and exercise on behalf of
this Corporation all rights incident to all shares of any other corporation or
corporations standing in the name of this Corporation. The authority herein
granted to said officers to vote or represent on behalf of this Corporation any
and all shares held by this Corporation in any other corporation or corporations
may be exercised either by such officers in person or by any person authorized
so to do by proxy or power of attorney duly executed by said officers.
Section 5.07 STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES. If the
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, option or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements,
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there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
ARTICLE VI
INDEMNIFICATION
Section 6.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in, or not opposed to,
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
Section 6.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
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Section 6.03 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Section 6.01 or 6.02 of these Bylaws (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 6.01 and 6.02 of these Bylaws. Such
determination shall be made (i) by a majority vote of directors who were not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
Section 6.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article VI, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 6.01 or 6.02 of these Bylaws, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 6.05 ADVANCE OF EXPENSES. Expenses (including attorneys' fees)
incurred by an officer or director in defending a civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board upon receipt of an undertaking by or on
behalf of such director or officer, to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article VI. Such expenses (including attorneys' fees)
incurred by other employees or agents may be so paid upon such terms and
conditions, if any, as the Board deems appropriate.
Section 6.06 INSURANCE. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
Section 6.07 CONSTITUENT CORPORATIONS. For the purposes of this Article
VII, references to "the Corporation" include in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall stand in the same position under the provisions
of this Article VI with respect to the
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resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
Section 6.08 OTHER ENTERPRISES. For the purposes of this Article VI,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to any employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VI.
Section 6.09 BROADEST LAWFUL INDEMNIFICATION. In addition to the
foregoing, the Corporation shall, to the broadest and maximum extent permitted
by Delaware law, as the same exists from time to time (but, in case of any
amendment to or change in Delaware law, only to the extent that such amendment
or change permits the Corporation to provide broader rights of indemnification
than is permitted to the Corporation prior to such amendment or change),
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact that he
is or was a director or officer of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding. In addition, the Corporation
shall, to the broadest and maximum extent permitted by Delaware law, as the same
may exist from time to time (but, in case of any amendment to or change in
Delaware law, only to the extent that such amendment or change permits the
Corporation to provide broader rights of payment of expenses incurred in advance
of the final disposition of an action, suit or proceeding than is permitted to
the Corporation prior to such amendment or change), pay to such person any and
all expenses (including attorneys' fees) incurred in defending or settling any
such action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer, to repay such amount if it shall ultimately be determined
by a final judgment or other final adjudication that he is not entitled to be
indemnified by the Corporation as authorized in this Section 6.09. The first
sentence of this Section 6.09 to the contrary notwithstanding, the Corporation
shall not indemnify any such person with respect to any of the following
matters: (i) remuneration paid to such person if it shall be determined by a
final judgment or other final adjudication that such remuneration was in
violation of law; or (ii) any accounting of profits made from the purchase or
sale by such person of the Corporation's securities within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law; or (iii)
actions brought about or contributed to by the dishonesty of such person, if a
final judgment or other final adjudication adverse to such person establishes
that acts of active and deliberate dishonesty were committed or attempted by
such person with actual
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dishonest purpose and intent and were material to the adjudication; or (iv)
actions based on or attributable to such person having gained any personal
profit or advantage to which he was not entitled, in the event that a final
judgment or other final adjudication adverse to such person establishes that
such person in fact gained such personal profit or other advantage to which he
was not entitled; or (v) any matter in respect of which a final decision by a
court with competent jurisdiction shall determine that indemnification is
unlawful; provided, however, that the Corporation shall perform its obligations
under the second sentence of this Section 6.09 on behalf of such person until
such time as it shall be ultimately determined by a final judgment or other
final adjudication that he is not entitled to be indemnified by the Corporation
as authorized by the first sentence of this Section 6.09 by virtue of any of the
preceding clauses (i), (ii), (iii), (iv) or (v).
Section 6.10 NON-EXCLUSIVITY. The indemnification provided by this
Article VI shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any by-law, 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.
Section 6.11 SEVERABILITY. If any part of this Article VI shall be found,
in any action, suit or proceeding or appeal therefrom or in any other
circumstances or as to any particular officer, director, employee or agent to be
unenforceable, ineffective or invalid for any reason, the enforceability, effect
and validity of the remaining parts or of such parts in other circumstances
shall not be affected, except as otherwise required by applicable law.
Section 6.12 AMENDMENTS. The foregoing provisions of this Article VI
shall be deemed to constitute an agreement between the Corporation and each of
the persons entitled to indemnification hereunder, for as long as such
provisions remain in effect. Any amendment to the foregoing provisions of this
Article VII which limits or otherwise adversely affects the scope of
indemnification or rights of any such persons hereunder shall, as to such
persons, apply only to claims arising, or causes of action based on actions or
events occurring, after such amendment and delivery of notice of such amendment
is given to the person or persons whose rights hereunder are adversely affected,
such amendment shall have no effect on such rights of such persons hereunder.
Any person entitled to indemnification under the foregoing provisions of this
Article VI shall, as to any act or omission occurring prior to the date of
receipt of such notice, be entitled to indemnification to the same extent as had
such provisions continued as Bylaws of the Corporation without such amendment.
ARTICLE VII
MISCELLANEOUS
Section 7.01 SEAL. The Board shall provide a corporate seal, which shall
be in the form of a circle and shall bear the name of the Corporation and words
and figures
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showing that the Corporation was incorporated in the State of Delaware and
showing the year of incorporation.
Section 7.02 WAIVER OF NOTICES. Whenever notice is required to be given
by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.
Section 7.03 LOANS AND GUARANTIES. The Corporation may lend money to, or
guarantee any obligation of, and otherwise assist any officer or other employee
of the Corporation or of its subsidiaries, including any officer or employee who
is a director of the Corporation or of its subsidiaries, whenever, in the
judgment of the Board, such loan, guaranty or assistance may reasonably be
expected to benefit the Corporation. The loan, guaranty, or other assistance
may be with or without interest, and may be unsecured or secured in such manner
as the Board shall approve, including, without limitation, a pledge of shares of
stock of the Corporation.
Section 7.04 GENDER. All personal pronouns used in these Bylaws shall
include the other genders, whether used in the masculine, feminine or neuter
gender, and the singular shall include the plural, and vice versa, whenever and
as often as may be appropriate.
Section 7.05 AMENDMENTS. These Bylaws, or any of them, may be rescinded,
altered, amended or repealed, and new Bylaws may be made (i) by the Board, by
vote of a majority of the number of directors then in office as directors,
acting at any meeting of the Board or (ii) by the stockholders, by the vote of
sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of voting
stock of the Corporation, at an annual meeting of stockholders, without previous
notice, or at any special meeting of stockholders, provided that notice of such
proposed amendment, modification, repeal or adoption is given in the notice of
special meeting; provided, however, that Section 2.02 of these Bylaws can only
be amended if that Section as amended would not conflict with the Corporation's
Certificate of Incorporation. Any Bylaw made or altered by the stockholders may
be altered or repealed by the Board or may be altered or repealed by the
stockholders.
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EXHIBIT 10.1
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
$70,000,000.00
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 HERETO,
TOGETHER WITH THOSE ASSIGNEES
PURSUANT TO SECTION 12.8,
------------
as Lenders,
BANKERS TRUST COMPANY,
as Issuing Bank
and
BT COMMERCIAL CORPORATION,
as Agent.
DATED AS OF SEPTEMBER 12, 1995
===============================================================================
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TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS
1.1 General Definitions..................................... 3
1.2 Accounting Terms and Determinations..................... 27
1.3 Computation of Time Periods............................. 28
1.4 Other Terms; Headings................................... 28
ARTICLE 2
LOANS
2.1 Commitments............................................. 28
2.2 Borrowing of Loans...................................... 29
2.3 Disbursement of Loans................................... 31
2.4 Notices of Borrowing.................................... 31
2.5 Authorized Officers and Agents.......................... 31
2.6 Periodic Settlement of Agent Advances and Repayments.... 32
2.7 Sharing of Payments..................................... 33
2.8 Defaulting Lenders...................................... 33
ARTICLE 3
LETTERS OF CREDIT
3.1 Issuance of Letters of Credit........................... 34
3.2 Terms of Letters of Credit.............................. 35
3.3 Notice of Issuance...................................... 35
3.4 Lenders' Participation.................................. 36
3.5 Payment of Amounts Drawn Under Letters of Credit........ 36
3.6 Payment by Lenders...................................... 36
3.7 Nature of Issuing Bank's Duties......................... 36
3.8 Obligations Absolute.................................... 37
3.9 Agent's Execution of Applications and Other
Issuing Bank Documentation; Reliance on
Credit Agreement by Issuing Bank........................ 37
3.10 Additional Payments..................................... 37
ARTICLE 4
COMPENSATION, REPAYMENT, REDUCTION
AND EXTENSION OF COMMITMENTS
4.1 Interest on Prime Rate Loans............................ 38
4.2 Interest on Eurodollar Rate Loans....................... 38
4.3 Interest on Other Obligations........................... 39
4.4 Unused Line Fee......................................... 39
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4.5 Letter of Credit Fees................................... 39
4.6 Interest After Event of Default......................... 40
4.7 Expenses................................................ 40
4.8 Mandatory Payment; Reduction of Commitments............. 40
4.9 Extension of Expiration Date............................ 41
4.10 Maintenance of Loan Account............................. 44
4.11 Payment Procedures...................................... 44
4.12 Collection of Accounts.................................. 47
4.13 Calculations............................................ 48
4.14 Special Provisions Relating to Eurodollar Rate Loans.... 48
4.15 Indemnification in Certain Events....................... 51
4.16 Taxes................................................... 53
4.17 Obligation of Lenders and Issuing Banks to
Mitigate: Replacement of Lenders........................ 56
ARTICLE 5
CONDITIONS PRECEDENT
5.1 Conditions to Initial Loans and Letters of Credit....... 58
5.2 Conditions Precedent to All Loans and Letters of Credit. 62
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 Organization and Qualification.......................... 63
6.2 Authority............................................... 64
6.3 Enforceability.......................................... 64
6.4 No Conflict............................................. 64
6.5 Consents and Filings.................................... 64
6.6 Government Regulation................................... 64
6.7 Solvency................................................ 64
6.8 Rights in Collateral.................................... 65
6.9 Financial Data.......................................... 65
6.10 Subsidiaries; Ownership of Stock........................ 66
6.11 No Judgments or Litigation.............................. 66
6.12 No Defaults............................................. 67
6.13 Labor Matters........................................... 67
6.14 Compliance with Law..................................... 67
6.15 ERISA................................................... 67
6.16 Compliance with Environmental Laws...................... 67
6.17 Intellectual Property; Real Property.................... 68
6.18 Licenses and Permits.................................... 68
6.19 Taxes and Tax Returns................................... 68
6.20 Material Contracts...................................... 69
6.21 Refinanced Indebtedness................................. 69
6.22 The Restructuring....................................... 69
6.23 Securities Activities................................... 71
6.24 Accuracy and Completeness of Information................ 71
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6.25 No Change............................................... 71
6.26 Fairness................................................ 71
ARTICLE 7
AFFIRMATIVE COVENANTS
7.1 Financial Reporting..................................... 71
7.2 Collateral and Other Reporting.......................... 72
7.3 Notification Requirements............................... 73
7.4 Corporate Existence..................................... 75
7.5 Books and Records; Inspections.......................... 75
7.6 Insurance............................................... 75
7.7 Taxes................................................... 76
7.8 Compliance With Laws.................................... 77
7.9 Use of Proceeds......................................... 77
7.10 Fiscal Year............................................. 77
7.11 Maintenance of Property................................. 77
7.12 ERISA Documents......................................... 78
7.13 Compliance With Environmental Laws...................... 78
7.14 Compliance with Operating Leases........................ 79
7.15 Compliance with Material Contracts...................... 79
7.16 Maintenance of Separate Existence....................... 79
7.17 Real Property; Landlord Waivers......................... 80
7.18 Louisiana Matters....................................... 80
7.19 Further Assurances...................................... 80
ARTICLE 8
NEGATIVE COVENANTS
8.1 Minimum Rental Equipment Utilization.................... 81
8.2 Minimum Interest Coverage Ratio......................... 81
8.3 Maximum Total Indebtedness Ratio........................ 82
8.4 Minimum EBITDA.......................................... 83
8.5 Capital Expenditures.................................... 84
8.6 Additional Indebtedness................................. 85
8.7 Liens................................................... 86
8.8 Contingent Obligations.................................. 88
8.9 Sale of Assets.......................................... 88
8.10 Restricted Payments..................................... 89
8.11 Fundamental Changes..................................... 91
8.12 Accounting Changes...................................... 91
8.13 Termination of Material Contracts and
Governing Documents..................................... 91
8.14 Restriction on Operating Leases......................... 92
8.15 Sale and Leaseback Transactions......................... 92
8.16 Affiliate Transactions.................................. 92
8.17 Additional Bank Accounts................................ 93
8.18 Excess Cash............................................. 93
8.19 Additional Negative Pledges............................. 93
8.20 Additional Subsidiaries................................. 93
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ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES
9.1 Events of Default....................................... 95
9.2 Acceleration and Cash Collateralization................. 97
9.3 Rescission of Acceleration.............................. 98
9.4 Remedies................................................ 98
9.5 Right of Setoff......................................... 99
9.6 License for Use of Software and Other
Intellectual Property................................... 99
9.7 No Marshalling; Deficiencies; Remedies Cumulative....... 100
ARTICLE 10
GUARANTY OF PARENT GUARANTORS
10.1 Guaranty................................................ 100
10.2 Guaranty Absolute....................................... 102
10.3 Enforcement; Application of Payments.................... 103
10.4 Waivers................................................. 104
10.5 Financial Information................................... 105
10.6 Reinstatement........................................... 106
10.7 Subrogation, Contribution, Etc.......................... 106
10.8 Subordination........................................... 107
10.9 Waivers................................................. 108
10.10 Termination............................................. 109
10.11 Advice of Counsel....................................... 109
10.12 Collateral.............................................. 109
ARTICLE 11
THE AGENT
11.1 Appointment of Agent.................................... 110
11.2 Nature of Duties of Agent............................... 110
11.3 Lack of Reliance on Agent............................... 110
11.4 Certain Rights of the Agent............................. 110
11.5 Reliance by Agent....................................... 110
11.6 Indemnification of Agent................................ 111
11.7 The Agent in its Individual Capacity.................... 111
11.8 Successor Agent......................................... 111
11.9 Collateral Matters; Releases from Credit Documents...... 112
11.10 Actions with Respect to Defaults........................ 113
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C>
ARTICLE 12
MISCELLANEOUS
12.1 GOVERNING LAW........................................... 113
12.2 SUBMISSION TO JURISDICTION.............................. 113
12.3 SERVICE OF PROCESS...................................... 114
12.4 JURY TRIAL.............................................. 114
12.5 LIMITATION OF LIABILITY................................. 114
12.6 Delays.................................................. 114
12.7 Notices................................................. 114
12.8 Assignments and Participations.......................... 115
12.9 Confidentiality......................................... 117
12.10 Indemnification......................................... 117
12.11 Amendments and Waivers.................................. 118
12.12 Counterparts and Effectiveness.......................... 119
12.13 Severability............................................ 119
12.14 Maximum Rate............................................ 119
12.15 Intercreditor Agreement................................. 120
12.16 Entire Agreement; Successors and Assigns................ 120
12.17 Schedules and Exhibits.................................. 121
</TABLE>
-v-
<PAGE>
<TABLE>
<C> <C> <S>
ANNEX
Annex I - List of Lenders and Commitment Amounts
EXHIBITS
Exhibit A - Form of Collateral Access Agreement
Exhibit B - Form of Extension Request
Exhibit C - Form of Guaranty and Contribution Agreement
Exhibit D - Form of Note
Exhibit E - Form of Notice of Borrowing
Exhibit F - Form of Notice of Continuation
Exhibit G - Form of Notice of Conversion
Exhibit H - Plan of Reorganization
Exhibit I - Pro Forma
Exhibit J - Projections
Exhibit K - Form of Security Agreement
Exhibit L - Form of Trademark Security Agreement
Exhibit M - Form of Letter of Credit Request
Exhibit N-1 - Form of Lockbox Agreement
Exhibit N-2 - Form of Restricted Account Agreement
Exhibit O - Form of Compliance Certificate
Exhibit P - Form of Borrowing Base Certificate
Exhibit Q - Form of Intercompany Subordinated Note
Exhibit R - Form of Assignment and Assumption Agreement
SCHEDULES
Schedule A - Closing Document List
Schedule B - Real Property Locations
Schedule C - Insurance Policies and Programs
Schedule D - Disclosure Schedule
</TABLE>
-vi-
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT is entered into as of September 12, 1995 (as
amended, restated, supplemented or otherwise modified from time to time, this
"Credit Agreement"), among ACME ALABAMA, INC., an Alabama corporation ("Acme
- ----------------- ----
Alabama"), ACME DIXIE INC., a Delaware corporation ("Acme Dixie"), ACME DUVAL
- ------- ----------
INC., a Delaware corporation ("Acme Duval"), ACME RENTS, INC., a California
----------
corporation ("Acme Rents"), THE AIR & PUMP COMPANY, a Texas corporation ("Air &
---------- -----
Pump") and WALKER JONES EQUIPMENT, INC., a Mississippi corporation ("Walker
- ---- ------
Jones"; Acme Alabama, Acme Dixie, Acme Duval, Acme Rents, Air & Pump, Walker
- -----
Jones and any Subsidiary of any Credit Party (capitalized terms used herein
without definition shall have the meanings set forth in Section 1.1) which is
-----------
formed or acquired in accordance with Section 8.20 are referred to herein
------------
individually from time to time as a "Borrower" and collectively as the
--------
"Borrowers"), ACME ACQUISITION CORP., a Delaware corporation ("Acme
- ---------- ----
Acquisition") and ACME HOLDINGS INC., a Delaware corporation ("Acme Holdings";
-------------
Acme Acquisition and Acme Holdings are referred to herein individually from time
to time as a "Parent Guarantor" and collectively as the "Parent Guarantors"),
---------------- -----------------
each financial institution identified on Annex I (together with its successors
-------
and permitted assigns pursuant to Section 12.8, a "Lender"), BANKERS TRUST
------------ ------
COMPANY, as Issuing Bank and BT COMMERCIAL CORPORATION ("BTCC") acting as agent
----
for the Lenders and the Issuing Bank (in such capacity, together with any
successor agent appointed pursuant to Section 11.8, the "Agent").
------------ -----
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Acme Acquisition Holdings Corp., a Delaware corporation ("AAHC"),
----
owns all of the issued and outstanding capital stock of Acme Acquisition;
WHEREAS, Acme Acquisition owns all of the issued and outstanding capital
stock of each of Acme Alabama, Air & Pump and Walker Jones;
WHEREAS, without giving effect to the Merger (as defined below), Acme
Acquisition owns approximately 34% of the issued and outstanding capital stock
of Acme Holdings (36% of the issued and outstanding common stock and 23% of the
issued and outstanding preferred stock);
WHEREAS, Acme Holdings owns all of the issued and outstanding capital
stock of each of Acme Rents, Acme Dixie and Acme Duval;
WHEREAS, AAHC, Acme Acquisition and Acme Holdings and their respective
Subsidiaries have commenced a financial restructuring (the "Restructuring"),
-------------
pursuant to which, among other things, (i) Acme Holdings and its wholly-owned
Subsidiaries have filed a case in the Bankruptcy Court under Chapter 11 of the
Bankruptcy Code
<PAGE>
for the purpose of confirming the Plan of Reorganization; (ii) in connection
with the consummation of the Plan of Reorganization, (A) all of the Old Equity
Interests in Acme Holdings will be terminated, cancelled or extinguished, (B)
Acme Holdings will enter into the Insurance Settlement, (C) the Citicorp
Entities will surrender all of the Old Notes held by such Persons, (D) all of
the other Old Notes will be exchanged for the Cash Distribution and (E) pursuant
to the Merger Agreement, Acme Holdings will merge with and into Acme Merger
Corp., a Delaware corporation and wholly-owned Subsidiary of AAHC ("Acme
----
Newco"), with Acme Holdings being the surviving corporation, whereupon
- -----
Acme Holdings will become a wholly-owned Subsidiary of AAHC (the "Merger");
------
(iii) all of the outstanding Indebtedness under the respective credit facilities
of Acme Acquisition and Acme Holdings (including, without limitation, the
debtor-in-possession credit facility extended to Acme Holdings by Citicorp), and
certain of the Indebtedness and obligations under the Credit Parties' vendor
equipment financing agreements, will be repaid in full and the liens securing
the facilities released; and (iv) AAHC will effect certain amendments to its
Governing Documents with respect to the redemption rights of the holders of its
preferred stock pursuant to the AAHC Preferred Stock Amendment;
WHEREAS, in order to finance the Restructuring, (i) Acme Holdings will
receive proceeds of not less than $2,000,000 in the Insurance Settlement,
(ii) AAHC will enter into the Citicorp Purchase Agreement and the other Citicorp
Documents, pursuant to which, among other things, Citicorp will purchase notes
of AAHC in an original principal amount of $10,000,000 on the terms and
conditions set forth therein and (iii) the Borrowers and the Parent Guarantors
will enter into this Credit Agreement with the Agent, the Issuing Bank and the
Lenders, pursuant to which the Agent, the Issuing Bank and the Lenders, as
applicable, will make Loans, Letters of Credit and other financial
accommodations available to the Borrowers on the terms and conditions set forth
herein;
WHEREAS, the Agent and the Lenders are willing to make Loans and other
financial accommodations available to the Borrowers, the Issuing Bank is willing
to issue Letters of Credit for the account of the Borrowers and the Agent is
willing to act as agent in connection therewith, in each case on the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
conditions and agreements set forth herein, the parties hereto agree as follows:
-2-
<PAGE>
ARTICLE 1
DEFINITIONS
-----------
1.1 General Definitions. The meanings set forth below are applicable to
-------------------
both the singular and plural forms of the terms defined:
AAHC is defined in the recitals to this Credit Agreement.
----
AAHC Preferred Stock means (i) AAHC's 6% Cumulative Preferred Stock, par
--------------------
value $0.01 per share and (ii) any other series of preferred stock of AAHC
issued pursuant to an amendment to AAHC's Governing Documents permitted by
Section 8.13, in each case with respect to which there are no obligations of
- ------------
AAHC or any Credit Party of the type described in the first sentence of the
definition of Mandatory Redeemable Obligation other than the mandatory
redemption obligations of AAHC contained in, and subject to the conditions set
forth in, AAHC's Certificate of Incorporation as in effect on the Closing Date
(after giving effect to the AAHC Preferred Stock Amendment).
AAHC Preferred Stock Amendment means the Certificate of Amendment of
------------------------------
Certificate of Incorporation of AAHC filed with the Secretary of State of the
State of Delaware on or before the Closing Date, pursuant to which the
requirement that AAHC redeem all outstanding AAHC Preferred Stock on July 17,
2002 is deleted.
Accounts is defined in the Security Agreement.
--------
Acme Alabama is defined in the preamble to this Credit Agreement.
------------
Acme Acquisition is defined in the preamble to this Credit Agreement.
----------------
Acme Acquisition Borrowers is defined in Section 10.1(b).
-------------------------- ---------------
Acme Dixie is defined in the preamble to this Credit Agreement.
----------
Acme Duval is defined in the preamble to this Credit Agreement.
----------
Acme Holdings is defined in the preamble to this Credit Agreement.
-------------
Acme Holdings Borrowers is defined in Section 10.1(a).
----------------------- ---------------
Acme Newco is defined in the recitals to this Credit Agreement.
----------
-3-
<PAGE>
Acme Rents is defined in the preamble to this Credit Agreement.
----------
Acquisition means (i) the acquisition by any Credit Party or any
-----------
Subsidiary of a Credit Party of eighty percent (80%) or more of the issued and
outstanding capital stock, or all or substantially all of the Rental Equipment
assets, of any Person and its Subsidiaries which are in the equipment rental
business and (ii) the merger of any Borrower with any Person which is in the
equipment rental business.
Adjusted Eurodollar Rate means, with respect to each Interest Period for
------------------------
any Eurodollar Rate Loan, the rate obtained by dividing (i) the Eurodollar Rate
for such Interest Period by (ii) a percentage (stated as a decimal) equal to
100% minus the stated maximum rate of all reserves, if any, required to be
maintained against "Eurocurrency liabilities" as specified in Regulation D (or
against any other category of liabilities which includes deposits by reference
to which the interest rate on Eurodollar Rate Loans is determined or any
category of extensions of credit or other assets which includes loans by a non-
United States office of any Lender to United States residents).
Affiliate of a Person means another Person who directly or indirectly
---------
controls, is controlled by, is under common control with or is a director or
officer of such Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities or by contract or otherwise.
Agent is defined in the preamble to this Credit Agreement.
-----
Agent Advance Period is defined in Section 2.2(b).
-------------------- --------------
Agent Advances is defined in Section 2.2(a).
-------------- --------------
Air & Pump is defined in the preamble to this Credit Agreement.
----------
Applicable Lending Office means, with respect to each Lender, such
-------------------------
Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Loan, and
such Lender's Domestic Lending Office in the case of a Prime Rate Loan.
Assignment and Assumption Agreement is defined in Section 12.8.
----------------------------------- ------------
Auditors means a nationally recognized firm of independent public
--------
accountants selected by the Credit Parties and reasonably satisfactory to the
Agent. For purposes of this Credit Agreement, the firm of Ernst & Young LLP
shall be deemed to be satisfactory to the Agent.
-4-
<PAGE>
Bankruptcy Code means Title 11 of the U.S. Code (11 U.S.C. (S)(S) 101 et
--------------- --
seq.), as amended from time to time, and any successor statute.
- ---
Bankruptcy Court means the United States Bankruptcy Court for the District
----------------
of Delaware.
Benefit Plan means a "defined benefit plan" (as defined in Section 3(35)
------------
of ERISA) for which any of the Credit Parties or any ERISA Affiliate has been an
"employer" (as defined in Section 3(5) of ERISA) within the past six years.
Borrower is defined in the preamble to this Credit Agreement.
--------
Borrowing means, except as provided in Section 4.14(c)(iii), a borrowing
--------- --------------------
consisting of Loans of the same Type made, continued or converted on the same
day.
Borrowing Base of a Borrower means the sum of:
--------------
(i) eighty-five percent (85%) of the value of Eligible Accounts of the
Borrower, plus
----
(ii) seventy-five percent (75%) of the value of Eligible Rental
Equipment of the Borrower, minus
-----
(iii) the aggregate amount of reserves, if any, established by the
Agent under Section 2.1(b) applicable to the Borrower.
--------------
Borrowing Base Certificate is defined in Section 7.2(a).
-------------------------- --------------
BTCC is defined in the preamble to this Credit Agreement.
----
Business Day means any day that is not a Saturday, Sunday or a day on
------------
which commercial banks in New York, New York are required or permitted by law to
be closed. When used in connection with Eurodollar Rate Loans, this definition
will also exclude any day on which commercial banks are not open for dealing in
U.S. dollar deposits in the London (England, U.K.) interbank market.
Capital Expenditures for a period means, the sum of all expenditures
--------------------
capitalized for Financial Statement purposes in accordance with GAAP (whether
payable in cash or other property or accrued as a liability), including the
capitalized portion of Capital Leases and that portion of Investments allocable
to property, plant or equipment. Capital Expenditures shall exclude proceeds of
a Casualty Loss applied to the repair or replacement of the property affected by
the Casualty Loss.
-5-
<PAGE>
Capital Lease means any lease of any property (whether real, personal or
-------------
mixed) by a Person as lessee which, in conformity with GAAP, is accounted for as
a capital lease on the balance sheet of that Person.
Cash Distribution means the cash paid to the holders of the Old Notes
-----------------
pursuant to the Plan of Reorganization, the aggregate amount of which shall not
exceed $35,350,000 (without giving effect to the Release Payment).
Cash Equivalents means any of the following, so long as the Agent, for the
----------------
benefit of the Holders, has a perfected Lien therein and the same are maintained
in accounts in which the Agent, for the benefit of the Holders, has a perfected
Lien: (i) securities issued, guarantied or insured by the United States or any
of its agencies and having maturities of not more than one year; (ii)
certificates of deposit having maturities of not more than one year issued by
the Agent, Bankers Trust Company, any Lender or by a U.S. federal, state or
District of Columbia chartered commercial bank of recognized standing whose
capital and unimpaired surplus is in excess of $200,000,000 and whose short-term
commercial paper rating, or that of its parent holding company, is at least A-1
or the equivalent by Standard & Poor's Corporation and at least P-1 or the
equivalent by Moody's Investors Services, Inc.; (iii) readily marketable
commercial paper of any Lender or any corporation doing business in and
incorporated under the laws of the United States, any state thereof or the
District of Columbia (other than commercial paper issued by any Credit Party or
any Affiliate thereof), maturing no more than one year after the date of
issuance thereof and, at the time of acquisition, having a rating of at least A-
1 or the equivalent by Standard & Poor's Corporation and at least P-1 or the
equivalent by Moody's Investors Services, Inc.; and (iv) Investments in money-
market mutual funds (A) under management of an investment manager having under
its management total assets of $250,000,000 or more, (B) substantially all of
the assets of which are continuously invested in Investments of the type
described in clauses (i) through (iii) above and (C) which have the highest
----------- -----
rating obtainable from Standard & Poor's Corporation and Moody's Investors
Services, Inc.
Casualty Loss means (i) the loss, damage, or destruction of any asset
-------------
owned or used by any of the Credit Parties, (ii) the condemnation, confiscation,
or other taking, in whole or in part, of any such asset, or (iii) the
diminishment of such asset so as to render use for its intended purpose
impracticable or unreasonable.
Change in Control means the occurrence of one or more of the following
-----------------
events:
(i) Brentwood Acme Partners, L.P. shall cease to be managed by one or
more members of Brentwood Associates;
-6-
<PAGE>
(ii) Brentwood Acme Partners, L.P. shall cease to be the legal and
beneficial owner of at least 51% of the Voting Power, provided that no Change
--------
in Control shall occur under this clause (ii) if Brentwood Acme Partners,
-----------
L.P. shall continue to be the legal and beneficial owner of at least 40% of
the Voting Power and no Person or group (within the meaning of Rule 13d-5, as
in effect on the Closing Date, under the Securities Exchange Act of 1934, as
amended) shall be the beneficial owner of more than 30% of the Voting Power;
(iii) AAHC shall cease to be the legal and beneficial owner, directly or
indirectly, of all of the issued and outstanding capital stock of any Credit
Party, except to the extent that the capital stock of a Borrower may be sold
in a transaction permitted under this Credit Agreement; or
(iv) a "Change in Control" (or analogous term) as defined in the Citicorp
Purchase Agreement.
Citicorp means Citicorp USA, Inc., a Delaware corporation.
--------
Citicorp Documents means (i) the Citicorp Purchase Agreement and the Notes
------------------
and the Share Pledge Agreement (in each case, as defined in the Citicorp
Purchase Agreement), each as in effect on the Closing Date, together with such
changes as are permitted in accordance with Section 8.13, and (ii) any other
------------
agreement, document or instrument governing the terms of Indebtedness arising
under the Citicorp Purchase Agreement.
Citicorp Entities is defined in the Plan of Reorganization.
-----------------
Citicorp Purchase Agreement means (i) that certain Note and Warrant
---------------------------
Purchase Agreement dated as of September 12, 1995 by and between AAHC, as
issuer, and Citicorp, as purchaser and (ii) any agreement, document or
instrument pursuant to which all or any part of the Indebtedness then
outstanding under such Note and Warrant Purchase Agreement is replaced, renewed,
refinanced or extended, provided that (A) such agreement, document or instrument
--------
shall be consented to by the Majority Lenders (which consent shall not be
unreasonably withheld), and (B) the aggregate principal amount of Indebtedness
under any such agreement, document or instrument shall not exceed the then
outstanding amount of the Indebtedness replaced, renewed, refinanced or extended
thereby.
Closing Date means the date, on or before September 15, 1995, on which all
------------
aspects of the Restructuring are consummated and the initial Loans are advanced.
Closing Document List is defined in Section 5.1(a).
--------------------- --------------
Code is defined in Section 1.4.
---- -----------
-7-
<PAGE>
Collateral means the Accounts, the Inventory, the Equipment and other
----------
property identified as security for the Obligations under the Collateral
Documents.
Collateral Access Agreement means any landlord waiver substantially in the
---------------------------
form of Exhibit A (with such modifications as the Agent may approve in its
---------
Permitted Discretion), and any mortgagee waiver, bailee letter or any similar
acknowledgement agreement of any warehouseman or processor in possession of
Inventory or Equipment in each case in form and substance satisfactory to the
Agent in its Permitted Discretion.
Collateral Documents means the Security Agreement, the Trademark Security
--------------------
Agreement, the Lockbox Agreements, the Restricted Account Agreements and all
other contracts, instruments and other documents pursuant to which Liens are now
or hereafter granted to the Agent, for the benefit of the Holders, to secure the
Obligations or which are filed with any Governmental Authority or delivered to
any Person in order to perfect such Liens.
Collection Account is defined in Section 4.12.
------------------ ------------
Collections means all cash, funds, checks, notes, instruments and any
-----------
other form of remittance tendered by account debtors in payment of Accounts.
Commission means the Securities and Exchange Commission and any Person
----------
succeeding to the functions thereof.
Commitment of a Lender means its commitment to make Loans, to participate
----------
in Letters of Credit and to make settlements of Agent Advances pursuant to the
terms and conditions of this Credit Agreement, up to the principal amount set
forth opposite its name on Annex I or on the Assignment and Assumption Agreement
-------
by which it became a Lender, as such amount may be reduced from time to time,
and Commitments means the aggregate principal amount of the Commitments of all
-----------
of the Lenders, the maximum amount of which shall be $70,000,000.
Commitment Letter means the commitment letter addressed to Acme
-----------------
Acquisition from BTCC dated May 12, 1995.
Compliance Certificate is defined in Section 7.1(a).
---------------------- --------------
Concentration Account is defined in Section 4.12.
--------------------- ------------
Contingent Obligation means any direct, indirect, contingent or non-
---------------------
contingent guaranty or other obligation or liability for the Indebtedness,
obligation or liability of another, except endorsements in the ordinary course
of business, if the primary purpose or intent thereof by the Person incurring
the obligation is to provide assurance to the obligee of such
-8-
<PAGE>
Indebtedness, obligation or liability of another that such Indebtedness,
obligation or liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders thereof will be
protected (in whole or in part) against loss in respect thereof.
Contractual Obligation, as applied to any Person, means any provision of
----------------------
any securities issued by that Person or any indenture, mortgage, deed of trust,
security agreement, pledge agreement, guaranty, lease, contract, undertaking,
agreement or instrument to which that Person is a party or by which it or any of
its properties is bound, or to which it or any of its properties is subject.
Credit Agreement is defined in the preamble to this Credit Agreement.
----------------
Credit Documents means, collectively, this Credit Agreement, the Notes,
----------------
the Letters of Credit, the Guaranty and Contribution Agreements, each of the
Collateral Documents and all other documents, agreements, instruments, opinions
and certificates (other than the Restructuring Documents) now or hereafter
executed and delivered in connection herewith or therewith, as modified,
amended, extended, restated or supplemented from time to time.
Credit Parties means, collectively, the Parent Guarantors, the Borrowers
--------------
and any other parties to the Credit Documents (except the Lenders, the Issuing
Bank, the Agent, the Citicorp Entities and issuers of opinions).
Default means an event, condition or default which with the giving of
-------
notice, the passage of time or both would be an Event of Default, provided, that
--------
any non-compliance with the first sentence of Section 8.1 shall be a Default
-----------
until the Rental Equipment Utilization Cure Date applicable to such non-
compliance.
Defaulting Lender is defined in Section 2.8.
----------------- -----------
Disbursement Account means the operating account maintained with the
--------------------
Disbursement Account Bank.
Disbursement Account Bank means Bankers Trust (Delaware), provided that
------------------------- --------
from the Closing Date until a date not later than 45 days following the Closing
Date, Citibank (Delaware), N.A. may serve as the Disbursement Account Bank.
Disclosure Statement means the Solicitation and Disclosure Statement of
--------------------
Acme Holdings dated June 9, 1995, pursuant to which, among other things,
acceptances of the Plan of Reorganization have been solicited.
-9-
<PAGE>
Dollars and $ mean the lawful money of the United States.
------- -
Domestic Lending Office means, with respect to any Lender, the office of
-----------------------
such Lender specified as its "Domestic Lending Office" under its name on Annex I
-------
hereto, as such annex may be amended from time to time.
EBITA for a period means the consolidated net income or loss (excluding
-----
extraordinary gains and non-cash extraordinary losses) of AAHC and the Credit
Parties for the period (i) plus all Interest Expense, income tax expense and
----
amortization (including amortization of any goodwill or other intangibles) for
the period and (ii) plus or minus any other non-cash charges (other than gains
-------------
or losses on sales of Equipment in the ordinary course of business) which have
been subtracted or added in calculating consolidated net income for the period.
EBITDA for a period means the consolidated net income or loss (excluding
------
extraordinary gains and non-cash extraordinary losses) of (a) for any period
prior to the Closing Date, AAHC and its Subsidiaries and Acme Holdings and its
Subsidiaries and (b) for any period after the Closing Date, AAHC and its
Subsidiaries, for the period (i) plus all Interest Expense, income tax expense,
----
depreciation and amortization (including amortization of any goodwill or other
intangibles) for the period and (ii) plus or minus any other non-cash charges
-------------
(other than gains or losses on sales of Equipment in the ordinary course of
business) which have been subtracted or added in calculating consolidated net
income for the period.
Eligible Accounts of a Borrower means Accounts of that Borrower deemed by
-----------------
the Agent in the exercise of its Permitted Discretion to be eligible for
inclusion in the calculation of the Borrowing Base for that Borrower, including,
without limitation, Accounts arising from Rental Equipment revenues which have
been earned but not billed. In determining the amount to be so included, the
face amount of such Accounts shall be reduced by the amount of all returns,
discounts, deductions, claims, credits, charges, or other allowances. Whenever
proceeds of a Loan are to be used by a Borrower, immediately and directly, to
purchase Accounts (including, without limitation, in any Acquisition permitted
hereunder) then, subject to such arrangements as the Agent may reasonably
request to insure that the proceeds are so used and, in the case of such
Acquisition, the satisfaction of the conditions set forth in Section 8.20, such
------------
Accounts shall, subject to the satisfaction of all other conditions of
eligibility, be added to Eligible Accounts for purposes of determining the
Borrowing Base of such Borrower. Unless otherwise approved in writing by the
Agent, an Account shall not be an Eligible Account if:
(i) it arises out of a sale or lease made by the Borrower to an
Affiliate; or
-10-
<PAGE>
(ii) its payment terms are longer than 30 days from date of invoice;
or
(iii) it is unpaid more than 90 days after the date of invoice; or
(iv) it is from the same account debtor or its Affiliate and fifty
percent (50%) or more of all Accounts from that account debtor (and its
Affiliates) are ineligible under clause (iii) above; or
------------
(v) the Account, together with all other Accounts of an account
debtor (and its Affiliates), exceeds 5% of the face value of all Accounts of
the Borrowers in the aggregate then outstanding, to the extent of such
excess, unless supported by an irrevocable letter of credit satisfactory to
the Agent (as to form, substance and issuer) and assigned to and directly
drawable by the Agent; or
(vi) the account debtor for the Account is a creditor or supplier of
the Borrower, has or has asserted a right of setoff, has disputed its
liability or made any claim with respect to the Account or any other Account
which has not been resolved, to the extent of the amount owed by the Borrower
to the account debtor or supplier, the amount of such actual or asserted
right of setoff or the amount of such dispute or claim, as the case may be;
or
(vii) the Borrower has actual knowledge that the account debtor is (or
its assets are) the subject of an Insolvency Event; or
(viii) the Account is not payable in Dollars or the account debtor for
the Account is not located within the continental United States, unless the
Account is supported by an irrevocable letter of credit satisfactory to the
Agent (as to form, substance and issuer) and assigned to and directly
drawable by the Agent; or
(ix) the sale to the account debtor is on a bill-and-hold, guarantied
sale, sale-and-return, sale on approval or consignment basis or made pursuant
to any other written agreement providing for repurchase or return; or
(x) the Agent determines by its own credit analysis that collection
of the Account is uncertain or the Account may not be paid and so notifies
the Borrower; or
(xi) the account debtor is the United States of America, any state
thereof or the District of Columbia or any department, agency or
instrumentality of any of them, unless the Borrower duly assigns its rights
to payment of such Account to the Agent pursuant to the Assignment of Claims
Act
-11-
<PAGE>
of 1940, as amended (31 U.S.C. (S)(S) 3727 et seq.) or any similar statute
-- ---
in such state or the District of Columbia, as applicable; or
(xii) the goods giving rise to such Account have not been shipped and
delivered to and accepted by the account debtor, the services giving rise to
such Account have not been performed and accepted, or the Account otherwise
does not represent a final sale or an enforceable lease contract with respect
to such goods; or
(xiii) the Account does not materially comply with all applicable
Requirements of Law; or
(xiv) the Account is subject to any adverse security deposit, progress
payment or other similar advance made by or for the benefit of the applicable
account debtor; or
(xv) it is not assignable, is not subject to a valid and perfected
first priority Lien in favor of the Agent, for the benefit of the Holders, or
does not otherwise conform to the representations and warranties contained in
the Credit Documents, including, without limitation, the representations and
warranties in Section 6 of the Security Agreement; or
---------
(xvi) the account debtor is located in the state of New Jersey or
Minnesota and the Borrower has not filed and maintained effective (unless
exempt from the requirements for filing) a current Notice of Business
Activities Report with the State of New Jersey Division of Taxation or a
Minnesota Business Activity Report with the Minnesota Department of Revenue,
as applicable.
Eligible Assignee means a bank or other financial institution which is
-----------------
reasonably acceptable to the Agent.
Eligible Rental Equipment of a Borrower means the aggregate amount of
-------------------------
Rental Equipment deemed by the Agent in the exercise of its Permitted Discretion
to be eligible for inclusion in the calculation of the Borrowing Base for that
Borrower. In determining the amount to be so included, Rental Equipment shall
be valued at the lower of net book value or orderly liquidation value on a basis
consistent with the Borrower's current and historical accounting practice and
with reference to the most recent appraisals delivered pursuant to Section
-------
5.1(a)(iii) or 7.2(b). Whenever proceeds of a Loan are to be used by a
- ----------- ------
Borrower, immediately and directly, to purchase Rental Equipment (including,
without limitation, in any Acquisition permitted hereunder) then, subject to
such arrangements as the Agent may reasonably request to insure that the
proceeds are so used and, in the case of an Acquisition, the satisfaction of the
conditions set forth in Section 8.20, such Rental Equipment, subject to the
------------
satisfaction of all other conditions of eligibility, shall be
-12-
<PAGE>
added to Eligible Rental Equipment for purposes of determining the Borrowing
Base of such Borrower. Unless otherwise approved in writing by the Agent, an
item of Rental Equipment shall not be included in Eligible Rental Equipment of a
Borrower if:
(i) it is not owned solely by the Borrower or the Borrower does not
have good, valid and marketable title thereto or has consigned such item to
any other Person (other than another Borrower); or
(ii) it is not located in the United States; or
(iii) it is not subject to a valid and (except with respect to Rental
Equipment subject to certificate of title or ownership statutes in states
other than California and Louisiana or which is not required to be delivered
on the Closing Date, pursuant to Section 7.18 or pursuant to the Security
------------
Agreement (other than such certificates of title subject to Permitted Liens))
perfected first priority Lien in favor of the Agent, for the benefit of the
Holders, except for Liens for unpaid rent or normal and customary warehousing
charges with respect to Rental Equipment stored at a contract warehouse,
subject to a Collateral Access Agreement executed by the mortgagee, lessor or
the contract warehouseman, as the case may be, and segregated or otherwise
separately identifiable from goods of others, if any, stored on the premises;
or
(iv) it consists of returned or rejected goods or goods in transit to
third parties (other than goods in transit to warehouse sites covered by a
Collateral Access Agreement or to a lessee in the ordinary course of
business); or
(v) it is unmerchantable or does not otherwise conform to the
representations and warranties contained in the Credit Documents, including,
without limitation, the representations and warranties in Section 6 of the
---------
Security Agreement.
Equipment is defined in the Security Agreement.
---------
ERISA means the Employee Retirement Income Security Act of 1974, 29 U.S.C.
-----
(S)(S) 1000 et seq., amendments thereto, successor statutes, and regulations or
-- ---
guidance promulgated thereunder.
ERISA Affiliate means any Person required to be aggregated with a Credit
---------------
Party under Sections 414(b), (c), (m) or (o) of the Internal Revenue Code.
Eurodollar Lending Office means, with respect to any Lender, the office of
-------------------------
such Lender specified as its "Eurodollar Lending Office" under its name on Annex
-----
I, as such annex may be amended from time to time (or, if no such office is
- -
specified, its Domestic Lending Office), or such other office or Affiliate
-13-
<PAGE>
of such Lender as such Lender may from time to time specify to the Borrowers and
the Agent.
Eurodollar Rate means, with respect to the Interest Period for each
---------------
Eurodollar Rate Loan comprising part of the same Borrowing, an interest rate per
---
annum equal to the rate (rounded upward to the nearest whole multiple of one-
- -----
sixteenth (1/16) of one percent (1.00%) per annum, if such rate is not such a
---------
multiple) of the offered quotation, if any, to first class banks in the
Eurodollar market by Bankers Trust Company for U.S. dollar deposits of amounts
in immediately available funds comparable to the principal amount of the
Eurodollar Rate Loan for which the Eurodollar Rate is being determined with
maturities comparable to the Interest Period for which such Eurodollar Rate will
apply as of approximately 10:00 A.M. New York City time two Business Days prior
to the commencement of such Interest Period.
Eurodollar Rate Loan means a Loan that bears interest as provided in
--------------------
Section 4.2.
- -----------
Event of Default is defined in Article 9.
---------------- ---------
Expenses means all reasonable costs and expenses of the Agent incurred in
--------
connection with the Credit Documents and the transactions contemplated therein,
including, without limitation, (i) the costs of conducting record searches,
examining collateral, opening bank accounts and lockboxes, depositing checks,
receiving and transferring funds (including charges for checks for which there
are insufficient funds), and other costs of administration and enforcement of
the rights of the Lenders under the Credit Documents, (ii) the fees and expenses
of legal counsel and paralegals (including the allocated cost of internal
counsel and paralegals), accountants, appraisers and other consultants, experts
or advisors retained by the Agent, (iii) fees and expenses incurred in
connection with the assignments of or sales of participations in the Loans,
(iv) the cost of title insurance premiums, real estate survey costs, fees and
taxes in connection with the filing of financing statements and (v) the costs of
preparing and recording Collateral Documents, releases of Collateral, and
waivers, amendments, and terminations of any of the Credit Documents.
Expiration Date means the earlier of (i) September 15, 1995, if the
---------------
Closing Date has not then occurred and (ii) unless extended pursuant to Section
-------
4.9, the Initial Expiration Date.
- ---
Extension Request means a request, substantially in the form of Exhibit B,
----------------- ---------
that the Expiration Date be extended pursuant to the terms of Section 4.9.
-----------
Federal Funds Rate means, for any period, a fluctuating interest rate per
------------------ ---
annum equal for each day during such period to the weighted average of the rates
- -----
on overnight federal funds
-14-
<PAGE>
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business Day
in New York, New York, for the next preceding Business Day) in New York, New
York by the Federal Reserve Bank of New York, or if such rate is not so
published for any day which is a Business Day in New York, New York, the average
of the quotations for such day on such transactions received by the Agent from
three federal funds brokers of recognized standing selected by the Agent.
Fee Letter means the fee letter addressed to Acme Acquisition from BTCC
----------
dated May 12, 1995.
Fees means, collectively, without duplication, the Unused Line Fee, the
----
Letter of Credit Fees, the Issuing Bank Fees and the fees payable pursuant to
the Fee Letter.
Financial Covenants means the covenants set forth in Sections 8.1, 8.2,
------------------- ------------ ---
8.3, 8.4, 8.5(f) and 8.10.
- --- --- ------ ----
Financial Statements means the consolidated and consolidating balance
--------------------
sheets, consolidated and consolidating statements of operations, consolidated
and Fiscal Year end consolidating statements of cash flows and consolidated and
Fiscal Year end consolidating statements of changes in shareholder's equity of
AAHC and its Subsidiaries for the period specified, prepared in accordance with
GAAP, other than as a result of changes in GAAP permitted under Section 1.2
-----------
(and, with respect to interim statements, subject to year-end audit adjustments
and reclassifications and month-end reconciliations, in each case to the extent
consistent with AAHC's and the Credit Parties' current practices, and prepared
without footnotes).
Fiscal Year means the fiscal year of the Credit Parties for accounting and
-----------
tax purposes, which shall be the 12-month period ending on December 31 of each
calendar year.
Foreign Lender is defined in Section 4.16(d)(i).
-------------- ------------------
GAAP means generally accepted accounting principles in the United States
----
as in effect from time to time.
Governing Documents means, with respect to any corporation, limited
-------------------
liability company or partnership (i) the articles/certificate of incorporation
(or the equivalent formation documents) of such corporation or limited liability
company, (ii) the partnership agreement executed by the partners in the
partnership, (iii) the by-laws (or the equivalent organizational documents) of
the corporation, limited liability company or partnership and (iv) any document
setting forth the designation, amount and/or relative rights, limitations and
preferences of any class or series of such corporation's capital
-15-
<PAGE>
stock or such limited liability company's or partnership's equity or ownership
interests.
Governmental Authority means any nation or government, any state or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
Guaranty and Contribution Agreement means (i) the Guaranty and
-----------------------------------
Contribution Agreement of even date herewith originally executed by Acme Dixie,
Acme Duval, Acme Rents, Air & Pump and Walker Jones with respect to the
Obligations of Acme Alabama, (ii) the Guaranty and Contribution Agreement of
even date herewith originally executed by Acme Alabama, Acme Duval, Acme Rents,
Air & Pump and Walker Jones with respect to the Obligations of Acme Dixie, (iii)
the Guaranty and Contribution Agreement of even date herewith originally
executed by Acme Alabama, Acme Dixie, Acme Rents, Air & Pump and Walker Jones
with respect to the Obligations of Acme Duval, (iv) the Guaranty and
Contribution Agreement of even date herewith originally executed by Acme
Alabama, Acme Dixie, Acme Duval, Air & Pump and Walker Jones with respect to the
Obligations of Acme Rents, (v) the Guaranty and Contribution Agreement of even
date herewith originally executed by Acme Alabama, Acme Dixie, Acme Duval, Acme
Rents and Walker Jones with respect to the Obligations of Air & Pump, (vi) the
Guaranty and Contribution Agreement of even date herewith originally executed by
Acme Alabama, Acme Dixie, Acme Duval, Acme Rents and Air & Pump with respect to
the Obligations of Walker Jones and (vii) any Guaranty and Contribution
Agreement executed after the date hereof by the Borrowers then party to this
Credit Agreement with respect to the Obligations of a Subsidiary of a Credit
Party which becomes a Borrower pursuant to Section 8.20, in each case in favor
------------
of the Agent, the Issuing Bank and the Lenders and in substantially the form of
Exhibit C, as any of the same may be amended, restated, supplemented or
- ---------
otherwise modified in accordance with the terms hereof and thereof.
Hazardous Substance means any waste, pollutant, hazardous substance, toxic
-------------------
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste (including, without limitation, waste oil), radioactive
materials, asbestos (in any form or condition), polychlorinated biphenyls
(PCBs), or any constituent of any such substance or waste, and includes, but is
not limited to, these terms as defined in, or otherwise regulated by, federal,
state or local Requirements of Law.
Highest Lawful Rate means, at any given time during which any Obligations
-------------------
shall be outstanding hereunder, the maximum nonusurious interest rate that at
any time or from time to time may be contracted for, taken, reserved, charged or
received on the Obligations, under the laws of the State of New York (or the law
of any other jurisdiction whose laws may be mandatorily
-16-
<PAGE>
applicable notwithstanding other provisions of this Credit Agreement and the
other Credit Documents), or under applicable federal laws which may presently or
hereafter be in effect and which allow a higher maximum nonusurious interest
rate than under the laws of the State of New York (or such other jurisdiction's)
law, in any case after taking into account, to the extent permitted by
applicable law, any and all relevant payments or charges under this Credit
Agreement and any other Credit Documents executed in connection herewith, and
any available exemptions, exceptions and exclusions.
Holder means any Person entitled to enforce any of the Obligations,
------
whether or not such Person holds any evidence of Indebtedness, including,
without limitation, (i) the Agent, (ii) each Lender, (iii) the Issuing Bank,
(iv) each Person entitled to indemnification pursuant to Section 12.10, (v) each
-------------
Lender in respect of all obligations and liabilities of the Borrowers to the
Lender as counterparty under Interest Rate Agreements permitted hereunder and
(vi) to the extent permitted by the Credit Documents, the successors,
transferees and assigns of any of the foregoing.
Indebtedness of a Person means, without duplication, (i) indebtedness for
------------
borrowed money or for the deferred purchase price of property or services (other
than trade liabilities incurred in the ordinary course of business and payable
in accordance with customary practices), whether on open account or evidenced by
a note, bond, debenture or similar instrument, (ii) obligations under Capital
Leases, (iii) reimbursement obligations for letters of credit, banker's
acceptances or other credit accommodations, (iv) liabilities, as determined by
the Agent, under any Interest Rate Agreement, (v) Contingent Obligations, (vi)
Mandatory Redeemable Obligations and (vii) obligations secured by any Lien on
that Person's property, even if that Person has not assumed such obligations.
Initial Expiration Date means the third anniversary of the Closing Date
-----------------------
(or, if not a Business Day, the immediately preceding Business Day).
Insolvency Event means, with respect to any Person, the occurrence of any
----------------
of the following: (i) such Person shall be adjudicated insolvent or bankrupt, or
shall generally fail to pay or admit in writing its inability to pay its debts
as they become due, (ii) such Person shall seek dissolution or reorganization or
the appointment of a receiver, trustee, custodian or liquidator for it or a
substantial portion of its property, assets or business or to effect a plan or
other arrangement with its creditors, (iii) such Person shall make a general
assignment for the benefit of its creditors, or consent to or acquiesce in the
appointment of a receiver, trustee, custodian or liquidator for a substantial
portion of its property, assets or business, (iv) such Person shall file a
voluntary petition under any bankruptcy,
-17-
<PAGE>
insolvency or similar law or (v) such Person, or a substantial portion of its
property, assets or business shall become the subject of an involuntary
proceeding or petition for its dissolution, reorganization, or the appointment
of a receiver, trustee, custodian or liquidator or shall become subject to any
writ, judgment, warrant of attachment, execution or similar process, and any
such proceeding, petition, writ, judgment, warrant of attachment, execution or
similar process described in this clause (v) shall not be released, vacated or
----------
stayed within 60 days after commencement, filing or levy, as the case may be, or
in any event by the date which is five days prior to the date of any proposed
sale thereunder, or any order for relief shall be entered in any such
proceeding.
Insurance Settlement is defined in the Disclosure Statement.
--------------------
Intercreditor Agreement means that certain letter agreement of even date
-----------------------
herewith executed by Citicorp, on behalf of the noteholders under the Citicorp
Purchase Agreement and acknowledged by AAHC and the Agent, on behalf of the
Agent, the Lenders, the Issuing Bank and the other Holders.
Interest Expense means the consolidated expense of AAHC and the Credit
----------------
Parties for interest on Indebtedness, including, without limitation,
amortization of original issue discount, incurrence fees (to the extent included
in interest expense), the interest portion of any deferred payment obligation
and the interest component of any Capital Lease.
Interest Period means for any Eurodollar Rate Loan to a Borrower the
---------------
period commencing on the date of such Borrowing and ending on the last day of
the period selected by the Borrower pursuant to the provisions of this Credit
Agreement. The duration of each such Interest Period shall be one, two, three
or (unless a Lender shall have notified the Agent that the Eurodollar Rate
determined by the Agent for the proposed Borrowing will not adequately reflect
the cost to the Lender of making or funding its Loan for the Borrowing) six
months, in each case as the Borrower may, in an appropriate Notice of Borrowing,
Notice of Continuation or Notice of Conversion, select; provided, however, that
-------- -------
the Borrower may not select any Interest Period that ends after the Expiration
Date. Whenever the last day of any Interest Period would otherwise occur on a
day other than a Business Day, the last day of such Interest Period shall be
extended to occur on the immediately following Business Day; provided, however,
-------- -------
that if such extension would cause the last day of such Interest Period to occur
in the immediately following calendar month, the last day of such Interest
Period shall occur on the immediately preceding Business Day.
-18-
<PAGE>
Interest Rate Agreement means any interest rate protection or hedge
-----------------------
agreement, including, without limitation, interest rate future, option, swap and
cap agreements.
Internal Revenue Code means the Internal Revenue Code of 1986, amendments
---------------------
thereto, successor statutes, and regulations or guidance (including proposed
regulations) promulgated thereunder.
Inventory is defined in the Security Agreement.
---------
Investment means all expenditures made and all liabilities incurred
----------
(including Contingent Obligations) for or in connection with the acquisition of
stock or Indebtedness of a Person, loans, advances, capital contributions or
transfers of property to a Person, or acquisition of assets from a Person (other
than the acquisition of individual items of Inventory and Equipment in the
ordinary course of business), including, without limitation, Acquisitions. In
determining the aggregate amount of Investments outstanding at any particular
time, (i) a guaranty shall be valued at not less than the principal amount
guaranteed; (ii) returns of capital (but only by repurchase, redemption,
retirement, repayment, liquidating dividend or liquidating distribution) shall
be deducted; (iii) earnings, whether as dividends, interest or otherwise, shall
not be deducted; and (iv) decreases in the market value shall not be deducted.
- --- ---
Issuing Bank means Bankers Trust Company or any Lender, Affiliate of any
------------
Lender or other financial institution (acceptable to the Agent and the
applicable Borrower which has requested a Letter of Credit) which may at any
time issue or be requested to issue a Letter of Credit for the account of the
Borrower (or for the joint account of the Borrower and the Agent or any Lender)
under this Credit Agreement. If there is more than one Issuing Bank, all
references to "the Issuing Bank" shall be deemed to refer to each Issuing Bank
or to all Issuing Banks, as the context requires.
Issuing Bank Fees is defined in Section 4.5(b).
----------------- --------------
Lender is defined in the preamble to this Credit Agreement.
------
Lender Advances is defined in Section 2.2(a).
--------------- --------------
Letter of Credit Fees are defined in Section 4.5(a).
--------------------- --------------
Letter of Credit Obligations means the sum of the aggregate undrawn amount
----------------------------
of all Letters of Credit outstanding, plus the aggregate amount of all drawings
----
under Letters of Credit to the extent the Issuing Bank has not been reimbursed
by a Borrower, by the Lenders or from the proceeds of Loans deemed requested
pursuant to Section 3.5, plus the aggregate amount of all payments made by the
----------- ----
Lenders to the Issuing Bank in respect of participations in Letters of Credit
for which a Borrower has not
-19-
<PAGE>
reimbursed the Lenders (other than with respect to outstanding Loans deemed
requested pursuant to Section 3.5).
-----------
Letter of Credit Request is defined in Section 3.3.
------------------------ -----------
Letters of Credit means standby letters of credit issued for the account
-----------------
of a Borrower under Article 3 and all amendments, renewals, extensions or
---------
replacements thereof.
Lien means any lien, claim, charge, pledge, security interest, assignment,
----
hypothecation, deed of trust, mortgage, lease, conditional sale, retention of
title or other preferential arrangement having substantially the same economic
effect as any of the foregoing, whether voluntary or imposed by law.
Loan is defined in Section 2.1(a).
---- --------------
Loan Account is defined in Section 4.10.
------------ ------------
Lockboxes, Lockbox Agreements and Lockbox Bank are defined in Section
--------- ------------------ ------------ -------
4.12.
Majority Lenders means those Lenders whose Proportionate Shares, in the
----------------
aggregate, are greater than fifty percent (50%).
Management Agreement means that certain Management Agreement dated as of
--------------------
September 12, 1995 among AAHC and its Subsidiaries as amended, supplemented or
modified from time to time in accordance with this Agreement.
Mandatory Redeemable Obligation means an obligation of AAHC or one or more
-------------------------------
Credit Parties (or guaranteed by any of them) which must be redeemed or repaid
(i) at a fixed or determinable date, whether by operation of sinking fund or
otherwise, (ii) at the option of any Person other than AAHC or a Credit Party,
or (iii) upon the occurrence of a condition not solely within the control of a
Credit Party, such as a redemption required to be made out of future earnings.
For purposes of the Credit Documents, AAHC Preferred Stock shall not constitute
a Mandatory Redeemable Obligation.
Margin Stock mean "margin stock" as defined in Regulation G and Regulation
------------
U.
Material Adverse Effect means any change or changes or effect or effects
-----------------------
that individually or in the aggregate are or are reasonably likely to be
materially adverse to (i) the business, prospects, operations, results of
operations, assets, liabilities or condition (financial or otherwise) of AAHC or
AAHC and its Subsidiaries, taken as a whole, (ii) the legality, validity or
enforceability of this Credit Agreement or any other material Credit Document,
(iii) the ability of the Credit Parties, taken as a whole, to perform any
material obligations
-20-
<PAGE>
under the Credit Documents or of the Agent or the Lenders to enforce the
Obligations or realize upon the Collateral or (iv) the value of the Collateral
or the amount which the Agent or the Lenders would be likely to receive (after
giving consideration to delays in payment and costs of enforcement) in the
liquidation of such Collateral.
Material Contract means any Contractual Obligation to which a Credit Party
-----------------
is a party (other than the Credit Documents) for which breach, nonperformance,
cancellation or failure to renew could have a Material Adverse Effect. Each of
the Restructuring Documents (other than the Intercreditor Agreement) shall be
deemed to be a Material Contract.
Merger is defined in the recitals to this Credit Agreement.
------
Merger Agreement means the Merger Agreement by and among AAHC, Acme
----------------
Holdings and Acme Newco, filed with the Secretary of State of the State of
Delaware on the Closing Date, pursuant to which the Merger shall occur.
Multiemployer Plan means a "multiemployer plan" (as defined in Section
------------------
4001(a)(3) of ERISA) to which any Credit Party or any ERISA Affiliate has
contributed within the past six years or with respect to which the Credit Party
or ERISA Affiliate may incur any liability.
Net Cash Proceeds means, with respect to any sale, lease, transfer or
-----------------
other voluntary or involuntary disposition of any property of any Credit Party
or its Subsidiaries, the aggregate amount of cash consideration received by such
Credit Party or such Subsidiary in connection with such transaction after
deduction of all reasonable and customary fees, costs and expenses directly
incurred by such Credit Party or such Subsidiary in connection therewith,
including, without limitation, reasonable and customary underwriting discount,
brokerage or selling commissions, if any, and the reasonable fees and
disbursements of counsel paid by such Credit Party or such Subsidiary in
connection therewith.
Note means a promissory note of a Borrower payable to the order of any
----
Lender, substantially in the form of Exhibit D.
---------
Notice of Borrowing means a notice substantially in the form of Exhibit E.
------------------- ---------
Notice of Continuation means a notice substantially in the form of
----------------------
Exhibit F.
- ---------
Notice of Conversion means a notice substantially in the form of
--------------------
Exhibit G.
- ---------
-21-
<PAGE>
Obligations means all present and future obligations and liabilities of
-----------
any Credit Party arising under or in connection with this Credit Agreement or
any other Credit Document, due or to become due to the Agent, any Issuing Bank,
any Lender or any other Person entitled to indemnification pursuant to Section
-------
12.10, or (to the extent permitted by the Credit Documents) any of their
- -----
respective successors, transferees or assigns, and shall include, without
limitation, (i) unpaid principal and interest hereunder (including interest
accruing on or after the occurrence of an Insolvency Event, whether or not
allowed as a claim in any proceeding relating to the Insolvency Event), (ii)
reimbursement obligations under Letters of Credit, (iii) Fees, Expenses and
indemnification and expense reimbursement obligations arising under Section
-------
12.10, (iv) the Obligations of the Parent Guarantors arising under Article 10 of
- ----- ----------
this Credit Agreement, (v) the Obligations of the Borrowers (in their capacity
as Guarantors) under the Guaranty and Contribution Agreements and (vi) all
obligations and liabilities of the Borrowers to any Lender in respect of
Interest Rate Agreements permitted hereunder.
Old Equity Interests means the "Old Common Stock," "Old Preferred Stock,"
--------------------
"Old Stock Rights" and "Securities Claims," in each case as defined in the Plan
of Reorganization.
Old Notes is defined in the Plan of Reorganization.
---------
Operating Lease means, as applied to any Person, any lease of any property
---------------
(whether real, personal or mixed) by that Person as lessee which is not a
Capital Lease.
Paid In Full, Pay In Full and Payment In Full means, with respect to the
------------ ----------- ---------------
Obligations of any Credit Party, (i) the payment in full in cash of all
Obligations of such Credit Party (other than, as of any date of payment, the
Obligations which are contingent and unliquidated and not due and owing and
which pursuant to the provisions of the Credit Documents survive the termination
of this Credit Agreement, the repayment of the Loans, the termination of the
Commitments and the expiration or cancellation of all Letters of Credit) and
(ii) with respect to Letters of Credit issued for the account of such Credit
Party, the termination and surrender for cancellation of such Letters of Credit
or the delivery of cash, Cash Equivalents or other Collateral held as security
for the Obligations in respect of such Letters of Credit as required by this
Credit Agreement or the other Credit Documents.
Parent Guarantor is defined in the preamble to this Credit Agreement.
----------------
PBGC means the Pension Benefit Guaranty Corporation and any Person
----
succeeding to the functions thereof.
-22-
<PAGE>
Permitted Discretion means the Agent's reasonable good faith judgment
--------------------
based upon any factor which it believes in good faith: (i) will or could
adversely affect the value of any Collateral, the enforceability or priority of
the Liens of the Agent, for the benefit of the Holders, thereon or the amount
which the Agent and the Holders would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in the liquidation
of such Collateral; (ii) reasonably suggests that any collateral report or
financial information delivered to the Agent by any Credit Party or any Person
on behalf of, and at the request of, any Credit Party is incomplete, inaccurate
or misleading in any material respect; (iii) materially increases the likelihood
of the occurrence of an Insolvency Event involving a Credit Party or any of the
Collateral or (iv) creates or reasonably could be expected to create a Default
or an Event of Default. In exercising such judgment with respect to a Borrower,
the Agent may reasonably consider such factors already included in or tested by
the definitions of "Eligible Accounts" or "Eligible Rental Equipment," as well
as any of the following: (a) the financial and business climate of the
Borrower's industry and general macroeconomic conditions, (b) changes in
collection history and dilution with respect to the Accounts of the Borrower,
(c) changes in demand for, and pricing of, Rental Equipment of the Borrower,
(d) changes in any concentration of risk with respect to Accounts or Rental
Equipment of the Borrower and (e) any other factors that change the credit risk
of lending to the Borrower on the security of the Accounts or Rental Equipment
of the Borrower. The burden of establishing lack of good faith shall be on the
Credit Parties.
Permitted Lien is defined in Section 8.7.
-------------- -----------
Person means any natural person, corporation, limited liability company,
------
limited partnership, general partnership, joint stock company, joint venture,
association, company, trust, bank, trust company, land trust, business trust or
other organization, whether or not a legal entity, and any Governmental
Authority.
Plan means any Benefit Plan, Multiemployer Plan, Retiree Health Plan or
----
other employee benefit plan, program or arrangement maintained or contributed to
by a Credit Party or any ERISA Affiliate, or with respect to which any of them
may incur liability.
Plan of Reorganization means the Debtor's Plan of Reorganization filed by
----------------------
Acme Holdings and its Subsidiaries in the Bankruptcy Court on July 13, 1995,
attached hereto as Exhibit H.
---------
Prime Lending Rate means the rate which Bankers Trust Company announces as
------------------
its prime lending rate from time to time. The Prime Lending Rate is a reference
rate and does not
-23-
<PAGE>
necessarily represent the lowest or best rate actually charged to any customer.
Bankers Trust Company and each of the Lenders may make commercial loans or other
loans at rates of interest at, above or below the Prime Lending Rate.
Prime Rate Loan means a Loan that bears interest as provided in Section
--------------- -------
4.1.
- ---
Productive Assets means, with respect to any Credit Party, assets of a
-----------------
kind then used or usable in the business of a Credit Party existing on the
Closing Date or in lines of business reasonably related thereto and shall
include assets consisting of capital stock of a Person acquired in an
Acquisition.
Pro Forma means the unaudited pro forma opening consolidated balance sheet
---------
of AAHC, prepared on a basis consistent with the pro forma balance sheet in the
Disclosure Statement, dated as of July 31, 1995, and giving effect to the
Restructuring and the extensions of credit contemplated by this Credit
Agreement, attached hereto as Exhibit I.
---------
Projections means the forecasted (i) condensed consolidated balance sheet
-----------
of AAHC, (ii) condensed consolidated income statements of AAHC, (iii) condensed
consolidated cash flow statements of AAHC, (iv) consolidated capitalization
statements of AAHC and (v) compliance with the Financial Covenants, all prepared
by management of AAHC and the Credit Parties on a basis consistent with AAHC's
and the Credit Parties' historical Financial Statements for the period
commencing on the Closing Date and ending in 1999, together with appropriate
supporting details and a statement of underlying assumptions, attached hereto as
Exhibit J.
- ---------
Proportionate Share of a Lender means a fraction, expressed as a decimal,
-------------------
obtained by dividing its Commitment by the total Commitments of all the Lenders
or, if the Commitments are terminated, by dividing (i) the sum of (A) the
outstanding Loans made by such Lender, plus (B) the amount of such Lender's
----
unfunded participations in outstanding Letters of Credit, plus (C) the amount of
----
all payments made by such Lender to the Issuing Bank in respect of its
participations in Letters of Credit for which a Borrower has not reimbursed such
Lender (other than with respect to outstanding Loans deemed requested pursuant
to Section 3.5), by (ii) the sum of (A) the aggregate amount of all Loans then
-----------
outstanding plus (B) the amount of all Lenders' unfunded participations in
----
outstanding Letters of Credit, plus (C) the amount of all payments made by all
----
Lenders to the Issuing Bank in respect of their respective participations in
Letters of Credit for which a Borrower has not reimbursed the Lenders (other
than with respect to outstanding Loans deemed requested pursuant to Section
-------
3.5).
- ---
Purchase Money Liens is defined in Section 8.6.
-------------------- -----------
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<PAGE>
Quarterly Determination Date means, with respect to any period, each March
----------------------------
31, June 30, September 30 and December 31 occurring during such period.
Real Property means, with respect to any Person, all of such Person's
-------------
present and future right, title and interest (including, without limitation, any
leasehold estate) in any plots, pieces or parcels of land, and any improvements,
buildings, structures and fixtures now or hereafter located or erected thereon
or attached thereto of every nature whatsoever.
Register is defined in Section 12.8.
-------- ------------
Regulations A, D, G, U, X and Z means Regulations A, D, G, U, X and Z,
------------------------- -
respectively, of the Board of Governors of the Federal Reserve System (or any
Governmental Authority succeeding to its functions), in each case as in effect
from time to time, and any successor regulations.
Release Payment is defined in the Plan of Reorganization and in the
---------------
Disclosure Statement.
Reportable Event means any of the events described in Section 4043 of
----------------
ERISA and the regulations thereunder.
Rental Equipment of any Person means all goods held for rental by such
----------------
Person in the ordinary course of business and all used rental goods held for
sale by such Person in the ordinary course of business.
Rental Equipment Utilization means, for any twelve-month period, the
----------------------------
result (expressed as a percentage) obtained from dividing (i) the total revenue
of the Borrowers attributable to the rental of Rental Equipment owned or leased
by the Borrowers during such twelve-month period by (ii) the average amount for
such twelve-month period of Rental Equipment owned or leased by the Borrowers as
of the last day of each month during such twelve-month period, determined on the
basis of the applicable Borrower's original cost of such Rental Equipment. For
purposes of this definition, for any period prior to the Closing Date, Rental
Equipment owned or leased by the Borrowers shall include the Rental Equipment of
Acme Acquisition.
Rental Equipment Utilization Cure Date is defined in Section 8.1.
-------------------------------------- -----------
Requirement of Law means (i) the Governing Documents of a Person, (ii) any
------------------
law, treaty, rule, regulation, order or determination of an arbitrator, court or
other Governmental Authority or (iii) any franchise, license, lease, permit,
certificate, authorization, qualification, easement, right of way, right or
approval binding on a Person or any of its property.
-25-
<PAGE>
Restricted Account, Restricted Account Agreements and Restricted Account
------------------ ----------------------------- ------------------
Bank are defined in Section 4.12.
- ---- ------------
Restructuring is defined in the recitals to this Credit Agreement.
-------------
Restructuring Document means any agreement, document or instrument (other
----------------------
than the Credit Documents) entered into, filed or delivered by or on behalf of,
AAHC or any of the Credit Parties arising out of, in connection with or
pertaining or relating to any aspect of the Restructuring, including, without
limitation, the Citicorp Purchase Agreement, the Citicorp Documents, the
Intercreditor Agreement, the Management Agreement, the Merger Agreement, the
AAHC Preferred Stock Amendment, the Plan of Reorganization and the Disclosure
Statement.
Retiree Health Plan means an "employee welfare benefit plan" within the
-------------------
meaning of Section 3(1) of ERISA that provides benefits to persons after
termination of employment, other than as required by Section 601 of ERISA.
Security Agreement means the Security and Pledge Agreement of even date
------------------
herewith originally executed by the Parent Guarantors and the Borrowers in favor
of the Agent, for the benefit of the Holders, in substantially the form of
Exhibit K, as the same may be amended, restated, supplemented or otherwise
- ---------
modified in accordance with the terms hereof and thereof.
Settlement Date is defined in Section 2.6.
--------------- -----------
Subsidiary of a Person means any corporation, limited liability company,
----------
general or limited partnership or other Person of which securities or other
ownership interests having ordinary voting power to elect or appoint a majority
of the board of directors, managers or other Persons performing similar
functions with respect to such corporation, limited liability company, general
or limited partnership or other Person are at the time directly or indirectly
owned or controlled by such Person, one or more of the other subsidiaries of
such Person or any combination thereof.
Taxes is defined in Section 4.16(a).
----- ---------------
Termination Event means (i) a Reportable Event with respect to any Benefit
-----------------
Plan or Multiemployer Plan; (ii) the withdrawal of a Credit Party or any ERISA
Affiliate from a Benefit Plan during a plan year in which it was a "substantial
employer" (as defined in Section 4001(a)(2) of ERISA); (iii) the providing of
notice of intent to terminate a Benefit Plan in a distress termination (as
described in Section 4041(c) of ERISA); (iv) the institution by the PBGC of
proceedings to terminate a Benefit Plan or Multiemployer Plan; (v) any event or
condition (A) which might constitute grounds under Section 4042 of ERISA for the
-26-
<PAGE>
termination of, or the appointment of a trustee to administer, any Benefit Plan
or Multiemployer Plan or (B) that may result in termination of a Multiemployer
Plan pursuant to Section 4041A of ERISA; or (vi) the partial or complete
withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of a Credit
Party or any ERISA Affiliate from a Multiemployer Plan.
Trademark Security Agreement means the Trademark Security Agreement of
----------------------------
even date herewith originally executed by the Parent Guarantors and the
Borrowers in favor of the Agent, for the benefit of the Holders, in
substantially the form of Exhibit L, as the same may be amended, restated,
---------
supplemented or otherwise modified in accordance with the terms hereof and
thereof.
Type means, in reference to a Loan, that it is a Eurodollar Rate Loan or a
----
Prime Rate Loan.
Unused Line Fee is defined in Section 4.4.
--------------- -----------
Voting Power means the total voting power of all issued and outstanding
------------
shares of capital stock of AAHC entitled to vote generally in the election of
directors.
Walker Jones is defined in the preamble to this Credit Agreement.
------------
1.2 Accounting Terms and Determinations. Unless otherwise defined or
-----------------------------------
specified herein, all accounting terms used in this Credit Agreement shall be
construed in accordance with GAAP, applied on a basis consistent in all material
respects with the Financial Statements delivered to the Agent on or before the
Closing Date. All accounting determinations for purposes of determining
compliance with the Financial Covenants shall be made in accordance with GAAP as
in effect on the Closing Date and applied on a basis consistent in all material
respects with the audited Financial Statements delivered to the Agent on or
before the Closing Date. The Financial Statements required to be delivered
hereunder from and after the Closing Date, and all financial records, shall be
maintained in accordance with GAAP, provided, that interim Financial Statements
--------
shall be subject to year-end audit adjustments and reclassifications and month-
end reconciliations, in each case to the extent consistent with the current
practices of AAHC and the Credit Parties, and may be prepared without footnotes.
If GAAP shall change from the basis used in preparing the audited Financial
Statements delivered to the Agent on or before the Closing Date, the Compliance
Certificate required to be delivered pursuant to Section 7.1 shall, at the
-----------
election of the Credit Parties or upon the request of the Majority Lenders,
include calculations setting forth the adjustments necessary to demonstrate how
the Credit Parties are in compliance with the Financial Covenants and Section
-------
8.9(vi) based upon GAAP as in effect on the Closing Date.
- -------
-27-
<PAGE>
1.3 Computation of Time Periods. In this Credit Agreement, in the
---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding". Periods of days referred to in this Credit Agreement
shall be counted in calendar days unless Business Days are expressly prescribed.
Any period determined hereunder by reference to a month or months or year or
years shall end on the day in the relevant calendar month in the relevant year,
if applicable, immediately preceding the date numerically corresponding to the
first day of such period, provided that if such period commences on the last day
--------
of a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month during which such period is to end), such period
shall, unless otherwise expressly required by the other provisions of this
Credit Agreement, end on the last day of the calendar month.
1.4 Other Terms; Headings. Terms used herein that are defined in the
---------------------
Uniform Commercial Code in effect in the State of New York (the "Code") shall
----
have the meanings given in the Code. Each of the words "hereof," "herein," and
"hereunder" refer to this Credit Agreement as a whole. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in accordance with Section 12.11 or cured (to the extent such Event of Default
-------------
can be cured). References to Articles, Sections, clauses, Annexes, Schedules
and Exhibits are internal references to this Credit Agreement and to its
attachments, unless otherwise specified. The headings and the Table of Contents
are for convenience only and shall not affect the meaning or construction of any
provision of this Credit Agreement.
ARTICLE 2
LOANS
-----
2.1 Commitments.
-----------
(a) Subject to the terms and conditions set forth in this Credit
Agreement, on and after the Closing Date and to the Expiration Date, each Lender
severally agrees to make revolving loans and advances to the Borrowers ("Loans")
-----
in an amount not to exceed at any time its Proportionate Share of the lesser of
-------------
(i) the total Commitments and (ii) the sum of the Borrowing Bases of the
Borrowers, minus, in each case, the then outstanding Letter of Credit
Obligations. In addition to the limitations set forth in the preceding sentence,
the amount of Loans outstanding to any Borrower shall not exceed at any time the
Borrowing Base of that Borrower, minus the Letter of Credit Obligations with
-----
respect to Letters of Credit issued for the account of that Borrower.
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<PAGE>
(b) The Agent may, but shall not be obligated to, rely on each Borrowing
Base Certificate and any other schedules or reports in determining the
eligibility of Accounts and Rental Equipment. The Agent, in the exercise of its
Permitted Discretion, may (i) establish and increase or decrease reserves
against Eligible Accounts and Eligible Rental Equipment, (ii) reduce the advance
rates provided for in the definition of "Borrowing Base," or restore such
advance rates to any level equal to or below the advance rates in effect as of
the date of this Credit Agreement and (iii) reasonably impose additional
restrictions (or eliminate the same) to the standards of eligibility set forth
in the definitions of "Eligible Accounts" and "Eligible Rental Equipment."
(c) Subject to the provisions of this Credit Agreement, each Borrower
may repay any outstanding Loan made to that Borrower on any day which is a
Business Day and any amounts so repaid may be reborrowed, up to the amount
available under Section 2.1(a) at the time of such Borrowing, to the Expiration
--------------
Date.
2.2 Borrowing of Loans.
------------------
(a) Borrowings. Loans may be made available to the Borrower requesting
----------
(or deemed to have requested) the Loans by the Lenders pursuant to Section
-------
2.2(c) ("Lender Advances") and by the Agent acting on behalf of the Lenders
- ------ ---------------
pursuant to Section 2.2(b) ("Agent Advances"). Except as provided in Sections
-------------- -------------- --------
2.2(b)(ii), 4.11(c) and 4.14, all Borrowings shall be made only after receipt by
- ---------- ------- ----
the Agent of a Notice of Borrowing (i) on the Closing Date, in the case of a
Borrowing on the Closing Date, (ii) not later than 1:00 P.M. New York City time
on the Business Day which is the proposed Borrowing date with respect to Lender
Advances of Prime Rate Loans made after the Closing Date, (iii) not later than
1:00 P.M. New York City time on the third Business Day prior to the proposed
Borrowing date with respect to Lender Advances of Eurodollar Rate Loans after
the Closing Date and (iv) not later than 1:00 P.M. New York City time on the
Business Day which is the proposed Borrowing date with respect to Agent Advances
of Prime Rate Loans made after the Closing Date. Each Borrowing shall, unless
otherwise specifically provided herein, consist entirely of Loans of the same
Type. Borrowings of Prime Rate Loans on the same Business Day shall be in an
aggregate principal amount for all Borrowers requesting that Loans be made as,
or converted into, Prime Rate Loans on such Business Day of not less than
$1,000,000 or an integral multiple of $500,000 in excess thereof. Borrowings of
Eurodollar Rate Loans on the same Business Day shall be in an aggregate
principal amount for all Borrowers requesting that Loans be made or continued
as, or converted into, Eurodollar Rate Loans with the same Interest Period on
such Business Day of not less than $5,000,000 or an integral multiple of
$1,000,000 in excess thereof. Subject to the foregoing limits, each Borrower
may request one or more
-29-
<PAGE>
Borrowings of Prime Rate Loans on the same Business Day, but may request only
one Borrowing of Eurodollar Rate Loans (excluding continuations of Eurodollar
Rate Loans) for any Business Day (which shall be funded simultaneously with all
Loans requested to be made as, or converted into, Eurodollar Rate Loans
requested by the other Borrowers on such Business Day). All Loans made on the
Closing Date shall initially be Prime Rate Loans and thereafter may be continued
as Prime Rate Loans or converted into Eurodollar Rate Loans, in the manner
provided in Section 4.14(b) and subject to the conditions therein set forth and
---------------
in Section 5.2.
-----------
(b) Agent Advances of Loans. After the Closing Date, the Agent is
-----------------------
authorized by the Lenders, but is not obligated, to make Agent Advances for its
own account (i) upon receiving any Notice of Borrowing requesting Lender
Advances or Agent Advances constituting Prime Rate Loans within the applicable
time limits set forth in Section 2.2(a) or (ii) upon advice received by the
--------------
Agent on a Business Day from the Disbursement Account Bank that the face amount
of checks drawn on the Disbursement Account, which have been or will be
presented for payment on that day exceeds the amount of funds then available in
the Disbursement Account. All Agent Advances will be Prime Rate Loans and may
be made, at the election of the Agent, without regard to the minimum principal
amounts in Section 2.2(a). Agent Advances will be subject to periodic
--------------
settlement with the Lenders under Section 2.6. For administrative convenience,
-----------
the Agent may, but is not obligated to, make Agent Advances in reliance upon the
Borrowers' actual or deemed representations under Section 5.2 that the
-----------
conditions for borrowing are satisfied. If the conditions for Borrowing under
Section 5.2 cannot be fulfilled, the Borrower which requested the Borrowing
- -----------
shall in its Notice of Borrowing or otherwise give immediate notice thereof
(specifying the circumstances which prevent the conditions from being fulfilled)
to the Agent, with a copy to each of the Lenders, and the Agent may, but is not
obligated to, continue to make Agent Advances for 20 Business Days from the date
the Agent first receives such Notice of Borrowing, or until sooner instructed by
the Majority Lenders to cease (the "Agent Advance Period"). Once notice is
--------------------
given by a Borrower that circumstances exist which prevent the conditions to
borrowing from being fulfilled, no additional notice with respect to the same
circumstances will be effective to commence a new Agent Advance Period.
(c) Lender Advances of Loans. If the Agent receives a Notice of
------------------------
Borrowing within the applicable time limits for Lender Advances pursuant to
Section 2.2(a) and does not intend to fund such requested Borrowing as an Agent
- --------------
Advance, the Agent shall give each Lender prompt notice by telephone or
facsimile transmission of a Notice of Borrowing that requests Lender Advances of
Loans. Subject to the reasonable determination by the Agent and the Lenders
that the applicable conditions for borrowing contained in Article 5 are
---------
satisfied, each Lender shall make available to the Agent at the Agent's address
specified in
-30-
<PAGE>
Annex I its Proportionate Share of such Borrowing in immediately available
- -------
funds no later than 2:00 P.M. New York City time on the date of receipt of the
Notice of Borrowing. Unless the Agent receives contrary written notice prior to
the date of any such Borrowing, it is entitled to assume that each Lender will
make available its Proportionate Share of the Borrowing and in reliance upon
that assumption, but without any obligation to do so, may advance such
Proportionate Share on behalf of the Lender.
2.3 Disbursement of Loans. The proceeds of Loans shall be transmitted
---------------------
by the Agent (a) to the Disbursement Account upon advice received by the Agent
from the Disbursement Account Bank, as described in Section 2.2(b)(ii), directly
------------------
to the Disbursement Account, (b) in the circumstances described in Section 3.5,
-----------
directly to the applicable Issuing Bank, (c) in the circumstances described in
Section 4.11(c), directly to the applicable Holder and (d) in all other
- ---------------
circumstances, as requested by the Borrower in its Notice of Borrowing.
2.4 Notices of Borrowing. Notices of Borrowing may be given by
--------------------
telephone or facsimile transmission or in writing, and, if by telephone,
confirmed by a written Notice of Borrowing delivered to the Agent by facsimile
transmission promptly, but in no event later than 4:00 P.M. New York City time
on the same day. Each Notice of Borrowing shall specify (i) the proposed
Borrowing date (which shall be a Business Day), (ii) the amount of the proposed
Borrowing, (iii) the aggregate principal amount of Loans and Letter of Credit
Obligations of all Borrowers as of the date of such Notice of Borrowing,
(iv) the aggregate principal amount of Loans and Letter of Credit Obligations of
the Borrower requesting the Borrowing as of the date of such Notice of
Borrowing, (v) whether the proposed Borrowing will consist of Agent Advances or
Lender Advances, (vi) whether the proposed Borrowing will be of Prime Rate Loans
or Eurodollar Rate Loans, together with the aggregate principal amount of all
Loans of the Type requested by the Borrowers to be made or continued as, or
converted into, Loans of such Type on the proposed Borrowing date, (vii) in the
case of Eurodollar Rate Loans, the requested Interest Period, (viii)
instructions for the disbursement of the proceeds of the proposed Borrowing and
(ix) whether the conditions for the requested Borrowing are satisfied. Once
given, a Notice of Borrowing that requests a Lender Advance is irrevocable by
and binding on the Credit Parties.
2.5 Authorized Officers and Agents. On the Closing Date the Borrowers
------------------------------
shall deliver, and from time to time thereafter any Borrower may deliver, to the
Agent a certificate setting forth the names of the officers, employees and
agents authorized to request Loans and Letters of Credit for each Borrower and
to request a conversion or continuation of any Loan, in each instance containing
a specimen signature of each such officer, employee or agent. The officers,
employees and agents so authorized shall also be authorized to act for the
applicable
-31-
<PAGE>
Borrower in respect of all other matters relating to the Credit Documents. The
Agent, Lenders and Issuing Bank shall be entitled to rely conclusively on such
officer's, employee's, or agent's authority to request such Loan or Letter of
Credit or such conversion or until the Agent receives written notice to the
contrary. None of the Agent, the Lenders or the Issuing Bank shall have any duty
to verify the authenticity of the signature appearing on any such certificate,
written Notice of Borrowing, Notice of Conversion or Notice of Continuation, or
any other document, and, with respect to an oral request for such a Loan or
Letter of Credit or such conversion/continuation, the Agent shall have no duty
to verify the identity of any person representing himself or herself as one of
the officers, employees or agents authorized to make such request or otherwise
to act on behalf of the applicable Borrower. None of the Agent, the Lenders or
the Issuing Bank shall incur any liability to any Borrower or any other Person
in acting upon any telephonic or facsimile notice referred to above which the
Agent, such Lender, or the Issuing Bank believes to have been given by a duly
authorized officer or other person authorized to borrow on behalf of a Borrower.
2.6 Periodic Settlement of Agent Advances and Repayments.
----------------------------------------------------
(a) The Settlement Date. The amount of each Lender's Proportionate
-------------------
Share of Loans shall be computed weekly (or more frequently in the Agent's
discretion) and shall be adjusted upward or downward based on all Loans
(including Agent Advances) and repayments received by the Agent as of 5:00 P.M.
New York City time on the last Business Day of the period specified by the Agent
(such date, the "Settlement Date").
---------------
(b) Summary Statements; Settlements of Principal. The Agent shall
--------------------------------------------
deliver to each of the Lenders promptly after the Settlement Date a summary
statement of the amount of outstanding Loans (including Agent Advances) for the
period and the amount of repayments received for the period. As reflected on the
summary statement, subject to Section 2.8, each Lender shall transfer to the
-----------
Agent, or the Agent shall transfer to each Lender, such amounts as are necessary
to insure that, after giving effect to all such transfers (including each
Lender's Proportionate Share of repayments received by the Agent during the
period covered by the summary statement), the amount of Loans made by each
Lender shall be equal to such Lender's Proportionate Share of the aggregate
amount of Loans outstanding as of such Settlement Date. If the summary statement
requires transfers to be made to the Agent by the Lenders and is received prior
to 12:00 Noon New York City time on a Business Day, such transfers shall be made
in immediately available funds no later than 3:00 P.M. New York City time that
day; and, if received after 12:00 Noon New York City time, then no later than
3:00 P.M. New York City time on the next Business Day. The obligation of each
Lender to transfer such funds is irrevocable, unconditional and without recourse
to or warranty by the Agent.
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<PAGE>
(c) Distribution of Interest and Unused Line Fees. Interest on the
---------------------------------------------
Loans (including Agent Advances) together with the amount of the Unused Line
Fee, shall be allocated by the Agent to each Lender in accordance with the
Proportionate Share of Loans actually advanced by and repaid to each Lender, and
shall accrue from the date such Loans are so advanced and to the date such Loans
are either repaid by a Borrower or actually settled under this Section 2.6.
-----------
Promptly after the end of each month, the Agent shall distribute to each Lender
its Proportionate Share of the interest and Unused Line Fee accrued and paid (or
deemed paid) to the Agent during that month; provided, however, that the Agent
-------- -------
shall distribute interest on Eurodollar Rate Loans promptly after it is
received.
2.7 Sharing of Payments. If any Lender obtains any payment in excess of
-------------------
its Proportionate Share of payments on account of the Loans or Letter of Credit
Obligations, it will immediately purchase, without warranty or recourse, from
the other Lenders an undivided interest and participation (which it shall be
deemed to have done simultaneously upon the receipt of such payment) in their
respective Loans and Letter of Credit participations sufficient to cause that
Lender to share the excess payment ratably with all the other Lenders; provided,
--------
however, that if all or part of such excess payment received by the purchasing
- -------
party is thereafter recovered from it, those purchases shall be rescinded and
the purchase prices paid for such participations shall be returned to such party
to the extent necessary to adjust for such recovery, but without interest except
to the extent the purchasing party is required to pay interest in connection
with such recovery. The Credit Parties agree that any Lender so purchasing a
participation from another Lender pursuant to this Section 2.7 may, to the
-----------
fullest extent permitted by law, exercise all its rights of payment (including,
subject to Section 9.5, the right of setoff) with respect to such participation
-----------
as fully as if such Lender were the direct creditor of the Credit Parties in the
amount of such participation.
2.8 Defaulting Lenders.
------------------
(a) A Lender who fails to pay the Agent its Proportionate Share of any
Loans (including Agent Advances) made available by the Agent on such Lender's
behalf, or who fails to pay any other amount owing by it to the Agent, is a
"Defaulting Lender." The Agent may recover all such amounts owing by a
- ------------------
Defaulting Lender on demand. If the Defaulting Lender does not pay such amounts
on the Agent's demand, the Agent shall promptly notify the Borrower which
requested the Loans, and the Borrower shall pay such amounts within five
Business Days. In addition, the Defaulting Lender or the Borrowers shall pay
the Agent interest on such amount for each day from the date it was made
available by the Agent to the applicable Borrower to the date it is recovered by
the Agent at a rate per annum equal to (i) the Federal Funds Rate, if paid by
---------
the Defaulting Lender or (ii) the then
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<PAGE>
applicable rate of interest calculated under Section 4.1, if paid by the
-----------
Borrower; plus, in each case, the Expenses and losses, if any, incurred as a
----
result of the Defaulting Lender's failure to perform its obligations.
(b) The failure of any Lender to fund its Proportionate Share of any
Loan (including Agent Advances) shall not relieve any other Lender of its
obligation to fund its Proportionate Share of such Loan. Conversely, no Lender
shall be responsible for the failure of another Lender to fund its Proportionate
Share of a Loan.
(c) The Agent shall not be obligated to transfer to a Defaulting Lender
any payments made by a Credit Party to the Agent for the Defaulting Lender's
benefit; nor shall a Defaulting Lender be entitled to the sharing of any
payments hereunder. Amounts payable to a Defaulting Lender shall instead be paid
to or retained by the Agent. The Agent may hold and, in its discretion, re-lend
to the applicable Borrower the amount of all such payments received or retained
by it for the account of such Defaulting Lender. For purposes of voting or
consenting to matters with respect to the Credit Documents and determining
Proportionate Shares, such Defaulting Lender shall be deemed not to be a
"Lender" and, for such purposes solely, such Lender's Commitment shall be deemed
to be zero (-0-). This Section 2.8 shall remain effective with respect to such
-----------
Lender until (x) the Obligations under this Credit Agreement shall have
been declared or shall have become immediately due and payable, (y) the
Commitments shall have been terminated or (z) the Majority Lenders, the Agent
and the Borrowers shall have waived such Lender's default in writing. The
operation of this Section 2.8 shall not be construed to increase or otherwise
-----------
affect the Commitment of any Lender, or relieve or excuse the performance by any
Credit Party of its duties and obligations hereunder.
ARTICLE 3
LETTERS OF CREDIT
-----------------
3.1 Issuance of Letters of Credit. Subject to the terms and conditions
-----------------------------
hereunder and in reliance on the representations and warranties of the Credit
Parties set forth herein, the Agent shall from time to time cause the Issuing
Bank to issue Letters of Credit hereunder at the request of a Borrower and for
its account, as more specifically described below. The Agent shall not be
obligated to cause the Issuing Bank to issue any Letter of Credit if:
(a) Issuance of the requested Letter of Credit (i) would cause the
Letter of Credit Obligations then outstanding to exceed $2,000,000.00, (ii)
would cause the sum of the Loans plus the Letter of Credit Obligations then
----
outstanding to exceed the
---
-34-
<PAGE>
lesser of (x) the total Commitments then in effect and (y) the aggregate of the
- ---------
Borrowing Bases then in effect or (iii) would cause the sum of the Loans made to
the Borrower requesting the Letter of Credit plus the Letter of Credit
----
Obligations then outstanding with respect to Letters of Credit issued for the
account of the Borrower to exceed the Borrowing Base of the Borrower then in
effect; or
(b) Issuance of the Letter of Credit is enjoined, restrained or
prohibited by any Governmental Authority, Requirement of Law or any request or
directive of any Governmental Authority (whether or not having the force of law)
or would impose upon the Agent or the Issuing Bank any material restriction,
reserve, capital requirement, loss, cost or expense (for which the Agent or the
Issuing Bank is not otherwise compensated) not in effect or known as of the
Closing Date.
3.2 Terms of Letters of Credit. The proposed amount, terms and
--------------------------
conditions, and form of each Letter of Credit (and of any drafts or acceptances
thereunder) shall be subject to approval by the Agent and the Issuing Bank. The
term of each Letter of Credit shall not exceed 360 days, but may be subject to
annual renewal. No Letter of Credit shall have an expiry date later than five
Business Days prior to the Expiration Date.
3.3 Notice of Issuance. A request for issuance of a Letter of Credit (a
------------------
"Letter of Credit Request") may be given by telephone or facsimile transmission
or in writing in substantially the form of Exhibit M, and, if by telephone,
---------
confirmed by a written Letter of Credit Request delivered to the Agent by
facsimile transmission promptly, but in no event later than 4:00 P.M. New York
City time on the same day. A Letter of Credit Request must be received by the
Agent no later than 1:00 P.M. New York City time at least five (5) Business Days
(or such shorter period as may be agreed to by the Issuing Bank) in advance of
the proposed date of issuance. Such Letter of Credit Request shall be
irrevocable unless and until such request is denied by the applicable Issuing
Bank and shall specify (i) the stated amount of the Letter of Credit requested,
(ii) the effective date (which shall be a Business Day) of issuance of such
Letter of Credit, (iii) the date on which such Letter of Credit is to expire
(which shall be a Business Day and no later than five Business Days prior to the
Expiration Date), (iv) the Person for whose benefit such Letter of Credit is to
be issued, (v) other relevant terms of such Letter of Credit, (vi) the aggregate
principal amount of Loans and Letter of Credit Obligations of all Borrowers as
of the date of such Letter of Credit Request, (vii) the aggregate principal
amount of Loans and Letter of Credit Obligations of the Borrower requesting the
Letter of Credit as of the date of such Letter of Credit Request, (viii) the
aggregate Letter of Credit Obligations of all Borrowers as of the date of such
Letter of Credit Request and (ix) whether the conditions for the requested
Letter of Credit are satisfied.
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3.4 Lenders' Participation. Immediately upon issuance or amendment of
-----------------------
any Letter of Credit, each Lender shall be deemed to have irrevocably and
unconditionally purchased and received from the Issuing Bank, without recourse
or warranty, an undivided interest and participation in all rights and
obligations under such Letter of Credit (other than fees and other amounts owing
to the Issuing Bank) in accordance with such Lender's Proportionate Share.
3.5 Payment of Amounts Drawn Under Letters of Credit. Upon notice from
------------------------------------------------
the Issuing Bank of any drawing under any Letter of Credit, the Agent shall
notify the Borrowers of such drawing not later than 11:00 A.M. on the Business
Day immediately prior to the date on which the Issuing Bank intends to honor
such drawing, provided that the Agent's failure to notify the Borrowers shall
--------
not affect the obligations of any Borrower hereunder. The Borrower for whose
account the Letter of Credit was issued will be deemed to have concurrently
given a Notice of Borrowing to the Agent for Prime Rate Loans in the amount of
and at the time of such drawing, which Loans shall not be subject to the
conditions set forth in Section 5.2. The proceeds of such Loans shall be
-----------
applied directly by the Agent to reimburse the Issuing Bank for the amount of
such drawing.
3.6 Payment by Lenders. If Loans are not made in an amount sufficient
------------------
to reimburse the Issuing Bank in full for the amount of any draw, the Agent
shall promptly notify each Lender of the unreimbursed amount of such drawing and
of such Lender's respective participation therein. Each Lender shall make
available to the Agent, for the account of the Issuing Bank, the amount of its
participation in immediately available funds not later than 1:00 P.M. New York
City time on the next Business Day. If any Lender fails to make available to the
Agent the amount of such Lender's participation, the Issuing Bank shall be
entitled to recover such amount on demand from such Lender together with
interest at the Federal Funds Rate for the first three Business Days and
thereafter at the Prime Lending Rate. For each Letter of Credit, the Agent shall
promptly distribute to each Lender which has funded the amount of its
participation its Proportionate Share of all payments subsequently received by
the Agent from the Borrowers in reimbursement of honored drawings, including any
interest thereon. If an Issuing Bank receives any such payment, the Issuing Bank
shall promptly pay the same to the Agent, and the Agent shall distribute such
payment in accordance with the immediately preceding sentence.
3.7 Nature of Issuing Bank's Duties. In determining whether to pay
-------------------------------
under any Letter of Credit, the Issuing Bank shall be responsible only to
determine that the documents and certificates required to be delivered under
that Letter of Credit have been delivered and that they comply on their face
with the requirements of that Letter of Credit. As among the Borrowers, the
Issuing Bank and each other Lender, the Borrowers assume all
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risks of the acts and omissions of the Issuing Bank, except for such actions or
omissions that result from the gross negligence or willful misconduct of the
Issuing Bank, or misuse of the Letters of Credit by the respective beneficiaries
of such Letters of Credit. Any action taken or omitted to be taken by the
Issuing Bank under or in connection with any Letter of Credit, if taken or
omitted in the absence of gross negligence or willful misconduct, shall not
create for the Issuing Bank any liability to any Borrower, the Agent or any
Lender.
3.8 Obligations Absolute. The obligations of the Borrowers to reimburse
--------------------
the Issuing Bank for drawings honored under the Letters of Credit and the
obligations of the Lenders under Sections 3.5 and 3.6 shall be unconditional and
------------ ---
irrevocable and shall be paid strictly in accordance with the terms of this
Credit Agreement under all circumstances including, without limitation, the fact
that a Default or an Event of Default shall have occurred and be continuing
provided, in each case, that payment by the Issuing Bank under the applicable
- --------
Letter of Credit shall not have constituted gross negligence or willful
misconduct of the Issuing Bank under the circumstances in question (as
determined by a final judgment of a court of competent jurisdiction).
3.9 Agent's Execution of Applications and Other Issuing Bank
--------------------------------------------------------
Documentation; Reliance on Credit Agreement by Issuing Bank. The Agent shall
- -----------------------------------------------------------
be authorized to execute, deliver and perform on behalf of the Lenders such
letter of credit applications, letter of credit modifications and consents and
other undertakings for the benefit of the Issuing Bank as may be reasonably
necessary or appropriate in connection with the issuance or modification of
Letters of Credit requested by a Borrower hereunder. The Lenders, the Agent and
the Borrowers all expressly agree that the terms of this Article 3 and various
---------
other provisions of this Credit Agreement identifying the Issuing Bank
are also intended to benefit the Issuing Bank and the Issuing Bank shall be
entitled to enforce the provisions hereof which are for its benefit.
3.10 Additional Payments. If by reason of (a) any change after the date
-------------------
hereof in any Requirement of Law or any change after the date hereof in the
interpretation, administration or application by any Governmental Authority of
any Requirement of Law or (b) compliance by the Issuing Bank or any Lender with
any direction, request or requirement (whether or not having the force of law)
of any Governmental Authority or monetary authority after the date hereof
including, without limitation, Regulation D:
(i) any reserve, deposit or similar requirement is or shall be
applicable, imposed or modified in respect of any Letters of Credit issued by
the Issuing Bank or participations therein purchased by any Lender; or
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<PAGE>
(ii) there shall be imposed on the Issuing Bank or any Lender any other
condition regarding this Section 3.10, any Letter of Credit or any participation
------------
therein;
and the result of the foregoing is to increase directly or indirectly the cost
to the Issuing Bank or any Lender of issuing, making or maintaining any Letter
of Credit or of purchasing or maintaining any participation therein, or to
reduce the amount receivable in respect thereof by the Issuing Bank or any
Lender, then, and in any such case, the Issuing Bank or such Lender may, at any
time within 180 days after the additional cost is incurred or the amount
received is reduced, notify the Borrowers (unless such change or compliance
arose or became effective retrospectively, in which case such Lender or Issuing
Bank shall not be limited to such 180-day period so long as such Lender or
Issuing Bank has given such notice to the Borrowers no later than 180 days from
the date such change or compliance became applicable to such Lender or Issuing
Bank), and the Borrowers shall pay on demand such amounts as the Issuing Bank or
such Lender may specify to be necessary to compensate the Issuing Bank or such
Lender for such additional cost or reduced receipt, together with interest on
such amount from 10 days after the date of such demand until payment in full
thereof at a rate equal at all times to the Prime Lending Rate per annum. The
---------
determination by the Issuing Bank or any Lender, as the case may be, of any
amount due pursuant to this Section 3.10, as set forth in a certificate setting
------------
forth the calculation thereof in reasonable detail, shall, in the absence of
manifest or demonstrable error, be final and conclusive and binding on all of
the parties hereto.
ARTICLE 4
COMPENSATION, REPAYMENT, REDUCTION
----------------------------------
AND EXTENSION OF COMMITMENTS
----------------------------
4.1 Interest on Prime Rate Loans. Subject to Section 4.6, each Borrower
---------------------------- -----------
shall pay to the Agent for the account of the Lenders in accordance with their
respective Proportionate Shares, on the first Business Day of each month,
interest on Prime Rate Loans made to or for the account of the Borrower,
calculated monthly in arrears at an interest rate per annum equal to the Prime
---------
Lending Rate plus 1.50% on the average net balances owing to the Agent and the
----
Lenders at the close of business each day during such month. The rate hereunder
shall change each day the Prime Lending Rate changes.
4.2 Interest on Eurodollar Rate Loans. Subject to Section 4.6, interest
--------------------------------- -----------
on Eurodollar Rate Loans shall be payable by the Borrower for whose account the
Loans were made on the last day of each Interest Period with respect to such
Eurodollar Rate Loans (and, in the case of any Eurodollar Rate Loan with an
Interest Period of six months, on the three-month anniversary of the
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<PAGE>
commencement of that Interest Period), at the date of conversion of such
Eurodollar Rate Loans (or a portion thereof) to a Prime Rate Loan and at
maturity of such Eurodollar Rate Loans at an interest rate per annum equal
---------
during the Interest Period for such Eurodollar Rate Loans to the Adjusted
Eurodollar Rate for the Interest Period in effect for such Eurodollar Rate Loans
plus 3.00%. After maturity of such Eurodollar Rate Loans (whether by
- ----
acceleration or otherwise), interest shall be payable upon demand. The Agent,
upon determining the Adjusted Eurodollar Rate for any Interest Period, shall
promptly notify the Borrowers and the Lenders by telephone (confirmed promptly
in writing) or in writing thereof. Each determination by the Agent of the
Adjusted Eurodollar Rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.
4.3 Interest on Other Obligations. Subject to Section 4.6, the
----------------------------- -----------
Borrowers jointly and severally agree to pay to the Agent for the account of the
Lenders in accordance with their respective Proportionate Shares, on the first
Business Day of each month, interest on all other Obligations owing to such
Lenders, calculated monthly in arrears at an interest rate per annum equal to
---------
the Prime Lending Rate plus 1.50% on the average net balances owing to
----
the Agent and the Lenders at the close of business each day during such
month. The rate hereunder shall change each day the Prime Lending Rate changes.
4.4 Unused Line Fee. The Borrowers jointly and severally agree to pay
---------------
to the Agent, for the account of the Lenders in accordance with their respective
Proportionate Shares, a fee (the "Unused Line Fee"), accruing at the rate of
---------------
0.50% per annum on the average daily amount by which the Commitments at the
---------
close of business on such day exceeds the sum of (a) the outstanding principal
amount of the Loans, plus (b) the outstanding Letter of Credit Obligations, for
----
the period commencing on the Closing Date and ending on the Expiration Date,
such Unused Line Fee being payable (x) monthly, in arrears, commencing on the
first day of the calendar month immediately following the Closing Date and (y)
on the Expiration Date.
4.5 Letter of Credit Fees.
---------------------
(a) Each Borrower for whose account a Letter of Credit has been issued
shall pay to the Agent, for the benefit of the Lenders in accordance with their
respective Proportionate Shares, on the first day of each month a fee (the
"Letter of Credit Fee"), calculated at the rate of 3.00% per annum on the daily
- --------------------- ---------
weighted average amount of Letter of Credit Obligations outstanding during the
immediately preceding month with respect to Letters of Credit issued for the
account of the Borrower. Notwithstanding the foregoing, Letter of Credit Fees
on Letter of Credit Obligations outstanding after the occurrence and during the
continuance of an Event of Default shall be payable on demand at rate equal to
5.00% per annum.
---------
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<PAGE>
(b) Each Borrower for whose account a Letter of Credit is to be (or has
been) issued shall also pay the customary charges, fees and expenses of Bankers
Trust Company for the issuance, administration and negotiation of each Letter of
Credit (if Bankers Trust Company is the Issuing Bank), and the Agent shall be
entitled to charge to the Loan Account of that Borrower such fees, charges and
expenses of the Issuing Bank (if not Bankers Trust Company) as and when incurred
by the Agent, any Lender or the Issuing Bank (in each case, the "Issuing Bank
------------
Fees").
- ----
(c) Each determination by the Agent of Letter of Credit Fees, Issuing
Bank Fees and other fees, charges and expenses under this Section 4.5 shall be
-----------
conclusive and binding for all purposes, absent manifest error.
4.6 Interest After Event of Default. From the date of occurrence of an
-------------------------------
Event of Default until the earlier of (i) the date all Obligations have been
Paid In Full or (ii) the date as of which such Event of Default is waived or
cured, each Borrower shall be obligated to pay to the Lenders interest on all
outstanding Obligations (other than Eurodollar Rate Loans) calculated at a rate
per annum equal to the Prime Lending Rate plus 3.50%. In the case of Eurodollar
- --------- ----
Rate Loans, at the time any such increase in the interest rate is effective
under this Section 4.6, each Borrower shall be obligated to pay to the Lenders
-----------
interest on all outstanding Eurodollar Rate Loans calculated at a rate per annum
---------
equal to the Adjusted Eurodollar Rate for the Interest Period, in each case, in
effect for such Eurodollar Rate Loans plus 5.00%. Upon the expiration of the
----
Interest Period in effect such Eurodollar Rate Loans shall thereupon become
Prime Rate Loans and shall thereafter bear interest payable upon demand at a
rate per annum equal to the Prime Lending Rate plus 3.50%. Nothing in this
--------- ----
Section 4.6 prohibits the right of the Lenders to waive any such increase in the
- -----------
interest rate.
4.7 Expenses. The Borrowers jointly and severally agree to reimburse
--------
the Agent's Expenses promptly upon demand.
4.8 Mandatory Payment; Reduction of Commitments.
-------------------------------------------
(a) Mandatory Payment. Except during the Agent Advance Period, each
-----------------
Borrower shall, without notice or demand of any kind, immediately make such
repayments of the Loans to the extent necessary to reduce (i) the aggregate
outstanding principal amount of all Loans to an amount less than or equal to the
---
lesser of (A) the total Commitments and (B) the sum of the Borrowing Bases of
- ---------
all Borrowers, minus, in each case, the then outstanding Letter of Credit
-----
Obligations and (ii) the aggregate outstanding principal amount of Loans made to
or for the account of that Borrower to an amount less than or equal to the
Borrowing Base of that Borrower, minus the then outstanding Letter of Credit
-----
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<PAGE>
Obligations with respect to Letters of Credit issued for the account of that
Borrower.
(b) Reduction of Commitments. On the Expiration Date, the Commitment of
------------------------
each Lender shall automatically terminate and may not be reinstated. Upon not
less than three (3) Business Days' prior written notice to the Agent (which the
Agent shall promptly transmit to each Lender), the Borrowers may permanently
reduce in part or terminate in whole the Commitments at any time and from time
to time without premium or penalty, provided that the Borrowers shall have made
--------
whatever payment may be required to reduce the sum of the principal amount of
the Loans, plus the Letter of Credit Obligations to an amount less than or equal
----
to the Commitments as reduced or terminated. Any partial reduction must be in
an aggregate amount for all the Lenders of not less than $1,000,000 (and in
increments of $500,000 in excess of such amount), and shall reduce the
Commitment of each Lender proportionately in accordance with its Proportionate
Share. Any notice of termination or reduction given to the Agent under this
Section 4.8(b) shall be irrevocable and shall specify the date (which shall be a
- --------------
Business Day) of such termination or reduction and, with respect to a partial
reduction, the aggregate principal amount thereof. Once reduced, no portion of
the Commitments may be reinstated.
(c) Asset Sales. Upon consummation of a sale or other disposition of
-----------
assets pursuant to Section 8.9(vi) or any sale and leaseback transaction
---------------
permitted by Section 8.15, the Credit Parties shall commit in writing within 240
------------
days of such sale, disposition or consummation of such transaction to reinvest
the Net Cash Proceeds resulting therefrom and/or reduce the Commitments and
shall so reinvest such Net Cash Proceeds or reduce the Commitments within 330
days of such sale or disposition, as follows: (i) any Borrower shall reinvest
such Net Cash Proceeds in Productive Assets or (ii) unless the Borrowers shall
have provided to the Agent evidence reasonably satisfactory to the Agent of the
reinvestment described in the immediately preceding clause (i) prior to the date
----------
which is 330 days after the consummation of the sale, disposition or sale and
leaseback transaction, the Commitments shall be automatically reduced as of the
330th day in an amount equal to any such Net Cash Proceeds not reinvested
pursuant to clause (i) (and the Borrowers shall make any payment required by
----------
Section 4.8(a) after giving effect to such reduction).
- --------------
4.9 Extension of Expiration Date.
----------------------------
(a) The Borrowers may, with the consent of the Parent Guarantors and by
delivery of a duly completed Extension Request to the Agent and the Lenders,
given not more than 365 days, but not less than 90 days, prior to the Initial
Expiration Date, request that the Expiration Date be extended to a date which is
not more than one year after the Initial Expiration Date (or, if
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not a Business Day, the immediately preceding Business Day); provided, however,
-------- -------
that, no such Extension Request shall be made or, if made, shall be effective
if, as of the date of such Extension Request, a Default or an Event of Default
shall have occurred and is continuing. Each Lender shall, by written notice
delivered to the Borrowers and the Agent in the form attached to the Extension
Request, within 30 days after receipt of such Extension Request, indicate
whether it consents to the extension of the Expiration Date, which consent may
be given or withheld by such Lender in its sole and absolute discretion (each
Lender consenting to such extension is hereinafter referred to as an "Extending
---------
Lender" and each Lender refusing to consent to such extension is hereinafter
- ------
referred to as a "Non-extending Lender"). In the event that any Lender desires
--------------------
to extend the Expiration Date for a Commitment amount that is less than the
amount of its Commitment prior to the Initial Expiration Date, the Lender shall
so indicate such reduced Commitment amount in its response to the Extension
Request. The Borrowers may accept or reject such proposed extension for a
reduced Commitment amount in their sole discretion by written notice to the
Agent and the Lender proposing such extension. In the event that such proposal
is accepted by the Borrowers, such Lender shall be deemed to be an Extending
Lender to the extent of such reduced Commitment amount and a Non-extending
Lender to the extent of the portion of its Commitment which is not extended
beyond the Initial Expiration Date. In the event that such proposal is rejected
by the Borrowers, such Lender shall be deemed to be a Non-extending Lender for
the full amount of its Commitment. Failure of a Lender to respond to an
extension request shall constitute a refusal by such Lender to consent thereto.
(b) No extension as to any Lender shall in any event be effective until
the Initial Expiration Date and unless the following conditions shall have been
satisfied:
(i) the Agent has received a certificate of the chief executive
officer, chief financial officer or treasurer of each Borrower stating that, as
of the Initial Expiration Date, both immediately before and after giving effect
to the Extension Request, all of the conditions set forth in Section 5.2 shall
-----------
have been satisfied; and
(ii) the Agent has not received notice from any Lender that, as of
the Initial Expiration Date, both immediately before and after giving effect to
the Extension Request, any Default or Event of Default has occurred and is then
continuing.
(c) On the Initial Expiration Date, but subject to satisfaction of the
foregoing conditions, the Commitment of each Extending Lender shall be extended
to the date set forth in the Extension Request. On the Initial Expiration Date,
but subject to the provisions of Section 4.9(d), the Commitment of each Non-
--------------
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<PAGE>
extending Lender shall automatically terminate, and the Borrowers shall pay in
full (i) to the Non-extending Lender, all Obligations owing to the Non-extending
Lender (including, without limitation, the principal amount of, and all accrued
interest on, all outstanding Loans of, and all accrued and theretofore unpaid,
Fees owing to, such Non-extending Lender through the Initial Expiration Date,
but excluding all Obligation which, as of the Initial Expiration Date, are
contingent and unliquidated and not due and owing and which pursuant to the
provisions of the Credit Documents survive the termination of such Non-extending
Lender's Commitment) less any amounts paid to the Agent and the Issuing Bank
----
pursuant to clauses (ii) and (iii) respectively, which would have otherwise been
------------ -----
payable to the Non-extending Lender, (ii) to the Agent, all amounts as to which
the Non-extending Lender is then in default to the Agent in respect of advances
made by the Agent on such Non-extending Lender's behalf (including Agent
Advances) and (iii) to the Issuing Bank, all amounts as to which the Non-
extending Lender is then in default to the Issuing Bank in respect of
participations in Letters of Credit.
(d) The Borrowers may make written demand on any Non-extending Lender
(with a copy to the Agent) for such Non-extending Lender to assign, at the
Borrowers' expense and subject to Section 4.14(d), and such Non-extending Lender
---------------
shall assign, without recourse, pursuant to one or more duly executed Assignment
and Assumption Agreements, within 30 days after the date of such demand, to one
or more Extending Lenders or Eligible Assignees which have issued a commitment
to the Borrowers to purchase at par, all of such rights and obligations under
this Credit Agreement and the Credit Documents (including, without limitation,
such Non-extending Lender's Loans, Commitments, participations in Letters of
Credit, obligations to make settlements of advances made by the Agent on such
Lender's behalf (including Agent Advances), accrued interest and Fees) in
accordance with Section 12.8. Such Assignment and Assumption Agreements shall
------------
become effective as of the Initial Expiration Date, constitute an Extension
Request by the Borrowers, a proposed extension by such Eligible Assignee and an
acceptance by the Borrowers, provided that (i) the conditions set forth in
--------
Section 4.9(b) shall have been satisfied, (ii) such assignee shall have paid (A)
- --------------
to such Non-extending Lender an amount equal to the sum of the principal amount
of, and all accrued interest on, all outstanding Loans of, and all accrued and
theretofore unpaid, Fees owing to, such Non-extending Lender, (B) to the Agent,
all amounts as to which the Non-extending Lender is then in default to the Agent
in respect of advances made by the Agent on such Non-extending Lender's behalf
(including Agent Advances) and (C) to the Issuing Bank, all amounts as to which
the Non-extending Lender is then in default to the Issuing Bank in respect of
participations in Letters of Credit, (iii) the Borrowers shall have paid to such
Non-extending Lender all outstanding Obligations (other than obligations
required to be paid by such assignee and Obligations which, as of the Initial
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Expiration Date, are contingent and unliquidated and not due and owing and which
pursuant to the provisions of the Credit Documents survive the termination of
such Non-Extending Lender's Commitment) through the Initial Expiration Date,
(iv) the Borrowers or the applicable assignee shall have paid to the Agent the
processing and recordation fee required to be paid by Section 12.8(b) and (v)
---------------
all of the requirements for such assignment contained in Section 12.8(b),
---------------
including, without limitation, the consent of the Agent and the receipt by the
Agent of an executed Assignment and Assumption Agreement or Agreements and other
supporting documents, shall have been fulfilled. The Agent is hereby authorized
to execute one or more Assignment and Assumption Agreements as attorney-in-fact
for any Non-extending Lender failing to execute and deliver the same within such
time period.
(e) Upon the extension of the Expiration Date pursuant to this Section
-------
4.9, the Agent shall amend Annex I to reflect the Lenders and their respective
- --- -------
Commitments after giving effect to such extension and shall deliver a copy
thereof to the Borrowers and each Lender. Such amended Annex I shall supersede
-------
the previous Annex I and shall be conclusive and binding absent manifest error.
-------
4.10 Maintenance of Loan Account; Statements of Account. The Agent
--------------------------------------------------
shall maintain an account on its books in the name of each Borrower (the "Loan
----
Account" of that Borrower) in which the Borrower will be charged with all Loans
and advances made by the Agent or the Lenders to the Borrower or for the
Borrower's account, including the Loans, the Letter of Credit Obligations, the
Fees, the Expenses and any other Obligations. The Loan Account will be credited
with all payments received by the Agent from the Borrower or for the Borrower's
account, including all amounts received in such Borrower's Concentration Account
from any Lockbox Bank or Restricted Account Bank maintained by such Borrower.
The Agent shall send each Borrower a monthly statement reflecting the activity
in its Loan Account. Absent manifest error, each monthly statement shall be an
account stated and shall be final, conclusive and binding on the Borrowers.
4.11 Payment Procedures.
------------------
(a) Manner and Time of Payment. All payments of principal of and
--------------------------
interest on the Loans and other Obligations (including, without limitation, Fees
and Expenses) which are payable to the Agent, the Lenders or the Issuing Bank
shall be made without condition or reservation of right, and, with respect to
payments made other than from application of deposits in the Concentration
Account, in immediately available funds, delivered to the Agent not later than
1:00 P.M. New York City time on the date and at the place due, to such account
of the Agent as it may designate, for the account of the Agent, the Lenders or
the Issuing Bank, as the case may be; and funds received by the Agent not later
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<PAGE>
than 1:00 P.M. New York City time on any given Business Day shall be credited
against payment to be made that day and funds received by the Agent after that
time shall be deemed to have been paid on the immediately following Business
Day. Payments actually received by the Agent for the account of the Lenders or
the Issuing Bank, or any of them, shall be paid to them by the Agent promptly
after receipt thereof.
(b) Apportionment and Application of Payments.
-----------------------------------------
(i) Subject to the provisions of Section 2.8, all payments of principal
-----------
and interest in respect of outstanding Loans, all payments of Fees and Expenses
and all other payments in respect of any other Obligations, shall be allocated
among such of the Lenders and the Issuing Bank as are entitled thereto, in
proportion to their respective Proportionate Shares or otherwise as provided
herein.
(ii) Except as provided in Section 4.11(b)(iii) with respect to payments
--------------------
and proceeds of Collateral received after the occurrence of an Event of Default
and subject to the provisions of Section 2.8, all such payments and any other
-----------
amounts received by the Agent from or for the benefit of a Borrower shall be
applied first, to pay principal of and interest on any portion of the Loans to
-----
the Borrower which the Agent may have advanced on behalf of any Lender
(including Agent Advances) for which the Agent has not then been reimbursed by
such Lender or the Borrower, second, to pay the principal of the Loans advanced
------
to the Borrower which are then due and payable in the order described
hereinbelow and interest on such Loans then due and payable, ratably, based on
the then outstanding balances of the such Loans, third, to pay all other
-----
Obligations then due and payable by the Borrower, ratably, and fourth, as the
------
Borrower so designates. All such principal and interest payments in respect of
Loans shall be applied first, to repay outstanding Prime Rate Loans and then to
----- ----
repay outstanding Eurodollar Rate Loans with those Eurodollar Rate Loans which
have earlier expiring Interest Periods being repaid prior to those which have
later expiring Interest Periods.
(iii) Except as provided in Section 9.5, after the occurrence and during
-----------
the continuance of an Event of Default, all payments and proceeds of Collateral
received by the Agent shall be applied in the following order: first, to the
-----
payment of any Fees, Expenses or other Obligations due and payable to the Agent
under any of the Credit Documents, including Agent Advances and any other
amounts advanced by the Agent on behalf of the Lenders; second, to the payment
------
of any Fees, expenses or other Obligations due and payable to the Issuing Bank
under any of the Credit Documents; third, to the ratable payment of any Fees,
-----
Expenses or other Obligations due and payable to the Lenders under any of the
Credit Documents other than those Obligations specifically referred to in this
Section 4.11(b)(iii); fourth, to the ratable
- -------------------- ------
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<PAGE>
payment of interest due on the Loans; and, fifth, to the ratable payment of
-----
principal due on the Loans.
(iv) Subject to Sections 2.6 and 2.8, the Agent shall promptly distribute
------------ ---
to each Lender and Issuing Bank at its primary address set forth on Annex I or
-------
in the Assignment and Assumption Agreement by which it became a Lender or
Issuing Bank, or at such other address as a Lender, an Issuing Bank or other
Holder may request in writing, such funds as such Person may be entitled to
receive; provided, however, that the Agent shall under no circumstances be bound
-------- -------
to inquire into or determine the validity, scope or priority of any interest or
entitlement of any Holder and may suspend all payments or seek appropriate
relief (including, without limitation, instructions from the Majority Lenders or
an action in the nature of interpleader) in the event of any doubt or dispute as
to any apportionment or distribution contemplated hereby.
(c) Charging of Loan Account. The Agent, in its sole discretion subject
------------------------
only to the terms of this Section 4.11(c), may pay from the proceeds of Loans
---------------
made to a Borrower hereunder, whether made following a request by the Borrower
pursuant to Section 2.2 or a deemed request as provided in this Section 4.11(c),
----------- ---------------
all interest, Fees, Expenses and other payments to be made hereunder and under
the other Credit Documents if and to the extent such payment is not made when
due hereunder; provided, however, that the Agent shall give the Borrower at
-------- -------
least three days' written notice of the amount payable prior to the payment date
of any such payment, the payment date of which is not otherwise specified
hereunder. Each Borrower hereby irrevocably authorizes the Lenders to make
Loans, which Loans shall be Prime Rate Loans, in each case, upon notice from the
Agent as described in the following sentence for the purpose of paying such
Obligations, and agrees that all such Loans so made shall be deemed to have been
requested by it pursuant to Section 2.2 as of the date of the aforementioned
-----------
notice. The Agent shall request Loans on behalf of a Borrower as described in
the immediately preceding sentence by notifying the Lenders by telecopy,
telegram or other similar form of transmission (which notice the Agent shall
thereafter promptly transmit to the Borrower), of the amount and date of the
proposed Borrowing and that such Borrowing is being requested on the Borrower's
behalf pursuant to this Section 4.11(c). On the proposed Borrowing date for
---------------
such Loan, the Lenders shall make the requested Loans in accordance with the
procedures and subject to the conditions specified in Section 2.2(c). The
--------------
Borrower's obligations to the Agent and the Lenders with respect to such
payments shall be discharged by the Agent's receipt of the proceeds of such
Loans.
(d) Payments on Non-Business Days. Whenever any payment to be made by a
-----------------------------
Borrower hereunder or under the Notes is stated to be due on a day which is not
a Business Day, the payment shall instead be due on the immediately following
Business Day (except
-46-
<PAGE>
as set forth in the proviso to the third sentence of the definition of "Interest
Period" with respect to payments due on the immediately preceding Business Day),
and any such extension of time shall be included in the computation of the
payment of interest and Fees hereunder.
4.12 Collection of Accounts. Within 120 days following the Closing
----------------------
Date, each Borrower shall have established, and shall maintain at all times
thereafter, a lockbox (individually, a "Lockbox" and collectively, the
-------
"Lockboxes") and shall have instructed all account debtors on its Accounts and
- ----------
all obligors with respect to any proceeds of Collateral to remit all Collections
and all such proceeds to such Lockboxes (and each Borrower shall use its best
efforts to cause all account debtors and all obligors with respect to proceeds
of Collateral to remit Collections and such proceeds to such Lockboxes). Each
Borrower, the Agent and the financial institutions selected by such Borrower and
acceptable to the Agent (the "Lockbox Banks" of such Borrower) shall enter into
-------------
agreements substantially in the form of Exhibit N-1, or such other form as the
-----------
Agent may approve (the "Lockbox Agreements"), which among other things shall
------------------
provide for the opening of an account for the deposit of Collections and
proceeds of Collateral (a "Collection Account" of such Borrower) at a Lockbox
------------------
Bank; provided, however, that from the Closing Date until the earlier of (i) the
-------- -------
120th day following the Closing Date and (ii) the date a Lockbox for such
Borrower is established, each Borrower may maintain accounts into which such
Borrower deposits Collections and proceeds of Collateral (individually, a
"Restricted Account" and collectively, the "Restricted Accounts") with the
- ------------------- -------------------
financial institutions selected by such Borrower and acceptable to the Agent
(the "Restricted Account Banks" of such Borrower), and such Borrower, the Agent
------------------------
and such financial institutions shall enter into agreements substantially in the
form of Exhibit N-2 (the "Restricted Account Agreements"). All Collections and
----------- -----------------------------
other amounts received or receivable by a Borrower from any account debtor, in
addition to all other cash and proceeds of Collateral received from any other
source, shall upon receipt be deposited into a Collection Account or a
Restricted Account, as the case may be, of such Borrower. Except with respect
to the replacement of a Restricted Account Agreement with a Lockbox Agreement,
termination or modification of such arrangements shall be subject to approval by
the Agent. Upon the terms and subject to the conditions set forth in the
Lockbox Agreements or the Restricted Account Agreements, as the case may be, all
available amounts held in each Collection Account or Restricted Account, as the
case may be, of a Borrower shall be wired or, with the consent of the Agent,
sent via the automated clearing house system each Business Day into such
Borrower's concentration account maintained by the Agent with Bankers Trust
Company (such concentration account or such other account as the Agent may
approve in writing, the "Concentration Account" of such Borrower). All amounts
---------------------
received in the Concentration Account from the Lockbox Banks or the Restricted
Account Banks, in each
-47-
<PAGE>
case of the applicable Borrower, shall be credited to the account of such
Borrower and applied and apportioned in accordance with Section 4.11. All
------------
Collections and other proceeds of Collateral which are received directly by
any Borrower shall be deemed to have been received by the Borrower as the
Agent's trustee and, upon the Borrower's receipt thereof, the Borrower shall
immediately transfer or cause to be transferred, all such amounts into such
Borrower's Collection Accounts or, if a Lockbox has not yet been established,
into such Borrower's Restricted Accounts in their original form, together with
such endorsements thereon as are necessary or appropriate to permit their
immediate deposit into such Collection Accounts or Restricted Accounts, as the
case may be.
4.13 Calculations. All calculations of (i) interest hereunder and
------------
(ii) Fees, including, without limitation, Unused Line Fees and Letter of Credit
Fees, shall be made by the Agent, on the basis of a year of 360 days for the
actual number of days elapsed (including the first day but excluding the last
day) occurring in the period for which such interest or Fees are payable. Each
determination by the Agent of an interest rate, Fee or other payment hereunder
shall be conclusive and binding for all purposes, absent manifest error.
4.14 Special Provisions Relating to Eurodollar Rate Loans.
----------------------------------------------------
(a) Continuation. With respect to any Borrowing consisting of
------------
Eurodollar Rate Loans, the Borrower for whose account the Borrowing has been
made may (so long as no Default or Event of Default has occurred and is
continuing), subject to the provisions of Section 4.14(c), elect to maintain
---------------
such Borrowing or any portion thereof as consisting of Eurodollar Rate Loans by
selecting a new Interest Period for such Borrowing, which new Interest Period
shall commence on the last day of the immediately preceding Interest Period.
Each selection of a new Interest Period shall be made pursuant to a Notice of
Continuation given not later than 1:00 P.M. New York City time on the third
Business Day prior to the date of any such continuation relating to Eurodollar
Rate Loans, by the applicable Borrower to the Agent. Such Notice of Continuation
shall be by telephone or facsimile transmission, and if by telephone, promptly
confirmed in writing, in each case specifying (i) the date of such continuation,
(ii) the aggregate amount of Loans subject to such continuation and (iii) the
duration of the selected Interest Period. The applicable Borrower may elect to
maintain more than one Borrowing consisting of Eurodollar Rate Loans by
combining such Borrowings into one Borrowing and selecting a new Interest Period
pursuant to this Section 4.14(a), provided that all such Borrowings to be so
--------------- --------
combined shall have Interest Periods ending on the same date. If the applicable
Borrower shall fail to submit a Notice of Continuation or select a new Interest
Period for all or any portion of any Eurodollar Rate Loans in accordance with
this Section 4.14(a), that portion of such Loans for which no Notice
---------------
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<PAGE>
of Continuation has been submitted or no Interest Period has been selected will
automatically, on the last day of the then existing Interest Period therefore,
convert into Prime Rate Loans. The Agent shall give each Lender prompt notice by
telephone or facsimile transmission of each Notice of Continuation. Borrowings
of Eurodollar Rate Loans on the same Business Day shall be in an aggregate
principal amount for all Borrowers requesting that Loans be made or continued
as, or converted into, Eurodollar Rate Loans with the same Interest Period on
such Business Day of not less than $5,000,000 or an integral multiple of
$1,000,000 in excess thereof.
(b) Conversion. Each Borrower may on any Business Day (so long as no
----------
Default or Event of Default has occurred and is continuing) pursuant to a Notice
of Conversion given to the Agent, and subject to the provisions of Section
-------
4.14(c), convert the entire amount of or a portion of all Prime Rate Loans made
- -------
to or for the account of the Borrower into Eurodollar Rate Loans; provided,
--------
however, that, upon conversion of any Prime Rate Loans into Eurodollar Rate
- -------
Loans, the Borrower shall pay accrued interest to the date of conversion on the
principal amount converted. Each such Notice of Conversion shall be given not
later than 1:00 P.M. New York City time on the third Business Day prior to the
date of any proposed conversion into Eurodollar Rate Loans. Subject to the
restrictions specified above, each Notice of Conversion shall be by telephone or
facsimile transmission, and if by telephone, promptly confirmed in writing, in
each case specifying (i) the requested date of such conversion, (ii) the
aggregate amount of Loans to be converted and (iii) the duration of the Interest
Period of such Loan. Borrowings of Eurodollar Rate Loans on the same Business
Day shall be in an aggregate principal amount for all Borrowers requesting that
Loans be made or continued as, or converted into, Eurodollar Rate Loans with the
same Interest Period on such Business Day of not less than $5,000,000 or an
integral multiple of $1,000,000 in excess thereof. Borrowings of Prime Rate
Loans (other than Agent Advances) on the same Business Day shall be in an
aggregate principal amount for all Borrowers requesting that Loans be made as,
or converted into, Prime Rate Loans on such Business Day of not less than
$1,000,000 or an integral multiple of $500,000 in excess thereof. Subject to
the foregoing limits, each Borrower may request one or more Borrowings of Prime
Rate Loans on the same Business Day, but may request only one Borrowing of
Eurodollar Rate Loans (excluding continuations of Eurodollar Rate Loans) for any
Business Day (which shall be funded simultaneously with all Loans requested to
be made as, or converted into, Eurodollar Rate Loans requested by the other
Borrowers for such Business Day).
(c) Certain Limitations on Eurodollar Rate Loans. The right of each
--------------------------------------------
Borrower to maintain, select, continue or convert Eurodollar Rate Loans shall be
limited as follows:
-49-
<PAGE>
(i) If the Agent is advised by Bankers Trust Company that it is not
offering U.S. dollar deposits (in the applicable amounts) in the London
interbank market, or the Agent determines that adequate and fair means do not
otherwise exist for ascertaining the Eurodollar Rate for Eurodollar Rate
Loans comprising any requested Borrowing, continuation or conversion, the
right of the Borrowers to select or maintain Eurodollar Rate Loans for such
Borrowing or any subsequent Borrowing shall be suspended until the Agent
shall notify the Borrowers and the Lenders that the circumstances causing
such suspension no longer exist, and each Loan comprising such Borrowing
shall be made as a Prime Rate Loan.
(ii) If the Majority Lenders shall, at least one Business Day before
the date of any requested Borrowing, continuation or conversion, notify the
Agent (whereupon the Agent will notify the Borrowers) that the Eurodollar
Rate for Loans comprising such Borrowing will not adequately reflect the cost
to such Lenders of making or funding their respective Loans for such
Borrowing, the right of the Borrowers to select Eurodollar Rate Loans for
such Borrowing shall be suspended until the Agent shall notify the Borrowers
and the Lenders that the circumstances causing such suspension no longer
exist, and each Loan comprising such Borrowing shall be made as a Prime Rate
Loan; provided, however, that the right of the Borrowers to select Eurodollar
-------- -------
Rate Loans for such Borrowing will continue if the Borrowers agree to
reimburse each Lender for such additional amounts as are necessary (as
reasonably determined by such Lender in its sole discretion) to adequately
reflect the cost of making such Eurodollar Rate Loans.
(iii) If at any time any Lender determines (which determination shall,
absent manifest error, be conclusive and binding on all parties) that the
making, continuation or conversion of any Loan as a Eurodollar Rate Loan has
become unlawful or impermissible by reason of compliance by that Lender with
any law, governmental rule, regulation or order of any Governmental Authority
or monetary authority (whether or not having the force of law or whether or
not noncompliance would result in costs or penalties), then, and in any such
event, such Lender may give notice of that determination in writing, to the
Borrowers and the Agent and the Agent shall promptly transmit the notice to
each other Lender. Until such Lender gives notice otherwise, the right of
the Borrowers to select Eurodollar Rate Loans from that Lender shall be
suspended and each Eurodollar Rate Loan outstanding from that Lender shall
automatically and immediately convert to a Prime Rate Loan.
(iv) Eurodollar Rate Loans shall not be available for any Borrowing
until the earlier of (A) ninety days following the Closing Date and (B) the
date upon which the Agent
-50-
<PAGE>
determines in its sole discretion (and notifies the Borrowers) that the
primary syndication of the Loans has been completed.
(v) There shall not be outstanding at any one time more than three
Borrowings of Eurodollar Rate Loans for any Borrower or more than fifteen
Borrowings of Eurodollar Rate Loans for all Borrowers.
(vi) No Agent Advance shall be made as a Eurodollar Rate Loan.
(d) Compensation. (i) Each Notice of Continuation and Notice of
------------
Conversion shall be irrevocable by and binding on the Credit Parties. In the
case of any Borrowing, continuation or conversion that the related Notice of
Borrowing, Notice of Continuation or Notice of Conversion specifies is to be
comprised of Eurodollar Rate Loans, the Borrowers shall jointly and severally
indemnify each Lender against any loss, cost or expense incurred by such Lender,
upon written request by such Lender, as a result of any failure to fulfill, on
or before the date for such Borrowing, continuation or conversion specified in
such Notice of Borrowing, Notice of Continuation or Notice of Conversion, the
applicable conditions set forth in Article 5, including, without limitation, any
---------
loss (excluding loss of anticipated profits), cost or expense incurred by reason
of the liquidation or re-employment of deposits or other funds acquired by such
Lender to fund the Loan to be made by such Lender as part of such Borrowing,
continuation or conversion.
(ii) If any payment of principal of, or conversion or continuation of,
any Eurodollar Rate Loan is made other than on the last day of the Interest
Period for such Loan as a result of a payment, prepayment, conversion or
continuation of such Loan or acceleration of the maturity of the Notes pursuant
to Article 9 or for any other reason, the Borrower for whose account the Loan
---------
has been made shall, upon written demand by any Lender (with a copy of such
demand to the Agent), pay to the Agent for the account of such Lender any
amounts required to compensate such Lender for any additional losses, costs or
expenses which it may reasonably incur as a result of such payment, including,
without limitation, any loss (including loss of anticipated profits), cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by any Lender to fund or maintain such Loan.
(iii) Calculation of all amounts payable to a Lender under this Section
-------
4.14(d) shall be made as though such Lender elected to fund all Eurodollar Rate
- -------
Loans by purchasing U.S. dollar deposits in its Eurodollar Lending Office's
interbank eurodollar market.
4.15 Indemnification in Certain Events. If after the Closing Date,
---------------------------------
either (i) any change in or in the interpretation,
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<PAGE>
administration or application of any Requirement of Law is introduced,
including, without limitation, with respect to reserve requirements, applicable
to the Agent, to any of the Lenders, or to Bankers Trust Company, Bankers Trust
(Delaware) or any other banking or financial institution from whom any of the
Lenders borrows funds or obtains credit (a "Funding Bank"), or (ii) the Agent, a
Funding Bank or any of the Lenders complies with any future guideline or request
- ------------
from any central bank or other Governmental Authority made after the date hereof
or (iii) the Agent, a Funding Bank or any of the Lenders determines that the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof has or would have the effect
described below, or the Agent, a Funding Bank or any of the Lenders complies
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency, and
in the case of any event set forth in this clause (iii), such adoption, change
------------
or compliance is made after the date hereof and has or would have the direct or
indirect effect of reducing the rate of return on any of the Lenders' capital as
a consequence of its obligations hereunder to a level below that which such
Lender could have achieved but for such adoption, change or compliance (taking
into consideration the Agent's or such Funding Bank's or Lender's policies as
the case may be with respect to capital adequacy) by an amount deemed by such
Lender to be material, or any of the foregoing events described in clauses (i),
-----------
(ii) or (iii) increases the cost to the Agent, the Issuing Bank or any of the
- ---- -----
Lenders of (A) funding or maintaining its Commitment or (B) issuing, making or
maintaining any Letter of Credit or of purchasing or maintaining any
participation therein, or reduces the amount receivable in respect thereof by
the Agent, the Issuing Bank or any Lender, then the Borrowers jointly and
severally agree to pay to the Agent, upon demand by the Agent and for the
account of each applicable Lender or, as applicable, the Issuing Bank or a
Funding Bank, additional amounts sufficient to indemnify the Lenders against
such increase in cost or reduction in amount receivable; provided that the
--------
calculation of such amount is set forth in reasonable detail in a written
statement delivered to the Borrowers by the Agent (or such Lender, the Issuing
Bank or Funding Bank) not later than 180 days after the incurrence of such
costs, which statement shall be conclusive absent manifest error (unless such
adoption, change or compliance arose or became effective retrospectively, in
which case the Agent, such Lender, Issuing Bank or Funding Bank shall not be
limited to such 180-day period so long as such Person has given such notice to
the Borrowers no later than 180 days from the date such adoption, change or
compliance became applicable to such Person).
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<PAGE>
4.16 Taxes. (a) Payment of Taxes. Except as specifically provided to
----- ----------------
the contrary in Section 4.16(b) or Section 4.16(d)(iii), any and all payments by
--------------- --------------------
a Credit Party hereunder or under any Note or other document evidencing any
Obligations shall be made free and clear of, and without reduction for, any and
all present or future taxes, levies, imposts, deductions, charges, withholdings,
and all stamp or documentary taxes, excise taxes, ad valorem taxes and other
taxes imposed on the value of the assets of any Credit Party or any Subsidiary
of a Credit Party, charges or levies which arise from the execution, delivery or
registration, or from payment or performance under, or otherwise with respect
to, any of the Credit Documents or the Commitments and all other liabilities
with respect thereto excluding, in the case of each Lender, the Issuing Bank and
the Agent, taxes imposed on or measured by net income or overall gross receipts
and capital and franchise taxes imposed on it by (i) the United States, (ii) the
Governmental Authority of the jurisdiction in which such Lender's Domestic
Lending Office or Eurodollar Lending Office, as applicable, is located or any
political subdivision thereof or (iii) the Governmental Authority in which such
Person is organized, managed and controlled or is otherwise doing business or
any political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges and withholdings being hereinafter referred to as "Taxes").
-----
If a Credit Party shall be required by law to withhold or deduct any Taxes from
or in respect of any sum payable hereunder or under any such Note or document to
any Lender, the Issuing Bank or the Agent, (x) the sum payable to such Lender,
the Issuing Bank, or the Agent shall be increased as may be necessary so that
after making all required withholding or deductions (including withholding or
deductions applicable to additional sums payable under this Section 4.16) such
------------
Lender, the Issuing Bank or the Agent (as the case may be) receives an amount
equal to the sum it would have received had no such withholding or deductions
been made, (y) the Credit Parties shall make such withholding or deductions, and
(z) the Credit Parties shall pay the full amount withheld or deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(b) Indemnification. The Borrowers jointly and severally agree (and, in
---------------
the case of payments made by the Parent Guarantors pursuant to Article 10, the
----------
Parent Guarantors jointly and severally agree) to indemnify each Lender, the
Issuing Bank and the Agent against, and reimburse each on demand for, the full
amount of all Taxes imposed because of any change in any Requirement of Law or
any change in the interpretation, administration or application by any
Governmental Authority of any Requirement of Law arising after the date hereof
(in the case of the Agent and any Lender or Issuing Bank listed on the signature
pages hereof) or the date of the Assignment and Assumption Agreement pursuant to
which such other Lender or Issuing Bank became a Lender or Issuing Bank (in the
case of each other Lender or Issuing Bank), including, without limitation, any
-53-
<PAGE>
Taxes imposed by any Governmental Authority on amounts payable under this
Section 4.16 and any additional income or franchise taxes resulting therefrom,
- ------------
actually incurred or paid by such Lender, the Issuing Bank or the Agent (as the
case may be) or any of their respective Affiliates and any liability (including
penalties, interest, and reasonable out-of-pocket expenses paid to third
parties) arising therefrom or with respect thereto; provided, that the
--------
calculation of such amount is set forth in reasonable detail in a written
statement delivered to the Borrowers (or, if applicable, the Parent Guarantors)
by the Agent or such Lender or Issuing Bank and, solely with respect to amounts
payable by the Borrowers under this Section 4.16, such statement is delivered
------------
not later than 180 days after the incurrence of such Taxes or liabilities
(unless such change arose or became effective retrospectively, in which case the
Agent, such Lender or Issuing Bank shall not be limited to such 180-day period
so long as such Person has given such notice to the Borrowers no later than 180
days from the date such change became applicable to such Person), which
statement shall, absent manifest error, be final, conclusive and binding upon
all parties hereto.
(c) Receipts. Promptly upon the request of the Agent therefor, each
--------
Credit Party will furnish to the Agent the original or a certified copy of a
receipt evidencing payment of Taxes by such Credit Party.
(d) Foreign Bank Certifications.
---------------------------
(i) Each Lender that is not created or organized under the laws of the
United States or a political subdivision thereof (a "Foreign Lender") shall
--------------
deliver to the Borrowers and the Agent on the Closing Date (or the date on which
such Foreign Lender becomes a Lender pursuant to Section 12.8) a true and
------------
accurate certificate executed in duplicate by a duly authorized officer of such
Foreign Lender to the effect that such Foreign Lender is eligible to receive
payments hereunder and under the Notes without deduction or withholding of
United States federal income tax (A) under the provisions of an applicable tax
treaty concluded by the United States (in which case the certificate shall be
accompanied by two duly completed copies of IRS Form 1001 (or any successor or
substitute form or forms)), (B) under Sections 1442(c)(1) and 1442(a) of the
Internal Revenue Code (in which case the certificate shall be accompanied by two
duly completed copies of IRS Form 4224 (or any successor or substitute form or
forms)), or (C) due to such Foreign Lender's not being a "bank" as such term is
used in Section 881(c)(3)(A) of the Internal Revenue Code (in which case, the
certificate shall be accompanied by two accurate and complete original signed
copies of IRS Form W-8 (or any successor or substitute form or forms)).
(ii) Each Foreign Lender further agrees to deliver to the Borrowers and
the Agent, from time to time, a true and accurate
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<PAGE>
certificate executed in duplicate by a duly authorized officer of such Foreign
Lender before or promptly upon the occurrence of any event requiring a change in
the most recent certificate previously delivered by it to the Borrowers and the
Agent pursuant to this Section 4.16(d). Each certificate required to be
---------------
delivered pursuant to this Section 4.16(d)(ii) shall certify as to one of the
-------------------
following:
(A) that such Foreign Lender can continue to receive payments hereunder
and under the Notes without deduction or withholding of United States federal
income tax;
(B) that such Foreign Lender cannot continue to receive payments
hereunder and under the Notes without deduction or withholding of United
States federal income tax as specified therein but does not require
additional payments pursuant to Section 4.16(a) because it is entitled to
---------------
recover the full amount of any such deduction or withholding from a source
other than the Borrowers; or
(C) that such Foreign Lender is no longer capable of receiving payments
hereunder and under the Notes without deduction or withholding of United
States federal income tax as specified therein and that it is not capable of
recovering the full amount of the same from a source other than the
Borrowers.
Each Foreign Lender agrees to deliver to the Borrowers and the Agent further
duly completed copies of the above-mentioned IRS forms on or before the earlier
of (x) the date that any such form expires or becomes obsolete or otherwise is
required to be resubmitted as a condition to obtaining an exemption from
withholding from United States federal income tax and (y) fifteen (15) days
after the occurrence of any event requiring a change in the most recent form
previously delivered by such Foreign Lender to the Borrowers and Agent, unless
any change in any Requirement of Law, or official interpretation thereof which
would render such form inapplicable or which would prevent the Foreign Lender
from duly completing and delivering such form has occurred prior to the date on
which any such delivery would otherwise be required and the Foreign Lender
promptly advises the Borrowers that it is not capable of receiving payments
hereunder and under the Notes without any deduction or withholding of United
States federal income tax.
(iii) The Credit Parties shall not be required to pay any additional
amount to any Foreign Lender under Section 4.16(b) if such Foreign Lender shall
---------------
have failed to satisfy the requirements of Section 4.16(d)(i), it being agreed
------------------
and understood that nothing in this Section 4.16(d)(iii) shall relieve the
--------------------
Credit Parties of their obligations to pay any additional amounts pursuant to
Section 4.16(b) in the event that, as a result of any change after the date of
- ---------------
such satisfaction in any Requirement of
-55-
<PAGE>
Law or any change after the date of such satisfaction in the interpretation,
administration or application by any Governmental Authority of any Requirement
of Law, such Foreign Lender is no longer capable of receiving payments hereunder
and under the Notes without any deduction or withholding of United States
federal income tax.
4.17 Obligation of Lenders and Issuing Banks to Mitigate: Replacement of
-------------------------------------------------------------------
Lenders.
- -------
(a) Each Lender and Issuing Bank agrees that, as promptly as practicable
after the officer of such Lender or Issuing Bank responsible for administering
the Loans or Letters of Credit of such Lender or Issuing Bank, as the case may
be, becomes aware of any event or condition that would entitle such Lender or
Issuing Bank to receive payments under Section 3.10, 4.15 or 4.16 or to cease
------------ ---- ----
making Eurodollar Rate Loans under Section 4.14(c)(iii), such Lender or Issuing
--------------------
Bank will, to the extent not inconsistent with the internal policies of such
Lender or Issuing Bank and any applicable legal or regulatory restrictions, use
reasonable efforts (i) to make, issue, fund or maintain the Commitments of such
Lender or the affected Loans or Letters of Credit of such Lender or Issuing Bank
through another lending or letter of credit office of such Lender or Issuing
Bank or (ii) take such other measures as such Lender or Issuing Bank may deem
reasonable, if as a result thereof the additional amounts which would otherwise
be required to be paid to such Lender or Issuing Bank pursuant to Section 3.10,
------------
4.15 or 4.16 would be materially reduced or the conditions rendering such Lender
- ---- ----
incapable of making Eurodollar Rate Loans under Section 4.14(c)(iii) no longer
--------------------
would be applicable, and if, as determined by such Lender or Issuing Bank in its
sole discretion, the making, issuing, funding or maintaining of such Commitments
or Loans or Letters of Credit through such other lending or letter of credit
office or in accordance with such other measures, as the case may be, would not
otherwise materially adversely affect such Commitments or Loans or Letters of
Credit or the interests of such Lender or Issuing Bank; provided that such
--------
Lender or Issuing Bank will not be obligated to utilize such other lending or
letter of credit office pursuant to this Section 4.17(a) unless the Borrowers
---------------
agree to pay all incremental expenses incurred by such Lender or Issuing Bank as
a result of utilizing such other lending or letter of credit office. A
certificate as to the amount of any such expenses payable by the Borrowers
pursuant to this Section 4.17(a) (setting forth in reasonable detail the basis
---------------
for requesting such amount) submitted by such Lender or Issuing Bank to the
Borrowers (with a copy to Agent) shall be conclusive absent manifest error.
(b) If the Borrowers receive a notice pursuant to Section 3.10, 4.15 or
------------ ----
4.16 or a notice pursuant to Section 4.14(c)(iii) stating that a Lender is
- ---- --------------------
unable to extend Eurodollar Rate Loans (for reasons not generally applicable to
the Majority Lenders),
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<PAGE>
so long as (i) no Default or Event of Default shall have occurred and be
continuing, (ii) the Borrowers have obtained a commitment from another Lender or
an Eligible Assignee to purchase at par such Lender's Loans, Commitments,
participations in Letters of Credit, obligations to make settlements of advances
made by the Agent on such Lender's behalf (including Agent Advances), accrued
interest and Fees and to assume all obligations of the Lender to be replaced
under the Credit Documents, (iii) at such time the Lender to be replaced is not
an Issuing Bank with respect to any Letters of Credit outstanding and (iv) such
Lender to be replaced is unwilling to withdraw the notice delivered to the
Borrowers, upon 30 days' prior written notice to such Lender and the Agent, the
Borrowers may require, at the Borrowers' expense and subject to Section 4.14(d),
---------------
the Lender giving such notice to assign, without recourse, all of its Loans,
Commitments, participations in Letters of Credit, obligations to make
settlements of advances made by the Agent on such Lender's behalf (including
Agent Advances), accrued interest and Fees to such other Lender or Eligible
Assignee pursuant to the provisions of Section 12.8(b); provided that, prior to
---------------
or concurrently with such replacement (w) such assignee shall have paid (I) to
the Lender being replaced, an amount equal to the sum of the principal amount
of, and all accrued interest on, all outstanding Loans of, and all accrued and
theretofore unpaid, Fees owing to, such replaced Lender, (II) to the Agent, all
amounts as to which the replaced Lender is then in default to the Agent in
respect of advances made by the Agent on such Lender's behalf (including Agent
Advances) and (III) to the Issuing Bank, all amounts as to which the replaced
Lender is then in default to the Issuing Bank in respect of participations in
Letters of Credit, (x) the Borrowers shall have paid to the Lender giving such
notice all amounts owing under Sections 3.10, 4.14(c)(iii), 4.15 and 4.16 and
------------- ------------ ---- ----
all outstanding Obligations (other than obligations required to be paid by such
assignee and Obligations which, as of the date of assignment, are contingent and
unliquidated and not due and owing and which pursuant to the provisions of the
Credit Documents survive the termination of such replaced Lender's Commitment)
through such date of replacement, (y) the Borrowers or the applicable assignee
shall have paid to the Agent the processing and recordation fee required to be
paid by Section 12.8(b) and (z) all of the requirements for such assignment
---------------
in Section 12.8(b), including, without limitation, the consent of the Agent
---------------
and the receipt by the Agent of an executed Assignment and Assumption Agreement
and other supporting documents, shall have been fulfilled.
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ARTICLE 5
CONDITIONS PRECEDENT
--------------------
5.1 Conditions to Initial Loans and Letters of Credit. The obligation
-------------------------------------------------
of each Lender to fund its Proportionate Share of the initial Loan, and the
obligation of the Agent to cause the Issuing Bank to issue Letters of Credit on
the Closing Date, is subject to the satisfaction or waiver of the following
conditions precedent:
(a) Documents. The Agent shall have received on or before the Closing
---------
Date all of the following, each in form and substance satisfactory to the Agent
(and the Agent shall not have received notice from any Lender party hereto on
the Closing Date that the same are not satisfactory to such Lender):
(i) this Credit Agreement, the Notes and all other agreements,
documents, instruments, certificates and opinions relating to the loan and
other credit transactions contemplated by this Credit Agreement and
described in the Closing Document List attached hereto as Schedule A (the
----------
"Closing Document List"), each duly executed where appropriate; each of
---------------------
Borrowers and Parent Guarantors hereby directs their counsel to prepare
and deliver to the Agent, the Lenders and the Issuing Bank the respective
opinions described in the Closing Document List;
(ii) a solvency certificate for the Credit Parties on a combined
basis, duly executed by the chief financial officer or treasurer of each
Credit Party, dated the Closing Date and giving effect to the
Restructuring and the financing transactions contemplated under this
Credit Agreement, supported by such analyses, valuations, appraisals,
reviews, projections and other documentation as the Agent deems
appropriate;
(iii) appraisals of each Borrower's Rental Equipment prepared by
Daley-Hodkin Appraisal Corporation, in form and substance satisfactory to
the Lenders;
(iv) a Notice of Borrowing for each Borrower dated the Closing Date
or, if any Borrower does not desire to borrow Loans on the Closing Date,a
certificate of the chief executive officer, chief financial officer or
treasurer of each Credit Party executed and delivered on behalf of such
Credit Party certifying that all conditions precedent have been met and
(after giving effect to the Restructuring and the financing transactions
contemplated under this Credit Agreement)
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<PAGE>
no Default or Event of Default has occurred or is continuing;
(v) a Borrowing Base Certificate for each Borrower (as of August
31, 1995) and giving effect to the Restructuring and the financing
transactions contemplated under this Credit Agreement, adequately
supporting the Loans requested to be made, and the Letters of Credit
requested to be issued, on the Closing Date and showing sufficient
borrowing availability appropriate, in the judgment of the Agent, to
support the overall business and working capital requirements of the
Borrowers;
(vi) all pleadings, motions, orders, applications, financial
information and other documents requested by the Agent to be delivered to
it which, in connection with the Restructuring, have been filed with the
Bankruptcy Court, the Commission or any other Governmental Authority or
served on any party to any aspect thereof; and
(vii) such additional documentation as the Agent may reasonably
request.
The funding by any Lender of the Loans requested to be made on the Closing
Date shall constitute evidence that the documents delivered pursuant to this
Section 5.1(a) are satisfactory to such Lender.
- --------------
(b) The Restructuring.
-----------------
(i) The Agent shall be satisfied in all material respects with the
terms, conditions, form, substance and structure of all aspects of the
Restructuring (including, without limitation, the equity and corporate
structure for AAHC and its Subsidiaries after giving effect thereto), the
Restructuring Documents, all Indebtedness of AAHC and the Credit Parties
outstanding after giving effect to the Restructuring and, in each case,
the documentation related thereto.
(ii) The Plan of Reorganization shall have not been amended,
modified or supplemented in any respect without the prior written consent
of the Agent, to the extent such amendment, modification or supplement
could reasonably be expected to affect the rights of the Agent or any
Lender, and shall have been confirmed on terms and conditions, and
pursuant to a confirmation order of the Bankruptcy Court (A) which is in
form and substance satisfactory to the Agent, (B) which has not been
reversed, stayed, modified or amended, (C) as to which no appeal,
certiorari proceeding, reargument or other review or rehearing that has
been requested is still pending and (D) as to which the time for filing a
notice of appeal or petition for certiorari, or
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<PAGE>
request for reargument or further review or rehearing shall have expired.
(iii) All aspects of the Restructuring shall have been, or
concurrently herewith will be, consummated, in each case in compliance
with all applicable Requirements of Law, this Credit Agreement and the
other Credit Documents, and the Restructuring Documents (as approved by
the Agent pursuant to clauses (i) and (ii) above) and all aspects of the
----------- ----
Restructuring shall have become effective.
(iv) All conditions precedent to the effectiveness of the Citicorp
Documents shall have been satisfied or waived and AAHC shall have received
not less than $10,000,000 in immediately available funds thereunder.
(v) The AAHC Preferred Stock Amendment shall have been filed with
the Secretary of State of the State of Delaware and shall have become
effective.
(vi) The Insurance Settlement shall have become effective and Acme
Holdings shall have received not less than $2,000,000 by check in
connection therewith.
(c) Perfection and Priority of Liens in Personal Property. Each Credit
-----------------------------------------------------
Party shall have taken or caused to be taken (and the Agent shall have received
satisfactory evidence thereof) such actions (other than the filing or recording
of items described in clauses (iii), (iv), (v) and (vi) below) in such a manner
------------- ---- --- ----
so that Agent, for the benefit of the Holders, has a valid and perfected first
priority Lien as of such date in all of the Collateral (subject only to
Permitted Liens). Such actions shall include, without limitation, (i) delivery
to the Agent of certificates (which certificates shall be properly endorsed in
blank for transfer or accompanied by irrevocable undated stock powers duly
endorsed in blank for transfer, all in form and substance satisfactory to the
Agent) representing the capital stock pledged pursuant to the Security
Agreement, and delivery to the Agent of all other instruments (duly endorsed
where appropriate) evidencing the Collateral; (ii) delivery to the Agent of the
certificates of title for all Rental Equipment then held for rental for which a
certificate of title has been issued by the California Department of Motor
Vehicles and is not in the possession of an equipment vendor which has agreed to
release its Lien with respect to the Rental Equipment subject to any such
certificate of title; (iii) delivery to the Agent of Uniform Commercial Code
Lien searches in the jurisdictions set forth in the Closing Document List which
shall disclose no Liens on any Collateral other than Permitted Liens and Liens
with respect to which fully executed release agreements and Uniform Commercial
Code termination statements, in form and substance satisfactory to the Agent,
shall have been delivered to the Agent for filing in the appropriate office;
(iv) delivery to the Agent of Uniform
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<PAGE>
Commercial Code financing statements as to the Collateral for all jurisdictions
as may be necessary or desirable to perfect the Liens granted to the Agent, for
the benefit of the Holders, in the Collateral (including, without limitation, a
Uniform Commercial Code financing statement to be filed with the Louisiana
Department of Public Safety and Corrections, Office of Motor Vehicles, with
respect to Equipment and Rental Equipment for which a certificate of title has
been issued by such office as of the Closing Date); (v) delivery to the Agent of
the Trademark Security Agreement, together with the cover sheet required for
filing with the United States Patent and Trademark Office; and (vi) delivery to
the Agent of such other documents and instruments that Agent deems necessary or
advisable to establish, preserve and perfect the first priority Liens granted to
the Agent, for the benefit of the Holders, under the Collateral Documents.
(d) Real Property; Landlord Waivers. Each Credit Party having an
-------------------------------
interest in Real Property shall deliver, or cause to be delivered, to the Agent,
for at least 30 of the Real Property leasehold interests of the Credit Parties
set forth on Schedule B, Collateral Access Agreements from the landlords on such
----------
Real Property in form and substance satisfactory to the Agent.
(e) Evidence of Insurance. Schedule C shall set forth as of the Closing
--------------------- ----------
Date all insurance policies and programs in effect with respect to the
respective assets and business of the Credit Parties, specifying for each such
policy and program, (i) the amount thereof, (ii) the risks insured against
thereby, (iii) the name of the insurer and each insured party thereunder, (iv)
the policy or other identification number thereof, (v) the expiration date
thereof, (vi) the annual premium with respect thereto and (vii) a list of open
claims as of the date hereof. All such policies and programs shall be in amount
and scope, and maintained with such carriers as is customarily carried or
maintained under similar circumstance by corporations of established reputation
engaged in similar businesses and similarly situated, all of which shall be
reasonably satisfactory to the Agent. The Agent shall have received insurance
certificates (or other satisfactory evidence of coverage and endorsements) in
form and substance satisfactory to the Agent evidencing that such insurance
policies and programs are in full force and effect, contain endorsements naming
the Agent, for the benefit of the Holders, as loss payee with respect to all
casualty coverages, and as an additional insured with respect to all general
liability coverages and otherwise comply with the requirements of Section 7.6.
-----------
(f) Cash Management System. Each Borrower shall have established a cash
----------------------
management system satisfactory to the Agent complying with the terms of Section
-------
4.12.
- ----
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<PAGE>
(g) No Legal Impediments. No law, regulation, order, judgment or decree
--------------------
of any Governmental Authority shall, and the Agent shall not have received any
notice that litigation is pending or threatened which is likely to, enjoin,
prohibit or restrain the consummation of the transactions evidenced by the
Credit Documents or the Restructuring Documents, except for such laws,
regulations, orders or decrees, or pending or threatened litigation that in the
aggregate could not reasonably be expected to result in a Material Adverse
Effect.
(h) Financial Statements. Complete and accurate copies of the following
--------------------
Financial Statements, materials and other information shall have been delivered
to the Agent: (i) the audited consolidated Financial Statements for AAHC and
its Subsidiaries and Acme Holdings and its Subsidiaries as of December 31, 1994,
together with an opinion thereon qualified as to the ability of Acme Holdings
and its Subsidiaries to continue as a going concern (but without any other
qualification) rendered by the Auditors, (ii) the unaudited consolidated
Financial Statements of AAHC and its Subsidiaries and Acme Holdings and its
Subsidiaries as of June 30, 1995, (iii) the Pro Forma and (iv) the Projections.
After review of the foregoing, the Agent shall be satisfied, in its sole
discretion, that (x) the financial condition of the Credit Parties does not
differ in any material adverse respect from the condition evidenced by the
financial information provided to the Agent prior to the date of the Commitment
Letter and (y) the Credit Parties will be able to comply with the Financial
Covenants.
(i) No Change in Financial Markets. Since the date of the Commitment
------------------------------
Letter, there shall not have occurred a substantial impairment of the financial
markets generally that is reasonably likely to affect materially and adversely
the transactions contemplated hereby, in each case as determined by the Agent
and each Lender in its sole discretion.
(j) Tri-W Rental. All of the assets of Acme Acquisition which pertain to
------------
Rental Equipment locations operating under the name of Tri-W Rental shall have
been transferred to Acme Alabama, Inc., and Acme Alabama, Inc. shall have
qualified to do business as a foreign corporation in the State of Florida.
(k) Fees and Expenses. All Fees, and all Expenses as to which the Credit
-----------------
Parties have received an invoice, in each case which are payable on or before
the Closing Date shall have been paid.
5.2 Conditions Precedent to All Loans and Letters of Credit . The
--------------------------------------------------------
obligation of each Lender to fund its Proportionate Share of any requested Loan
or of the Agent to cause the Issuing Bank to issue any requested Letter of
Credit is subject to the conditions precedent set forth below. Each Notice of
Borrowing and each Letter of Credit Request, and each issuance by a
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<PAGE>
Borrower of a check drawn against, or request for transfer from, the
Disbursement Account, shall constitute a representation and warranty that such
conditions are satisfied.
(a) All representations and warranties contained in this Credit Agreement
and the other Credit Documents shall be true and correct on and as of the date
of such Notice of Borrowing and the date of the Borrowing requested thereunder,
the date of such Letter of Credit Request and the date of issuance of the Letter
of Credit requested pursuant thereto, or issuance of a check drawn against or
request for transfer from the Disbursement Account, as if then made, other than
representations and warranties that relate solely to an earlier date;
(b) No Default or Event of Default shall have occurred and is continuing,
or would result from the making of the requested Loan or the issuance of the
requested Letter of Credit; and
(c) After giving effect to the Restructuring, no change, occurrence,
event or development or event involving a prospective change that is reasonably
likely to have a Material Adverse Effect shall have occurred and be continuing.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Agent and the Lenders to enter into this Credit Agreement
and to make the Loans and other financial accommodations described herein, and
to induce the Issuing Bank to issue Letters of Credit, the Credit Parties hereby
represent and warrant to the Agent, the Lenders and the Issuing Bank that the
following are true, correct and complete. Such representations and warranties,
and all other representations and warranties made by any Credit Party in any
other Credit Document, shall survive the execution and delivery of the Credit
Documents.
6.1 Organization and Qualification . Each Credit Party (i) is a
-------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation, (ii) has the power and authority to own its
properties and assets and to transact the businesses in which it presently is,
or proposes to be, engaged and (iii) is duly qualified and is authorized to do
business and is in good standing in each jurisdiction where it presently is, or
proposes to be, engaged in business, except in jurisdictions where the failure
to be so qualified, authorized or in good standing has not had and could not
reasonably be expected to have a Material Adverse Effect. Schedule D, Part 6.1
--------------------
lists all jurisdictions in which each Credit Party is incorporated and qualified
to do business as a foreign corporation as of the Closing Date.
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<PAGE>
6.2 Authority. Each Credit Party has the requisite corporate power and
---------
authority to execute, deliver and perform each of the Credit Documents to which
it is a party. All corporate action necessary for the execution, delivery and
performance by the Credit Parties of any of the Credit Documents has been taken.
6.3 Enforceability. This Credit Agreement is (and, upon execution and
--------------
delivery thereof, each other Credit Document will be) the legal, valid and
binding obligation of each Credit Party which is a party thereto, enforceable in
accordance with their respective terms.
6.4 No Conflict. The execution, delivery and performance by each Credit
-----------
Party of each Credit Document and each Restructuring Document to which it is a
party are not in contravention of any Requirement of Law or any Contractual
Obligation to which it is a party or by which it or any of its properties are
bound, except, in each case, for such Requirements of Law or Contractual
Obligations the noncompliance with which will not result in a Material Adverse
Effect, and will not, except as permitted hereby, result in the imposition of
any Liens upon any of its properties.
6.5 Consents and Filings. No consent, authorization, permit, notice or
--------------------
filing is required in connection with the execution, delivery and performance of
this Credit Agreement, any Credit Document, any Restructuring Document or the
continuing operations of the Credit Parties, except (i) those that have been
obtained or made and (ii) filings necessary to create, perfect or retain the
perfection or priority of Liens of the Agent, for the benefit of the Holders,
against the Collateral.
6.6 Government Regulation. None of the Credit Parties is subject to
---------------------
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, the Investment Company Act of 1940, or
any other Requirement of Law that limits its ability to incur indebtedness or
its ability to consummate the transactions contemplated in this Credit
Agreement, the other Credit Documents and the Restructuring Documents.
6.7 Solvency. After giving effect to the transactions contemplated by
--------
this Credit Agreement and the consummation of the Restructuring, (a) the fair
market value of the assets of the Credit Parties and their respective
Subsidiaries, on a combined basis, is in excess of the total amount of their
liabilities (including, without limitation, contingent liabilities); (b) the
present fair saleable value of the assets of the Credit Parties and their
respective Subsidiaries, on a combined basis, is greater than their probable
liability on their existing debts as such debts become absolute and matured; (c)
the Credit Parties and their respective Subsidiaries, on a combined basis, are
then
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<PAGE>
able and expect to be able to pay their debts (including, without limitation,
contingent debts and other commitments) as they mature; and (d) the Credit
Parties and their respective Subsidiaries, on a combined basis, have capital
sufficient to carry on their respective businesses as conducted and as proposed
to be conducted.
6.8 Rights in Collateral; Priority of Liens. The Credit Parties have
---------------------------------------
good and marketable title to all property which constitutes part of the
Collateral, free and clear of any and all Liens in favor of third parties, other
than Permitted Liens. Upon the filing of the UCC financing statements listed in
the Closing Document List, the recording of the Trademark Security Agreement,
together with the required cover sheets, with the United States Patent and
Trademark Office, the taking of possession of the Pledged Collateral under (and
as defined in) the Security Agreement and certificates of title for Rental
Equipment for which a certificate of title has been issued by the California
Department of Motor Vehicles and the taking of additional actions, to the extent
required, for perfection of Liens in proceeds of Collateral and Collateral
acquired after the date hereof, the Liens granted to the Agent, for the benefit
of the Holders, pursuant to the Credit Documents constitute valid and
enforceable first, prior and (to the extent such Liens can be perfected by
taking such actions) perfected Liens on the Collateral securing the Obligations,
subject only to Permitted Liens. Except for filings in favor of the Agent
relating to this Credit Agreement and as otherwise identified on Schedule D,
-----------
Part 8.7, no financing statement, registration, notation of Lien on certificate
- --------
of title or ownership, filing or other instrument similar in effect covering all
or any part of the Collateral is on file with any Governmental Authority on the
Closing Date.
6.9 Financial Data. The Credit Parties have provided to the Agent and
--------------
each of the Lenders complete and accurate copies of (a) the audited consolidated
financial statements for AAHC and its Subsidiaries and Acme Holdings and its
Subsidiaries as of December 31, 1994, (b) the unaudited financial statements of
AAHC and its Subsidiaries and Acme Holdings and its Subsidiaries as of June 30,
1995, (c) the Pro Forma and (d) the Projections. Such Financial Statements have
been prepared in accordance with GAAP consistently applied throughout the
periods involved except as stated therein and fairly present the respective
consolidated financial positions, results of operations and cash flows of AAHC
and its Subsidiaries and Acme Holdings and its Subsidiaries for each of the
periods covered, subject in the case of clause (b) to audit adjustments and
reclassification and month-end reconciliations. None of the Credit Parties has
any Contingent Obligation, contingent liability or liability for taxes, long-
term leases or commitments, which is not reflected (to the extent required by
GAAP consistently applied) in such Financial Statements. The Pro Forma fairly
presents on a pro forma basis the financial condition of AAHC and its
--- -----
Subsidiaries and Acme
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<PAGE>
Holdings and its Subsidiaries as of July 31, 1995 but after giving effect to the
Restructuring, and reflects on a pro forma basis those liabilities reflected in
--- -----
the notes thereto and resulting from consummation of the transactions
contemplated by the Credit Documents and the Restructuring Documents. The
Projections and the assumptions expressed in the Pro Forma are reasonable based
on the information available to the Credit Parties at the time so furnished.
6.10 Subsidiaries; Ownership of Stock. The only direct or indirect
--------------------------------
Subsidiaries of the Credit Parties are those listed on Schedule D, Part 6.10.
---------------------
After giving effect to the Restructuring, AAHC shall be the record and
beneficial owner of all of the shares of capital stock of each of the Parent
Guarantors. After giving effect to the Restructuring, AAHC has no Subsidiaries
other than the Parent Guarantors and the Borrowers. Acme Acquisition is the
record and beneficial owner of all of the shares of capital stock of each of
Acme Alabama, Air & Pump and Walker Jones, and Acme Acquisition has no other
Subsidiaries (other than Subsidiaries permitted to be created or acquired under
Section 8.20 as to which all actions required by Section 8.20 have been taken).
- ------------ ------------
Acme Holdings is the record and beneficial owner of all of the shares of capital
stock of each of Acme Dixie, Acme Duval and Acme Rents, and Acme Holdings has no
other Subsidiaries (other than Subsidiaries permitted to be created or acquired
under Section 8.20 as to which all actions required by Section 8.20 have been
------------ ------------
taken). After giving effect to the Restructuring, there are no proxies,
irrevocable or otherwise, with respect to the shares of capital stock of AAHC or
any Credit Party, and other than as set forth on Schedule D, Part 6.10 with
---------------------
respect to AAHC, no equity securities of AAHC or any Credit Party are or may
become required to be issued by reason of any options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for, shares of any
capital stock of any such Person, and there are no contracts, commitments,
understandings or arrangements by which any such Person is or may become bound
to issue additional shares of its capital stock or securities convertible into
or exchangeable for such shares. All of such shares so owned by AAHC or any
Credit Party are owned by such Person free and clear of any Liens, other than
(a) Liens granted to the Agent, for the benefit of the Holders, pursuant to the
Credit Documents and (b) Liens on the capital stock of the Parent Guarantors
granted by AAHC pursuant to the Citicorp Documents to secure the obligations of
AAHC arising under the Citicorp Documents.
6.11 No Judgments or Litigation. Except as set forth on Schedule D,
-------------------------- -----------
Part 6.11, no judgments, orders, writs or decrees are outstanding against AAHC
- ---------
or any Credit Party nor is there now pending or, to the best of the Credit
Parties' knowledge after diligent inquiry, threatened, any litigation, contested
claim, investigation, arbitration, or governmental proceeding by or
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against AAHC or any of the Credit Parties, in each case, except for such
judgments, orders, writs, decrees, litigation, contested claims, investigations,
arbitrations or governmental proceedings that (i) in the aggregate could not
reasonably be expected to result in a Material Adverse Effect and (ii) did not
occur within the ordinary course of business.
6.12 No Defaults. After the Closing Date, none of AAHC or the Credit
-----------
Parties is in default under any term of any material indenture, contract, lease,
agreement, instrument or other commitment to which any of them is a party or by
which any of them is bound. None of the Credit Parties knows of any dispute
regarding any such material indenture, contract, lease, agreement, instrument or
other commitment to which such Credit Party is a party.
6.13 Labor Matters. Schedule D, Part 6.13 accurately sets forth all
------------- ---------------------
material labor contracts to which any of the Credit Parties is a party and their
dates of expiration. There are no existing or threatened strikes, lockouts or
other disputes relating to any collective bargaining or similar agreement to
which any Credit Party is a party.
6.14 Compliance with Law. None of the Credit Parties has violated or
-------------------
failed to comply with any Requirement of Law, including, without limitation,
ERISA and environmental, health and safety Requirements of Law, except for such
Requirements of Law, the noncompliance with which, in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
6.15 ERISA. None of the Credit Parties or the ERISA Affiliates
-----
maintains or contributes to any Plan, other than those listed on Schedule D,
-----------
Part 6.15. Each Credit Party and each ERISA Affiliate has fulfilled all
- ---------
material contribution obligations for each Plan (including obligations related
to the minimum funding standards of ERISA and the Internal Revenue Code). No
Termination Event has occurred nor has any other event occurred that may result
in a Termination Event. None of the Credit Parties or the ERISA Affiliates
thereof, nor any fiduciary of any Plan, is subject to any direct or indirect
material liability with respect to any Plan under any Requirement of Law or
agreement. None of the Credit Parties or the ERISA Affiliates is required to
provide security to any Plan under Section 401(a)(29) of the Internal Revenue
Code. None of the Credit Parties or the ERISA Affiliates has engaged in any
prohibited transaction described in Section 406 of ERISA or Section 4975 of the
Internal Revenue Code for which a statutory or class exemption is not available
or a private exemption has not been previously obtained from the Department of
Labor.
6.16 Compliance with Environmental Laws. Except as disclosed on
----------------------------------
Schedule D, Part 6.16, (i) none of the Credit Parties is the subject of any
- ---------------------
proceeding by any Governmental
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<PAGE>
Authority or citizens group or investigation relating to the violation of any
environmental, health or safety Requirement of Law, or asserting potential
liability arising from the actual or threatened disposal by any Person of any
Hazardous Substance; (ii) none of the Credit Parties has filed any notice under
any Requirement of Law with respect to the treatment, storage, disposal, spill
or release of a Hazardous Substance other than storage of petrochemical products
in the ordinary course of business, as disclosed to the Agent; and (iii) none of
the Credit Parties has knowledge of any liability of the Credit Parties
(contingent or otherwise) for any release of any Hazardous Substance. The Credit
Parties have exercised reasonable care and made such investigations as are
reasonably necessary to accurately complete all reports and questionnaires, and
provide all information, requested by the Agent or its counsel.
6.17 Intellectual Property; Real Property. Each of the Credit Parties
------------------------------------
possesses such material assets, licenses, patents, patent applications,
copyrights, service marks, trademarks and trade names as are necessary or
advisable to continue to conduct its present and proposed business activities.
Schedule B shall set forth all Real Property of the Credit Parties as of the
- ----------
Closing Date after giving effect to the Restructuring.
6.18 Licenses and Permits. Each of the Credit Parties has obtained and
--------------------
holds in full force and effect, all franchises, licenses, leases, permits,
certificates, authorizations, qualifications, easements, rights of way and other
rights and approvals which are necessary or advisable for the operation of its
business as presently conducted and as proposed to be conducted.
6.19 Taxes and Tax Returns.
---------------------
(a) Except as set forth on Schedule D, Part 6.19, AAHC and each Credit
---------------------
Party have timely filed all tax returns it is required to file. The information
filed is complete and accurate in all material respects. All deductions taken
in such tax returns are appropriate and in accordance with applicable laws and
regulations, except deductions that may have been disallowed but are being
challenged in good faith and for which adequate reserves have been made in
accordance with GAAP.
(b) All taxes (including gross receipts, capital and franchise taxes),
assessments, fees and other governmental charges for periods beginning prior to
the Closing Date have been timely paid and none of AAHC or the Credit Parties
has any material liability for such taxes (including penalties and interest
thereon) in excess of the amounts so paid or reserves so established.
(c) Except as set forth in Schedule D, Part 6.19, no deficiencies for
---------------------
such taxes have been claimed, proposed or
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assessed by any taxing or other Governmental Authority against AAHC or any
Credit Party and no tax liens have been filed. Except as set forth in Schedule
--------
D, Part 6.19, there are no pending or threatened audits, investigations or
- ------------
claims for or relating to any liability for taxes and there are no matters under
discussion with any Governmental Authority which could result in a material
additional liability of the Credit Parties for taxes (including penalties and
interest thereon). Schedule D, Part 6.19 sets forth the year through which the
---------------------
federal income tax returns of each of AAHC and the Credit Parties have been
audited by the Internal Revenue Service (which audits have been closed), or the
year through which the period during which any assessments may be made by the
Internal Revenue Service has expired without waiver or extension. Except as set
forth in Schedule D, Part 6.19, no material extension of a statute of
---------------------
limitations relating to taxes, assessments, fees or other governmental charges
is in effect with respect to AAHC or any of the Credit Parties.
(d) Except as set forth on Schedule D, Part 6.19, none of AAHC or the
---------------------
Credit Parties has any material obligation under any written tax sharing
agreement or agreement regarding payments in lieu of taxes.
6.20 Material Contracts. Schedule D, Part 6.20, contains a true,
------------------ ---------------------
correct and complete list of all the Material Contracts currently in effect on
the date hereof. Except as described on Schedule D, Part 6.20, none of the
---------------------
Material Contracts contains any material burdensome restrictions on any of the
Credit Parties or any of their respective properties, all of the Material
Contracts are in full force and effect, and no defaults currently exist
thereunder.
6.21 Refinanced Indebtedness. The Indebtedness of AAHC and the Credit
-----------------------
Parties intended to be refinanced in connection with the Restructuring and all
accrued and unpaid interest thereon has been paid in full or forgiven (pursuant
to the Plan of Reorganization) or provision for payment has been made such that,
in accordance with the express provisions of the instruments governing such
Indebtedness, AAHC and the Credit Parties have been or will be upon payment in
full of such Indebtedness irrevocably released from all liability and
Contractual Obligations with respect thereto other than customary continuing
indemnities provided for in the Contractual Obligation evidencing such
Refinanced Indebtedness, a copy of which has been delivered to the Agent. Any
and all Liens securing such Indebtedness have been released or provision for
release of such Liens satisfactory to the Agent has been made.
6.22 The Restructuring.
-----------------
(a) The Disclosure Statement did not, at the time it was mailed to the
holders of Old Notes or at the time of the filing
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of the Plan of Reorganization with the Bankruptcy Court, and does not, as of the
Closing Date, contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Each of the
Restructuring Documents filed with the Commission or the Bankruptcy Court or any
other Governmental Authority complied in all material respects with the
provisions of the Securities Exchange Act of 1934, as amended, any other federal
securities law, state securities or "Blue Sky" law, foreign securities law,
applicable general corporation law, the Bankruptcy Code and, in each case, the
rules and regulations thereunder.
(b) The Plan of Reorganization has not been amended, modified or
supplemented in any respect without the prior written consent of the Agent, to
the extent that such amendment, modification or supplement could reasonably be
expected to affect the interests of the Agent or any Lender, and has been
confirmed pursuant to a confirmation order of the Bankruptcy Court (i) which has
not been reversed, stayed, modified or amended, (ii) as to which no appeal,
certiorari proceeding, reargument or other review or rehearing that has been
requested is still pending and (iii) as to which the time for filing a notice of
appeal or petition for certiorari, or request for reargument or further review
or rehearing shall have expired.
(c) None of AAHC, Acme Holdings or their respective Subsidiaries has
taken any action, or failed to take any action, which might prevent, materially
impede or result in the revocation of (i) the confirmation of the Plan of
Reorganization (as provided in Section 1144 of the Bankruptcy Code), (ii) a full
and complete discharge of the Old Notes and the Old Equity Interests (to the
fullest extent possible under Section 1141(d) of the Bankruptcy Code) in
accordance with the Plan of Reorganization and (iii) the vesting upon the entry
of the confirmation order of the respective reorganized entities free and clear
of all claims and interest of creditors and equity security holders in
accordance with the terms of the Plan of Reorganization.
(d) All aspects of the Restructuring have been, or concurrently herewith
will be, consummated, in each case in compliance with all applicable
Requirements of Law, this Credit Agreement and the other Credit Documents, and
the Restructuring Documents approved by the Agent prior to the date of this
Credit Agreement. All aspects of the Restructuring have become effective.
(e) Each of the representations and warranties of AAHC and the Credit
Parties set forth in the Citicorp Documents was true and correct when made and
is true and correct as of the Closing Date as if made at and as of the Closing
Date (other than to the
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extent any such representation or warranty is expressly made only as of another
date).
6.23 Securities Activities. None of the Credit Parties is engaged in
---------------------
the business of extending credit for the purpose of purchasing or carrying
Margin Stock.
6.24 Accuracy and Completeness of Information. All factual information
----------------------------------------
furnished by or on behalf of AAHC or any of the Credit Parties in writing to the
Agent, any Lender, or the Auditors for purposes of or in connection with this
Credit Agreement or any Credit Documents, or any transaction contemplated hereby
or thereby is or will be true and accurate in all material respects on the date
as of which such information is dated or certified and not incomplete by
omitting to state any material fact necessary to make such information not
misleading at such time.
6.25 No Change. After giving effect to the Restructuring, there has
---------
been no development or event or any prospective development or event, which has
had or could reasonably be expected to have a Material Adverse Effect.
6.26 Fairness. The transactions contemplated by the Credit Documents
--------
and the Restructuring Documents are fair to AAHC and the Credit Parties.
ARTICLE 7
AFFIRMATIVE COVENANTS
---------------------
Until termination of this Credit Agreement and payment and satisfaction of
all Obligations due hereunder, each Credit Party shall comply with, and, where
required, shall cause each of its Subsidiaries to comply with, the following
covenants:
7.1 Financial Reporting. The Credit Parties shall timely deliver to
-------------------
each Lender the following information:
(a) Annual Financial Statements. As soon as available, but not later
---------------------------
than 120 days after the end of each Fiscal Year: (i) annual unaudited
consolidating and audited consolidated Financial Statements; (ii) a comparison
in reasonable detail to the prior year audited Financial Statements; (iii) the
Auditors' unqualified opinion, "Management Letter" and statement indicating that
the Auditors have not obtained knowledge of the existence of any Default or
Event of Default during their audit; (iv) a narrative discussion of AAHC and the
Credit Parties' consolidated financial condition and results of operations for
such Fiscal Year and a comparison in reasonable detail to the Projections (or
the then most recent financial forecasts delivered pursuant to Section 7.1(b))
--------------
for such Fiscal Year, prepared by the chief
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financial officer or treasurer of each Credit Party; and (v) a certificate
substantially in the form of Exhibit O with an attached schedule of calculations
---------
demonstrating compliance with the Financial Covenants and Section 8.9(vi) (the
---------------
"Compliance Certificate").
----------------------
(b) Annual Projections. Not later than 45 days after the end of each
------------------
Fiscal Year, beginning with the Fiscal Year ended 1995, (i) a monthly budget and
consolidating income statement for the then current Fiscal Year and (ii) a
consolidated plan and financial forecast (including the assumptions on which the
plan and financial forecast are based), prepared in accordance with AAHC's and
the Credit Parties' normal accounting procedures applied on a consistent basis
and in substantially the form of the Projections, for the then current Fiscal
Year and each succeeding Fiscal Year of the Credit Parties up to and including
the Fiscal Year following the Fiscal Year which includes the Initial Expiration
Date, including, without limitation, forecasted (A) consolidated condensed
balance sheets, (B) condensed consolidated and consolidating income statements,
(C) condensed consolidated cash flow statements, (D) consolidated capitalization
statements and (E) calculations of Financial Covenants, in each case for such
Fiscal Years.
(c) Quarterly Compliance Certificate. As soon as available, but not
--------------------------------
later than 45 days after the end of each fiscal quarter in each Fiscal Year, a
Compliance Certificate, together with a certification by the chief financial
officer or treasurer of each Credit Party that the Financial Statements for the
then most recently ended three calendar months delivered pursuant to Section
-------
7.1(d) have been prepared in accordance with GAAP (prepared without footnotes
- ------
and subject to year-end audit adjustments and reclassifications and month-end
reconciliations, in each case, to the extent consistent with AAHC's and the
Credit Parties' current practices).
(d) Monthly Financial Statements. As soon as available, but not later
----------------------------
than 30 days after the end of each calendar month in each Fiscal Year: (i)
Financial Statements as of the end of such month and for the Fiscal Year through
the end of such month; (ii) a comparison in reasonable detail to the Financial
Statements for the corresponding periods of the prior Fiscal Year; and (iii) a
narrative discussion of AAHC and the Credit Parties' consolidated financial
condition and results of operations for such calendar month and Fiscal Year to
date and a comparison in reasonable detail to the budget and Projections (or the
then most recent financial forecasts delivered pursuant to Section 7.1(b)) for
--------------
such period, prepared by the chief financial officer or treasurer of each Credit
Party.
7.2 Collateral and Other Reporting. The Credit Parties shall timely
------------------------------
deliver to the Agent the following certificates and reports:
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(a) Monthly Borrowing Base Certificates. Monthly, within ten days after
-----------------------------------
the last day of each month, and at any other time requested by the Agent: a
borrowing base certificate for each Borrower substantially in the form of
Exhibit P (the "Borrowing Base Certificate"), which shall (i) detail the
- --------- --------------------------
Eligible Accounts and Eligible Rental Equipment of the Borrower as of the last
day of each month (or as of such other date as the Agent may request); (ii) be
prepared by or under the supervision of the chief financial officer or treasurer
of the Borrower and certified by such officer subject only to adjustment upon
completion of the normal year-end and interim audits of physical Inventory and
Rental Equipment of that Borrower; and (iii) have attached thereto such
additional schedules and other information as the Agent may request.
(b) Appraisals. When requested by the Agent, and in any event at least
----------
once during each 365-day period after the Closing Date and each anniversary
thereof, a report of Rental Equipment of the Borrowers by Daley-Hodkin or
another appraiser reasonably satisfactory to the Agent and consented to by the
Borrowers (which consent shall not unreasonably be withheld), which shall
describe each Borrower's Rental Equipment by category and by item (in reasonable
detail) and report the fair market value and orderly liquidation value).
(c) Other Reports. The Credit Parties shall deliver or cause to be
-------------
delivered to the Agent and the Lenders copies of all Financial Statements,
reports and notices, if any, sent or made available generally by AAHC or any
Credit Party to holders of their respective Indebtedness or securities
(including, without limitation, Financial Statements, reports and notices
provided under the Citicorp Documents) or filed with the Commission and all
press releases made available generally by AAHC or any Credit Party to the
public concerning material developments in the business of any such Person, and
all notifications received by AAHC or any Credit Party pursuant to the
Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder.
(d) Further Assurances. When requested by the Agent, any further
------------------
information regarding the Collateral, business affairs and financial condition
of AAHC or any of the Credit Parties.
7.3 Notification Requirements. The Credit Parties shall timely give the
-------------------------
Agent and each of the Lenders the following notices:
(a) Notice of Defaults. Promptly, and in any event within five days
------------------
after becoming aware of the occurrence of a Default or Event of Default, a
certificate of the chief executive officer, chief financial officer or treasurer
of each Credit Party specifying the nature thereof and the Credit Parties'
proposed response thereto, each in reasonable detail.
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(b) Proceedings or Adverse Changes. Promptly, and in any event within
------------------------------
five Business Days after any Credit Party becomes aware of (i) any proceeding
being instituted or threatened to be instituted by or against any Credit Party
or any Subsidiary of a Credit Party in any federal, state, local or foreign
court or before any commission or other regulatory body (federal, state, local
or foreign), except for threatened or pending proceedings which in the aggregate
could not reasonably be expected to result in an Event of Default or a Material
Adverse Effect, (ii) any order, judgment or decree being entered against any
Credit Party or any of its Subsidiaries or any of their respective properties or
assets, if the amount which is or may become payable by any Credit Party or any
of its Subsidiaries in connection with all such orders, judgments or decrees
then outstanding, exceeds confirmed insurance coverage by more than $1,000,000,
or (iii) any actual or prospective change, development or event which has had or
could reasonably be expected to have a Material Adverse Effect other than
general economic conditions, a written statement describing such proceeding,
order, judgment, decree, change, development or event and any action being taken
with respect thereto by the Credit Party or any such Subsidiary.
(c) ERISA Notices. (i) Promptly, and in any event within 10 Business
-------------
Days after any Credit Party or any ERISA Affiliate knows or has reason to know
that a Termination Event has occurred, a written statement of the chief
financial officer or treasurer of such Credit Party describing such Termination
Event and any action that is being taking with respect thereto by any of the
Credit Parties or any ERISA Affiliate, and any action taken or threatened by the
Internal Revenue Service, Department of Labor or PBGC (the Credit Parties and
the ERISA Affiliates shall be deemed to know all facts known by the
administrator of any Benefit Plan of which it is the plan sponsor); (ii)
promptly, and in any event within five Business Days after the filing thereof
with the Internal Revenue Service, a copy of each funding waiver request filed
with respect to any Benefit Plan and all communications received by any Credit
Party or any ERISA Affiliate with respect to such request; and (iii) promptly,
and in any event within five Business Days after receipt by any Credit Party or
any ERISA Affiliate, a copy of any notice of the PBGC's intention to terminate a
Benefit Plan or to have a trustee appointed to administer a Benefit Plan, copies
of each such notice.
(d) Environmental and Health and Safety Notices. Promptly, and in any
-------------------------------------------
event within 10 Business Days after receipt by AAHC or any Credit Party of any
notice, complaint or order alleging actual or prospective violation of any
environmental, health or safety Requirement of Law or alleging responsibility
for costs of a cleanup, together with a copy of such notice, complaint, or order
and a written statement describing any action being taken with respect thereto
by AAHC or any Credit Party.
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(e) Material Contracts. Promptly, and in any event within 10 Business
------------------
Days after any Material Contract of any Credit Party is terminated or amended or
any new Material Contract is entered into, a written statement describing such
event and explaining any actions being taken with respect thereto (and, if
requested by the Agent, copies of such amendments or new contracts).
7.4 Corporate Existence. Each Credit Party shall, and shall cause each
-------------------
of its Subsidiaries to, (i) maintain its corporate existence (except to the
extent permitted by Section 8.9 or 8.11), (ii) maintain in full force and effect
----------- ----
all licenses, bonds, franchises, leases, trademarks and qualifications to do
business, and all patents, contracts and other rights necessary or advisable to
the profitable conduct of their businesses, provided, however, that any such
-------- -------
licenses, bonds, franchises, leases, trademarks, qualifications, patents,
contracts and other rights may be terminated if such termination does not have a
Material Adverse Effect and (iii) continue in, and limit their operations to,
the same general lines of business as conducted by the Credit Parties and such
Subsidiaries on the Closing Date and lines of business reasonably related
thereto.
7.5 Books and Records; Inspections. Each Credit Party agrees to
------------------------------
maintain, and to cause each of its Subsidiaries to maintain, books and records
pertaining to the Collateral in such detail, form and scope as is consistent
with good business practice. Each Credit Party agrees that the Agent or its
agents may enter upon the premises of any Credit Party or any Subsidiary of any
Credit Party at any time and from time to time, during normal business hours and
upon 24 hours' prior notice, and at any time at all on and after the occurrence
of a Default which continues beyond the expiration of any grace or cure period
applicable thereto, and which has not otherwise been waived pursuant to Section
-------
12.11 or cured, for the purposes of (i) inspecting and verifying the Collateral,
- -----
(ii) inspecting and/or copying (at the Credit Party's expense) any and all
records pertaining thereto and (iii) discussing the affairs, finances and
business of the Credit Party with any officers, employees and directors of the
Credit Party or with the Auditors.
7.6 Insurance. Each Credit Party agrees to maintain, and to cause each
---------
of its Subsidiaries to maintain, general liability insurance, third party
property damage insurance and replacement value insurance on the Collateral
under the insurance policies and programs listed on Schedule C or substantially
----------
similar policies and programs with insurance companies maintaining a Best's
Rating of A or better (or, as to workers' compensation or similar insurance,
insurance in an insurance fund or by self-insurance authorized by the
jurisdiction in which its operations are carried on) and in such amounts and
covering such risks as are at all times satisfactory to the Agent in its
commercially reasonable judgment. All such policies shall contain such
provisions as the Agent may reasonably require to fully protect
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the Agent's interest in the Collateral and to any payments to be made under such
policies, including, without limitation, the following: (i) all policies
covering the Collateral shall contain an endorsement, in form and substance
acceptable to the Agent, naming the Agent, for the benefit of the Holders, as
loss payee thereunder and, if required by the Agent, naming the Agent as an
additional insured under such policy; (ii) all policies relating to general
liability coverage shall contain an endorsement naming the Agent as an
additional insured under such policy; (iii) all such policies shall contain an
endorsement which negates the "other insurance" clause in the policy and a
statement that the insurance being provided is primary and any insurance carried
by the Agent is neither primary nor contributory; and (iv) all such policies,
endorsements thereto or an independent instrument furnished to the Agent shall
provide that the applicable insurance company will give the Agent at least 30
days' written notice before any such policy or policies of insurance shall be
altered adversely to the interests of the Holders or cancelled, except for
notices of annual renewals which do not adversely affect the rights of the Agent
or the Lenders, and that no act, whether willful or negligent, or default of the
Credit Party or any other Person shall affect the right of the Agent to recover
under such policy or policies of insurance in case of loss or damage. In the
event any Credit Party at any time or times hereafter shall fail to obtain or
maintain any of the policies or insurance required herein or to pay any premium
in whole or in part relating thereto, then the Agent, without waiving or
releasing any obligations or resulting Event of Default hereunder, may at any
time or times thereafter (but shall be under no obligation to do so) obtain and
maintain such policies of insurance and pay such premiums and take any other
action with respect thereto which the Agent deems advisable. All sums so
disbursed by the Agent shall constitute Agent Advances hereunder and be part of
the Obligations, payable as provided in this Credit Agreement.
7.7 Taxes and Claims. Each Credit Party agrees to pay, when due, and to
-----------------
cause each of its Subsidiaries to pay when due, (a) all taxes lawfully levied or
assessed against such Credit Party, any of its Subsidiaries or any of the
Collateral before any penalty or interest accrues thereon and (b) all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
may become a Lien (other than a Permitted Lien) upon any of such Credit Party's
or such Subsidiary's assets, prior to the time when any penalty or fine shall be
incurred with respect thereto; provided, however, that no such taxes,
-------- -------
assessments and governmental charges referred to in clause (a) above or claims
----------
referred to in clause (b) above (unless such taxes, assessments, governmental
----------
charges or claims have become a federal or state tax or ERISA Lien on any of the
assets of such Credit Party or any of its Subsidiaries) need be paid so long as
(w) being contested in good faith by appropriate proceedings
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diligently instituted and conducted, (x) the Agent has been notified thereof,
and (y) such reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made therefor.
7.8 Compliance With Laws. Each Credit Party agrees to comply, and to
--------------------
cause each of its Subsidiaries to comply, with all Requirements of Law
applicable to the Collateral or any part thereof, or to the operation of its
business or its assets generally, unless (i) the Credit Party contests any such
Requirements of Law in a reasonable manner and in good faith or (ii) such
failure to comply with such Requirements of Law could not, in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
7.9 Use of Proceeds. The initial Loans made to the Borrowers hereunder
---------------
shall be used by the Borrowers (a) to retire Indebtedness and pay the costs and
expenses of the transactions contemplated by this Credit Agreement which are due
and payable on the Closing Date, including, without limitation, amounts required
to be paid to consummate the Restructuring and an aggregate amount not in excess
of $4,000,000 to pay costs and expenses incurred in connection therewith and (b)
for working capital, Investments, loans, dividends and distributions from the
Borrowers to AAHC and the Credit Parties to the extent permitted by Article 8,
---------
Acquisitions and other lawful general corporate purposes, in each case to the
extent consistent with the requirements of this Credit Agreement. The proceeds
of the initial Loans made to the Borrowers hereunder, and the proceeds of funds
received by AAHC and the Credit Parties pursuant to the Insurance Settlement and
the Citicorp Documents, shall be disbursed in accordance with the funds flow
memorandum delivered to the Agent pursuant to Section 5.1(a)(i). The proceeds
-----------------
of any subsequent Loans made hereunder shall be used by the Borrower for whose
account the Loan is made solely for the purposes set forth in clause (b) above,
----------
to the extent consistent with the requirements of this Credit Agreement. None
of the Borrowers shall use any portion of the proceeds of any such Loans for the
purpose of purchasing or carrying any Margin Stock in any manner which violates
the provisions of Regulation G, Regulation U or Regulation X or for any other
purpose in violation of any applicable statute or regulation, or of the terms
and conditions of this Credit Agreement. Each Borrower and each Parent
Guarantor hereby acknowledges that the restrictions as to use of proceeds in
this Credit Agreement or any of the other Credit Documents are commercially
reasonable and made in good faith.
7.10 Fiscal Year. Each Credit Party agrees to maintain its Fiscal Year
-----------
as a year ending December 31.
7.11 Maintenance of Property. Each Credit Party agrees to keep, and to
-----------------------
cause each of its Subsidiaries to keep, all property useful and necessary to
their respective businesses in good
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working order and condition (ordinary wear and tear excepted) in accordance with
their past operating practices and not to commit or suffer any waste with
respect to any of their properties.
7.12 ERISA Documents. Each Credit Party will cause to be delivered to
---------------
the Agent, upon the Agent's request, each of the following: (i) a copy of each
Plan (or, where any such plan is not in writing, complete description thereof)
(and if applicable, related trust agreements or other funding instruments) and
all amendments thereto, all written interpretations thereof and written
descriptions thereof that have been distributed to employees or former employees
of the Credit Party or its Subsidiaries; (ii) the most recent determination
letter issued by the Internal Revenue Service with respect to each Benefit Plan;
(iii) for the three most recent plan years, Annual Reports on Form 5500 Series
required to be filed with any Governmental Authority for each Benefit Plan; (iv)
all actuarial reports prepared for the last three plan years for each Benefit
Plan; (v) a listing of all Multiemployer Plans, with the aggregate amount of the
most recent annual contributions required to be made by the Credit Party or any
ERISA Affiliate to each such plan and copies of the collective bargaining
agreements requiring such contributions; (vi) any information that has been
provided to the Credit Party or any ERISA Affiliate regarding withdrawal
liability under any Multiemployer Plan; and (vii) the aggregate amount of the
most recent annual payments made to former employees of the Credit Party or any
ERISA Affiliate under any Retiree Health Plan.
7.13 Compliance With Environmental Laws.
----------------------------------
(a) Each Credit Party shall comply, and cause each of its Subsidiaries to
comply, with all environmental, health and safety Requirements of Law applicable
to its operations and properties other than such non-compliance of which would
have no Material Adverse Effect; obtain, and cause each of its Subsidiaries to
obtain, all environmental permits necessary for its operations and properties;
and conduct, and cause each of its Subsidiaries to conduct, any investigation,
study, sampling and testing, and undertake any cleanup, removal, remedial or
other action necessary to remove and clean up all Hazardous Substances from any
of its properties, to the extent required under any such Requirements of Law;
provided, however, that neither such Credit Party nor any Subsidiaries of such
- -------- -------
Credit Party shall be required to undertake any such cleanup, removal, remedial
or other action to the extent that its obligation to do so is being contested in
good faith and by proper proceedings and appropriate reserves are being
maintained with respect to such circumstances.
(b) Each Credit Party shall (i) employ, and cause each of its
Subsidiaries to employ, in connection with its use of Real Property, appropriate
technology to maintain compliance in all material respects with any applicable
environmental, health and
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safety Requirements of Law, (ii) maintain in all material respects, and cause
each of its Subsidiaries to obtain and maintain in all material respects, any
and all permits required by applicable environmental, health and safety
Requirements of Law in connection with its or its Subsidiaries, operations and
(iii) dispose of, and cause each of its Subsidiaries to dispose of, any and all
Hazardous Substances only at facilities and with carriers that in the reasonable
belief of the Credit Party are maintaining valid permits under the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. (S)(S) 6901 et seq., any
-- ---
amendments thereto, any successor statutes, and any regulations promulgated
thereunder, and any applicable state and local environmental, health and safety
Requirements of Law. Such Credit Party shall use its best efforts, and cause
each of its Subsidiaries to use its best efforts, to obtain certificates of
disposal from all contractors employed by such Credit Party or any of its
Subsidiaries in connection with the transport or disposal of any Hazardous
Substances.
7.14 Compliance with Operating Leases. Each Credit Party shall make all
--------------------------------
payments and otherwise perform, and cause each of its Subsidiaries to make all
payments and otherwise perform, in all material respects, all of its obligations
in respect of all Operating Leases of such Credit Party or any of its
Subsidiaries, and use its best efforts, and cause each of its Subsidiaries to
use its best efforts, to keep, and to take all action to keep, such Operating
Leases in full force and effect and not allow any such Operating Leases to lapse
or be terminated or any rights to renew such Operating Leases to be forfeited or
cancelled other than any such failure which would have no Material Adverse
Effect. Such Credit Party will give the Agent prompt notice of any lapse,
termination, forfeiture or cancellation of any material Operating Lease to which
it is a party (whether or not in accordance with the terms of such Operating
Lease or this Credit Agreement).
7.15 Compliance with Material Contracts. Each Credit Party shall
----------------------------------
perform and observe, and cause each of its Subsidiaries to perform and observe,
all material terms and provisions of the Material Contracts to be performed or
observed by it, maintain, and cause each of its Subsidiaries to maintain, the
Material Contracts to which it is a party in full force and effect during their
respective stated terms, enforce, and cause each of its Subsidiaries to enforce,
the Material Contracts to which it is a party in accordance with their terms,
and take, and cause each of its Subsidiaries to take, all such action to such
ends as may from time to time be reasonably requested by the Agent other than
any such failure which would have no Material Adverse Effect.
7.16 Maintenance of Separate Existence. Except with respect to
---------------------------------
transactions permitted by Section 8.11, each Borrower will do all things
------------
necessary to maintain its corporate existence
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separate and apart from AAHC and each Parent Guarantor, including, without
limitation, (a) practicing and adhering to corporate formalities, such as
maintaining appropriate corporate books and records; (b) assuring that AAHC has
at least one corporate director who is not an officer, director or employee of
such Borrower or the Parent Guarantors; (c) maintaining all of its deposit and
other bank accounts and all of its assets separate from those of AAHC and each
Parent Guarantor; (d) maintaining all of its financial records separate and
apart from those of any other Person and ensuring that any of AAHC's
consolidated Financial Statements or public information for such Borrower on a
consolidated basis contain appropriate disclosures concerning the Borrower's
separate existence; (e) except with respect to the corporate headquarters in
Scottsdale, Arizona, maintaining business locations separate and apart from
those of AAHC and each Parent Guarantor; and (f) accounting for all of its
liabilities separately from those of AAHC and each Parent Guarantor.
7.17 Real Property; Landlord Waivers. Each Credit Party having a
-------------------------------
leasehold interest in Real Property shall (a) to the extent not delivered on the
Closing Date pursuant to Section 5.1(d), use its best efforts to deliver, or
--------------
cause to be delivered, to the Agent, Collateral Access Agreements from the
landlords on all Real Property leasehold interests of such Credit Party set
forth on Schedule B as of the Closing Date and (b) use its best efforts deliver,
----------
or cause to be delivered, to the Agent, Collateral Access Agreements from the
landlords on all Real Property leasehold interests of such Credit Party acquired
after the Closing Date.
7.18 Louisiana Matters. Within 15 days following the Closing Date, (a)
-----------------
Acme Dixie shall execute and deliver to the Agent a Uniform Commercial Code
financing statement to be filed in the Louisiana Department of Public Safety and
Corrections, Office of Motor Vehicles, describing the year of manufacture, make,
model, body style and Manufacturer's serial or other identification number with
respect to all Equipment and Rental Equipment for which a certificate of title
has been issued by such office as of the Closing Date and (b) Acme Dixie and Air
& Pump shall cause their counsel to deliver to the Agent, the Issuing Bank and
the Lenders, a legal opinion with respect to the perfection of security
interests in such credit parties' assets located or deemed located in the State
of Louisiana.
7.19 Further Assurances. Each Credit Party shall take, and shall cause
------------------
each of its Subsidiaries to take, all such further actions and execute all such
further documents and instruments as the Agent may at any time reasonably
determine in its sole discretion to be necessary or desirable to further carry
out and consummate the transactions contemplated by the Credit Documents, to
cause the execution, delivery and performance of the Credit Documents to be duly
authorized and to perfect or
-80-
<PAGE>
protect the Liens (and the priority status thereof) of the Agent, for the
benefit of the Holders, on the Collateral.
ARTICLE 8
NEGATIVE COVENANTS
------------------
Until termination of this Credit Agreement and payment and satisfaction of
all Obligations due hereunder, the Credit Parties shall comply with, and, where
required, shall assure that AAHC complies with, and shall cause each of its
Subsidiaries to comply with, the following covenants:
8.1 Minimum Rental Equipment Utilization. The Borrowers shall not permit
------------------------------------
Rental Equipment Utilization, as determined as of each Quarterly Determination
Date in each Fiscal Year for the twelve-month period ending on such Quarterly
Determination Date, to be less than 57.5%. Notwithstanding the foregoing, any
non-compliance with the previous sentence shall be deemed to be cured if, as of
the last day of the calendar month immediately following the fiscal quarter with
respect to which such non-compliance occurred (the "Rental Equipment Utilization
----------------------------
Cure Date"), the Borrowers cause Rental Equipment Utilization, as determined for
- ---------
the twelve-month period ending on the Rental Equipment Utilization Cure Date, to
be at least 57.5%.
8.2 Minimum Interest Coverage Ratio. The Credit Parties shall not permit
-------------------------------
the ratio of (i) EBITA to (ii) Interest Expense (other than non-cash Interest
Expense on Indebtedness under the Citicorp Purchase Agreement), (a) as
determined as of December 31, 1995, for the three-month period ending on such
date, to be less than 2.3x, (b) as determined as of March 31, 1996, for the six-
month period ending on such date, to be less than 2.3x, (c) as determined as of
June 30, 1996, for the nine-month period ending on such date, to be less than
2.4x and (d) as determined as of each Quarterly Determination Date occurring
during the periods set out below, for the twelve-month period ending on such
Quarterly Determination Date, to be less than the ratio set out opposite such
period below:
-81-
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
Period Minimum Ratio
- -------------------------------------------------------------------------------
<S> <C>
September 30, 1996 - 2.5x
September 29, 1997
- -------------------------------------------------------------------------------
September 30, 1997 - 2.6x
September 29, 1998
- -------------------------------------------------------------------------------
September 30, 1998 - 2.7x
September 29, 1999
===============================================================================
</TABLE>
8.3 Maximum Total Indebtedness Ratio. The Credit Parties shall not
--------------------------------
permit the ratio of (i) the aggregate amount of all Indebtedness of AAHC and the
Credit Parties outstanding on each Quarterly Determination Date set out below or
at any time thereafter prior to the immediately following Quarterly
Determination Date set out below, to (ii) EBITDA, as determined as of each
Quarterly Determination Date set out below for the twelve-month period ending on
such Quarterly Determination Date, to be greater than the ratio set out opposite
such date below:
-82-
<PAGE>
<TABLE>
<CAPTION>
=======================================================
Quarterly
Determination Date Maximum Ratio
- -------------------------------------------------------
<S> <C>
December 31, 1995 2.7x
- -------------------------------------------------------
March 31, 1996 2.9x
- -------------------------------------------------------
June 30, 1996 3.0x
- -------------------------------------------------------
September 30, 1996 2.6x
- -------------------------------------------------------
December 31, 1996 2.5x
- -------------------------------------------------------
March 31, 1997 2.7x
- -------------------------------------------------------
June 30, 1997 2.8x
- -------------------------------------------------------
September 30, 1997 2.5x
- -------------------------------------------------------
December 31, 1997 2.3x
- -------------------------------------------------------
March 31, 1998 2.4x
- -------------------------------------------------------
June 30, 1998 2.5x
- -------------------------------------------------------
September 30, 1998 2.3x
- -------------------------------------------------------
December 31, 1998 2.1x
- -------------------------------------------------------
March 31, 1999 2.2x
- -------------------------------------------------------
June 30, 1999 2.3x
=======================================================
</TABLE>
8.4 Minimum EBITDA. The Credit Parties shall not permit EBITDA, as
--------------
determined as of each Quarterly Determination Date set out below for the twelve-
month period ending on such Quarterly Determination Date, to be less than the
amount set out opposite such date below:
<TABLE>
<CAPTION>
======================================================
Quarterly
Determination Date Minimum Amount
- -------------------------------------------------------
<S> <C>
December 31, 1995 25,000,000
- -------------------------------------------------------
March 31, 1996 25,300,000
- -------------------------------------------------------
June 30, 1996 26,600,000
- -------------------------------------------------------
September 30, 1996 28,300,000
- -------------------------------------------------------
December 31, 1996 29,300,000
- -------------------------------------------------------
March 31, 1997 30,200,000
- -------------------------------------------------------
June 30, 1997 31,300,000
- -------------------------------------------------------
September 30, 1997 32,400,000
- -------------------------------------------------------
</TABLE>
-83-
<PAGE>
<TABLE>
<S> <C>
- -------------------------------------------------------
December 31, 1997 33,500,000
- -------------------------------------------------------
March 31, 1998 34,300,000
- -------------------------------------------------------
June 30, 1998 35,200,000
- -------------------------------------------------------
September 30, 1998 36,300,000
- -------------------------------------------------------
December 31, 1998 37,200,000
- -------------------------------------------------------
March 31, 1999 37,700,000
- -------------------------------------------------------
June 30, 1999 38,300,000
=======================================================
</TABLE>
8.5 Capital Expenditures and Investments. None of the Credit Parties or
-------------------------------------
their respective Subsidiaries shall, directly or indirectly, make or incur any
Capital Expenditures or make any Investment in any Person, whether in cash,
securities, or other property of any kind including, without limitation, any
Subsidiary or Affiliate of any Credit Party, other than:
(a) Advances or loans made in the ordinary course of business not to
exceed $150,000 outstanding at any one time to any one Person and $300,000 in
the aggregate outstanding at any one time;
(b) Investments arising from (i) intercompany loans permitted by Section
-------
8.6(h), (ii) dividends and distributions permitted by Section 8.10 and (iii)
- ------ ------------
transfers permitted by Section 8.9(iv) or 8.9(v);
--------------- ------
(c) Cash Equivalents;
(d) Deposits with financial institutions, disclosed in Schedule D, Part
----------------
8.17, and which are insured by the Federal Deposit Insurance Corporation
- ----
("FDIC") or a similar federal insurance program;
----
(e) contributions to and payments of benefits under any Plan (in
accordance with the terms of the Plan) permitted by this Credit Agreement;
(f) Investments and Capital Expenditures, in each case, directly related
to, or in the same line of, the business as conducted by the Credit Parties as
of the Closing Date, the aggregate amount of which shall not exceed, in any
Fiscal Year set out below, the amount set out opposite such Fiscal Year (the
"Maximum Expenditure Amount"); provided, however, that the Maximum Expenditure
- --------------------------- -------- -------
Amount for any Fiscal Year may be increased by (i) the aggregate amount of cash
proceeds (net of any bona fide costs of sale with respect thereto) received by
the Credit Parties and their respective Subsidiaries during such Fiscal Year
with respect to the sale of Rental Equipment (whether through the actual sale of
such Rental Equipment or the sale of stock of the
-84-
<PAGE>
Person owning such Rental Equipment) except to the extent the proceeds thereof
are used to permanently repay the Obligations and reduce the Commitments
pursuant to Section 4.8(c) or to repurchase Indebtedness under the Citicorp
--------------
Documents and (ii) commencing with Fiscal Year 1996, an amount equal to twenty-
five percent (25%) of the excess, if any, of (x) the Maximum Expenditure Amount
for the immediately preceding Fiscal Year, over (y) the actual amount of
Investments and Capital Expenditures made by the Credit Parties and their
respective Subsidiaries under this clause (f) in such immediately preceding
----------
Fiscal Year; provided, further, however, that the Credit Parties and their
-------- ------- -------
respective Subsidiaries shall not make any single Acquisition (or series of
related Acquisitions) in excess of $10,000,000 and shall not make Acquisitions
in an aggregate amount in excess of $15,000,000 in any Fiscal Year:
<TABLE>
<CAPTION>
===============================================
Fiscal Year Maximum Amount
- -----------------------------------------------
<S> <C>
1995 $33,400,000
- -----------------------------------------------
1996 44,600,000
- -----------------------------------------------
1997 47,200,000
- -----------------------------------------------
1998 51,800,000
===============================================
</TABLE>
(g) Such other Investments as the Agent may approve in writing in its
reasonable discretion.
8.6 Additional Indebtedness. None of AAHC, the Credit Parties or their
-----------------------
respective Subsidiaries shall directly or indirectly incur, create, assume or
suffer to exist any Indebtedness other than:
(a) Indebtedness under the Credit Documents;
(b) Indebtedness under Interest Rate Agreements entered into in the
ordinary course of business, provided that the aggregate notional amount thereof
--------
does not exceed an amount equal to 50% of the then outstanding Indebtedness of
the Borrowers which is floating rate debt;
(c) Indebtedness described on Schedule D, Part 8.6, and any refinancing
--------------------
of such Indebtedness, so long as (i) the aggregate principal amount of the
Indebtedness so refinanced shall not be increased, (ii) the Indebtedness is
incurred for the same purpose as the Indebtedness so refinanced and (iii) the
refinancing shall be on terms and conditions no more restrictive than the terms
and conditions of the Indebtedness to be refinanced;
(d) In addition to the Indebtedness permitted under Section 8.6(c), (i)
--------------
Indebtedness under Capital Leases and
-85-
<PAGE>
Indebtedness secured by purchase money Liens on Equipment acquired after the
date of this Credit Agreement ("Purchase Money Liens") so long as (A) such
--------------------
Indebtedness shall be from parties and on terms and conditions satisfactory to
the Agent, (B) each Purchase Money Lien shall attach only to the property to be
acquired and (C) the Indebtedness incurred shall not exceed eighty percent (80%)
of the purchase price of the item or items of Equipment purchased and (ii) any
refinancing of Indebtedness secured by Purchase Money Liens so long as (A) such
Indebtedness shall be from parties and on terms and conditions satisfactory to
the Agent, (B) the Liens granted in connection with such Indebtedness shall
attach only to the Equipment formerly subject to the Purchase Money Lien, (C)
the aggregate principal amount of the Indebtedness so refinanced shall not be
increased, (D) the Indebtedness is incurred for the same purpose as the
Indebtedness so refinanced and (E) the refinancing shall be on terms and
conditions no more restrictive than the terms and conditions of the Indebtedness
to be refinanced; provided, however, that the Indebtedness permitted by clauses
-------- ------- -------
(i) and (ii) shall not exceed $5,000,000 in the aggregate outstanding at any one
- --- ----
time;
(e) Indebtedness in respect of taxes, assessments, governmental charges
and claims for labor, materials or supplies, to the extent that payment thereof
is not required pursuant to Section 7.7;
-----------
(f) Indebtedness constituting Contingent Obligations permitted by Section
-------
8.8;
- ---
(g) Indebtedness of AAHC under the Citicorp Documents; and
(h) Indebtedness arising from intercompany loans from any Credit Party to
any other Credit Party, provided, that (i) all such Indebtedness shall be
--------
evidenced by a promissory note executed by the Borrower receiving such
intercompany loan, pursuant to a promissory note in substantially the form of
Exhibit Q, (ii) such Indebtedness shall be subordinated in right of payment to
- ---------
the Obligations when due and payable and (iii) the promissory notes evidencing
such Indebtedness shall be pledged to the Agent, for the benefit of the Holders,
pursuant to the Security Agreement.
8.7 Liens. None of AAHC, the Credit Parties or their respective
-----
Subsidiaries shall directly or indirectly create, incur, assume, or suffer to
exist any Lien on any of its property now owned or hereafter acquired except
(each of the following being referred to herein as a "Permitted Lien"):
--------------
(a) Liens granted to the Agent, for the benefit of the Holders, under the
Credit Document;
(b) Liens listed on Schedule D, Part 8.7;
--------------------
-86-
<PAGE>
(c) Purchase Money Liens and Liens securing Indebtedness permitted by
Section 8.6(d);
- --------------
(d) Liens of warehousemen, mechanics, materialmen, workers, repairmen,
common carriers, or landlords, liens for taxes, assessments or other
governmental charges, and other similar Liens arising by operation of law for
amounts that are not yet due and payable, to the extent that payment thereof is
not required by Section 7.7, or which secure Indebtedness permitted under
-----------
Section 8.6(e);
- --------------
(e) Attachment or judgment Liens not to exceed an aggregate of
$1,000,000, excluding amounts (i) bonded to the reasonable satisfaction of the
Agent or (ii) covered by insurance to the reasonable satisfaction of the Agent;
(f) Deposits or pledges to secure obligations under workmen's
compensation, social security or similar laws, or under unemployment insurance,
not to exceed an aggregate of $1,000,000;
(g) Deposits or pledges to secure bids, tenders, contracts (other than
contracts for the payment of money), leases, statutory obligations, surety and
appeal bonds and other obligations of like nature arising in the ordinary course
of business not to exceed an aggregate of $1,000,000;
(h) Easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of any of the Credit Parties;
(i) Leasehold interests of lessees of Rental Equipment leased in the
ordinary course of business;
(j) Interests of landlords in real property leased by AAHC or any Credit
Party;
(k) Extensions, renewals, refundings or replacements of any of the
foregoing, provided that any such extension, renewal, refunding or replacement
--------
of a Lien shall be limited to the property covered by the Lien extended,
renewed, refunded or replaced and that the obligations secured by any such
extension, renewal, refunding or replacement Lien shall be in an amount not
greater than the amount, and on terms and conditions no more restrictive than
the terms and conditions, of the obligations then secured by the Lien extended,
renewed, refunded or replaced; and
(l) Liens on the capital stock of the Parent Guarantors granted by AAHC
pursuant to the Citicorp Documents to secure the obligations of AAHC arising
under the Citicorp Documents.
-87-
<PAGE>
8.8 Contingent Obligations. None of AAHC, the Credit Parties or their
----------------------
respective Subsidiaries shall directly or indirectly incur, assume, or suffer to
exist any Contingent Obligation, other than (i) indemnities entered into in the
ordinary course of business, consistent with past practice, given in connection
with the sale, purchase or lease of assets in transactions permitted by this
Credit Agreement and (ii) Contingent Obligation described on Exhibit D,
----------
Part 8.8.
- --------
8.9 Sale of Assets. None of AAHC, the Credit Parties or their
--------------
respective Subsidiaries shall, directly or indirectly, sell, lease, assign,
transfer or otherwise dispose of any assets other than (i) Inventory and
Equipment in the ordinary course of business, (ii) items of property (other than
capital stock of a Credit Party) with a book value of less than $100,000 in the
aggregate for AAHC, the Credit Parties and their respective subsidiaries during
any Fiscal Year, (iii) obsolete or worn out property disposed of in the ordinary
course of business, (iv) transfers of property from AAHC or any Credit Party to
any Borrower, provided that all such property remains subject to the perfected,
--------
first priority Lien of the Agent, for the benefit of the Holders, (v) cash
transfers from the Borrowers to the Parent Guarantors and transfers from the
Parent Guarantors to AAHC, to the extent permitted by Section 8.10 and (vi)
------------
other dispositions of assets of the Credit Parties, provided that (A) such
--------
dispositions are made within the reasonable business judgment of such Credit
Party, (B) at the time of such disposition, no Default or Event of Default has
occurred and is then continuing or would result therefrom, (C) the aggregate
consideration shall be paid at the time of disposition and (I) 80% of such
consideration shall be in cash and Cash Equivalents, (II) all such cash
consideration shall be reinvested in Productive Assets and/or the Commitments
shall be permanently reduced by an amount equal thereto, in each case in
accordance with Section 4.8(c) and (III) all consideration consisting of
--------------
promissory notes (the principal amount of which shall not exceed $2,500,000 in
the aggregate outstanding at any one time) and Cash Equivalents shall be pledged
and delivered to the Agent, for the benefit of the Holders, in accordance with
the Security Agreement and (D) the aggregate amount of all such dispositions
(determined on the basis of net book value) does not exceed (I) $15,000,000 in
the aggregate for the period commencing on the Closing Date and ending on
December 31, 1996 and (II) $5,000,000 in the aggregate for any Fiscal Year
thereafter; provided, further, that, with respect to any disposition of the
-------- -------
capital stock of any Borrower permitted by this Section 8.9, (x) any such
-----------
disposition shall be for 100% of the issued and outstanding capital stock of
such Borrower and (y) all Obligations of such Borrower shall be Paid In Full and
all intercompany obligations of such Borrower shall be paid in full, prior to,
or concurrently with (subject to such arrangements as the Agent may reasonably
request to insure that the proceeds of such disposition are so used), the
consummation of such disposition. Nothing in this Section 8.9 shall be deemed
-----------
-88-
<PAGE>
to permit sale, transfer or other disposition of the capital stock of Acme
Acquisition or Acme Holdings.
8.10 Restricted Payments.
-------------------
(a) None of the Credit Parties or their respective Subsidiaries shall,
directly or indirectly, declare or pay any dividend (other than dividends
payable solely in common stock of a Credit Party) on, or make any payment on
account of, or set apart assets for a sinking or other analogous fund for, the
purchase, redemption, defeasance, retirement or other acquisition of, any shares
of any class of capital stock of a Credit Party or any warrants, options or
rights to purchase any such capital stock, whether now or hereafter outstanding,
or make any other distribution in respect thereof, either directly or
indirectly, whether in cash or property or in obligations of a Credit Party or
any of its Subsidiaries; provided, however, that to the extent permitted by
-------- -------
applicable law:
(i) so long as no Default or Event of Default shall have occurred and
be continuing or occurs as a result thereof, each Credit Party may
repurchase shares of AAHC capital stock or warrants, options or rights to
purchase such shares (other than shares, warrants, options or rights held
by Brentwood Acme Partners, L.P.) which are issued and outstanding as of
the Closing Date or issued to employees of any Credit Party after the
Closing Date, provided that the aggregate amount paid by all Credit
Parties for such repurchases shall not exceed $1,000,000 in any Fiscal
Year;
(ii) the Parent Guarantors may declare and pay cash to AAHC (provided
that to the extent the payment is a loan, any promissory notes evidencing
such loans are delivered to the Agent, for the benefit of the Holders,
pursuant to the Security Agreement) to the extent necessary to enable AAHC
to pay (A) on the Closing Date, the costs and expenses and other amounts
payable by AAHC in connection with the Restructuring, to the extent
provided in clause (iii) below, (B) AAHC's general corporate expenses,
------------
accounting, legal, consulting, corporate reporting and administrative
expenses incurred in the ordinary course of AAHC's business consistent
with past practice in an aggregate amount for all Parent Guarantors not to
exceed $500,000 in any Fiscal Year, provided that commencing with Fiscal
--------
Year 1997, such amount shall be increased by $50,000 for such Fiscal Year
and each Fiscal Year thereafter, (C) AAHC's income and franchise taxes,
(D) other than during a Blockage Period (as defined in Section 8.10(c)),
---------------
required cash interest payments on the Indebtedness arising under the
Citicorp Documents and (E) amounts permitted to be paid by a Credit Party
under clause (i) above or paragraph (b) below, provided that the cash
---------- ------------- --------
payments permitted under this clause (ii) are payable and are paid no
-----------
earlier than two Business
-89-
<PAGE>
Days prior to the date when the payments described in subclauses (A)
--------------
through (E) are due; and
---
(iii) the Borrowers may declare and pay cash to the Parent Guarantors
(provided to the extent such payments are loans, such loans are evidenced
by the promissory note described in Section 8.6(h)), to the extent
--------------
necessary to enable the Parent Guarantors to pay (A) the amounts permitted
to be paid to AAHC under clause (ii) above, (B) other than during a
-----------
Blockage Period, the amounts permitted to be paid by AAHC under subclause
---------
(D) of clause (ii) above, (C) on the Closing Date, amounts required to be
--- -----------
paid to consummate the Restructuring and an aggregate amount not in excess
of $4,000,000 to pay costs and expenses incurred in connection therewith,
(D) general corporate expenses, corporate reporting and administrative
expenses of Acme Holdings (and of the Borrowers which are paid by Acme
Holdings) incurred in the ordinary course of business of Acme Holdings or
the Borrowers, as the case may be, in each case consistent with past
practice and in an aggregate amount for all Borrowers not to exceed (I)
$7,000,000 in Fiscal Year 1996, (II) $7,750,000 in Fiscal Year 1997, (III)
$8,000,000 in Fiscal Year 1998 or (IV) $8,500,000 in Fiscal Year 1999, (E)
income and franchise taxes of Acme Holdings (and of the Borrowers which
are paid by Acme Holdings), (F) Acme Acquisition's general corporate
expenses, franchise tax obligations, accounting, legal, consulting,
corporate reporting and administrative expenses (including, without
limitation, the fees and expenses payable to Brentwood Acme Partners, L.P.
permitted to be paid by Section 8.16(ii)) incurred in the ordinary course
----------------
of Acme Acquisition's business consistent with past practice in an
aggregate amount for all Borrowers not to exceed $1,500,000 in any Fiscal
Year, provided, that commencing with Fiscal Year 1997, such amount shall
--------
be increased by $150,000 for such Fiscal Year and each Fiscal Year
thereafter and (G) Acme Acquisition's franchise tax obligations payable
with respect to Fiscal Year 1995, and provided, that the payments
--------
permitted under this clause (iii) are payable and are paid no earlier than
------------
two Business Days prior to the date when the payments described in
subclauses (A) through (G) are due.
-------------- ---
(b) None of the Credit Parties or their respective Subsidiaries shall,
directly or indirectly, make any optional payment or prepayment on or redemption
(including, without limitation, by making payments to a sinking or analogous
fund) or repurchase of any Indebtedness of any Person (other than Indebtedness
pursuant to this Credit Agreement) or of any Mandatory Redeemable Obligation;
provided, however, that at any time (other than during a Blockage Period), to
- -------- -------
the extent permitted by applicable law, the Borrowers may make payments to the
Parent Guarantors, and the Parent Guarantors may make
-90-
<PAGE>
payments to AAHC, to the extent necessary to enable AAHC to pay amounts then
required to be paid to noteholders under Sections 3.1, 3.5, 9.1 or 10.5 of the
Citicorp Purchase Agreement, as in effect on the Closing Date.
(c) "Blockage Period" means (i) any period during which an Event of
---------------
Default described in Section 9.1(a) shall have occurred and be continuing and
--------------
(ii) any other period commencing on the date the Agent gives notice to the
Borrowers and the Parent Guarantors and to Citicorp (or such other Person as is
designated to receive notice pursuant to the Intercreditor Agreement) of the
occurrence of an Event of Default (other than an Event of Default described in
Section 9.1(a)) and continuing until the earlier of (A) the 180th day after the
- --------------
notice is given and (B) the date the Event of Default is waived in accordance
with Section 12.11 or cured (to the extent it can be cured), provided that no
------------- --------
subsequent notice shall be effective to commence a Blockage Period under this
clause (ii) until the 365th day after the then most recent prior notice is given
- -----------
which is effective to commence a Blockage Period under this clause (c).
----------
8.11 Fundamental Changes. None of AAHC, the Credit Parties or their
-------------------
respective Subsidiaries shall enter into any merger or consolidation, liquidate,
wind-up or dissolve (or suffer any liquidation or dissolution), or convey,
lease, sell, transfer or otherwise dispose of, in one transaction or series of
transactions, all or substantially all of such Person's business or Property,
whether now or hereafter acquired; provided, however, that (a) the Borrowers may
-------- -------
merge with each other if the Agent receives at least 30 Business Days' prior
written notice thereof and all actions required to be taken pursuant to the
Collateral Documents have been taken and (b) each Credit Party may enter into
the transactions permitted for such Credit Party under Sections 8.9 and 8.20.
------------ ----
8.12 Accounting Changes. None of AAHC, the Credit Parties or their
------------------
respective Subsidiaries shall make any significant change in accounting
treatment and reporting practices except as required by GAAP.
8.13 Termination of Material Contracts and Governing Documents. After
---------------------------------------------------------
giving effect to the Restructuring, none of AAHC, the Credit Parties or their
respective Subsidiaries shall (a) cancel or terminate any Material Contract or
amend or otherwise modify any Material Contract, or waive any default or breach
of any Material Contract, or take any other action in connection with any
Material Contract that in each case would have a Material Adverse Effect,
provided, however, that none of AAHC, the Credit Parties or their respective
- -------- -------
Subsidiaries shall amend or otherwise modify (i) the Citicorp Purchase
Agreement, any Citicorp Document or any instrument, agreement or document
pertaining to the Indebtedness thereunder without the prior written consent of
the Agent to the extent such amendment or
-91-
<PAGE>
modification could reasonably be expected to adversely affect the rights of the
Agent or any Holder or (ii) any other Restructuring Document without the prior
written consent of the Agent which will not be unreasonably withheld; or (b)
amend or otherwise modify any of its Governing Documents as in effect on the
Closing Date, except (i) amendments to effect a change of name of a Credit Party
which is permitted by the Security Agreement or (ii) other amendments which
could not reasonably be expected to impair the rights of the Agent or any Holder
under the Credit Documents or with respect to the Collateral.
8.14 Restriction on Operating Leases. None of the Credit Parties or
-------------------------------
their respective Subsidiaries shall become or remain liable in any way, whether
directly or by assignment or as a guarantor or other surety, for the obligations
of the lessee under any Operating Lease, if the aggregate annual amount of all
rents paid by the Credit Parties and their Subsidiaries under all such leases
would exceed $6,000,000.
8.15 Sale and Leaseback Transactions. None of the Credit Parties or
-------------------------------
their respective Subsidiaries shall, directly or indirectly, become or remain
liable as lessee or as guarantor or other surety with respect to any lease of
any property whether real or personal or mixed or whether now owned or hereafter
acquired which any Credit Party or Subsidiary of a Credit Party has sold or
transferred or intends to sell or transfer to any other Person, except for
transactions involving Real Property owned by any Credit Party on the Closing
Date with respect to which the documents executed in connection therewith do not
provide the purchaser/lessor with recourse to any property other than the
property being purchased and leased and the Net Cash Proceeds resulting
therefrom shall be reinvested in Productive Assets and/or the commitments shall
be permanently reduced by an amount equal thereto, in each case in accordance
with Section 4.8(c).
--------------
8.16 Affiliate Transactions. None of the Credit Parties or their
----------------------
respective Subsidiaries shall, directly or indirectly, enter into any
transaction (including, without limitation, the purchase, sale or exchange of
property or the rendering of any service) with any Subsidiary or Affiliate of a
Credit Party, except in the ordinary course of, and pursuant to the reasonable
requirements of, the business of such Credit Party or Subsidiary or Affiliate,
as the case may be, and upon fair and reasonable terms no less favorable to such
Credit Party, Subsidiary or Affiliate than could be obtained in a comparable
arm's-length transaction with an unaffiliated Person. Nothing contained in this
Section 8.16 shall prohibit (i) transactions permitted by Section 8.5(b),
- ------------ --------------
8.6(h), 8.9(iv), 8.9(v) or 8.10 and (ii) the Credit Parties' payment to
- ------ ------- ------ ----
Brentwood Acme Partners, L.P. of (A) a management fee in an amount not to exceed
$240,000 in any Fiscal Year, (B) transaction fees with respect to Acquisitions,
in an amount not to exceed four and one-half percent (4.50%) of the
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purchase price of the assets acquired and (C) reasonable expense reimbursements
in connection with activities involving the Credit Parties and AAHC incurred in
the ordinary course of business consistent with past practice.
8.17 Additional Bank Accounts. None of the Credit Parties or their
------------------------
respective Subsidiaries shall, directly or indirectly, open, maintain or
otherwise have any checking, savings or other accounts at any bank or other
financial institution, or any other account where money is or may be deposited
or maintained with any Person, other than the Disbursement Account and the
accounts set forth on Schedule D, Part 8.17; provided, however, that any
--------------------- -------- -------
Borrower may establish such account upon 10 Business Days' prior written notice
thereof, and, except to the extent otherwise permitted by the Agent, subject
such account and the related financial institution to a Lockbox Agreement.
8.18 Excess Cash. None of the Credit Parties or their respective
-----------
Subsidiaries shall, directly or indirectly, maintain in the aggregate in all
deposit accounts of the Credit Parties and their Subsidiaries (other than the
Disbursement Account and payroll accounts), total cash balances and Investments
permitted by Section 8.5(c), 8.5(d) or 8.5(e), in excess of $2,500,000 at any
-------------- ------ ------
time during which any Loans are outstanding hereunder.
8.19 Additional Negative Pledges. None of the Credit Parties or their
---------------------------
respective Subsidiaries shall, directly or indirectly, create or otherwise cause
or suffer to exist or become effective, directly or indirectly, (a) any
prohibition or restriction (including any agreement to provide equal and ratable
security to any other Person in the event a Lien is granted to or for the
benefit of the Agent, for the benefit of the Holders) on the creation or
existence of any Lien upon the assets of the Credit Parties or their
Subsidiaries or (b) any Contractual Obligation which may restrict or inhibit the
Agent's and the Holders' rights or ability to sell or otherwise dispose of, or
exercise rights conferred pursuant to the Credit Documents with respect to, the
Collateral or any part thereof after the occurrence of an Event of Default
except, in each case (i) as set forth in Section 10.2 of the Citicorp Purchase
Agreement, (ii) with respect to specific Equipment encumbered to secure a Credit
Party's or such Subsidiary's Indebtedness permitted by Section 8.6(d) or
--------------
obligations under an Operating Lease with respect to such Equipment permitted by
Section 8.14, (iii) with respect to Real Property which is the subject of an
- ------------
Operating Lease permitted by Section 8.14 or (iv) with respect to licenses and
------------
permits entered into or obtained in the ordinary course of the Credit Party's or
Subsidiary's business which, by their terms, prohibit Liens of third parties.
8.20 Additional Subsidiaries. None of the Credit Parties shall,
-----------------------
directly or indirectly, form or acquire any Subsidiaries, except that the Parent
Guarantors may form, and the Borrowers may
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form or acquire, Subsidiaries, provided, that (i) the applicable Parent
--------
Guarantor or Borrower gives the Agent written notice thereof at least 30
Business Days prior to the consummation of such formation or acquisition (the
"Consummation Date"), (ii) in the case of an acquisition of a Subsidiary, the
-----------------
applicable Borrower shall deliver, together with such notice, (A) an officer's
certificate stating that such acquisition constitutes an Acquisition and is
permitted by Section 8.5(f), (B) to the extent available, the most recent annual
and monthly Financial Statements for such Subsidiary which would have been
required to be delivered if such Subsidiary had been an original party to this
Credit Agreement which shall be audited to the extent available (it being
understood that no Credit Party shall have any obligation to cause any Financial
Statements to be prepared), (C) a pro forma consolidated balance sheet for AAHC,
giving effect to such Acquisition and any proposed extensions of credit to such
Subsidiary on the Consummation Date, (D) the forecasts and projections required
by Section 7.1(c) with respect to such Subsidiary and giving effect to such
--------------
Acquisition, (E) a solvency certificate for Acme Acquisition and its
Subsidiaries if such Subsidiary is a Subsidiary of Acme Acquisition or for Acme
Holdings and its Subsidiaries if such Subsidiary is a Subsidiary of Acme
Holdings, in either case in substantially the form of the solvency certificate
delivered for such Credit Parties pursuant to Section 5.1(a)(ii), giving effect
------------------
to such Acquisition and any proposed extensions of credit to such Subsidiary on
the Consummation Date and (F) any appraisal obtained by, or delivered to, such
Borrower with respect to the Rental Equipment of such Subsidiary, in each case
in form and substance satisfactory to the Agent, (iii) promptly upon the Agent's
reasonable request therefor, the applicable Parent Guarantor or Borrower shall
deliver any documentation pertaining to such Subsidiary and the Credit Parties
and such Subsidiary, taken as a whole and (iv) on or before the Consummation
Date, (A) such new Subsidiary shall become a Borrower under this Credit
Agreement, shall execute and deliver a Note to each Lender, shall become a party
to each Guaranty and Contribution Agreement with respect to the Obligations of
the other Borrowers in accordance with the terms thereof, shall become a party
to the Security Agreement in accordance with the terms thereof, shall become a
party to the intercompany promissory note described in Section 8.6(h) in
--------------
accordance with the terms thereof, shall become a party to the Management
Agreement in accordance with the terms thereof and shall execute and deliver
such other Credit Documents and other documents as the Agent may reasonably
request (including, to the extent such Subsidiary requests a Borrowing or an
issuance of a Letter of Credit on the Consummation Date, a Notice of Borrowing,
a Letter of Credit Request, a Borrowing Base Certificate and all other
documentation required by this Credit Agreement or otherwise reasonably
requested by the Agent (including, by way of example, escrow funding agreements
and a funds flow memorandum)) and (B) each existing Borrower shall execute and
deliver a
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Guaranty and Contribution Agreement with respect to the Obligations of such new
Borrower.
ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES
------------------------------
9.1 Events of Default. The occurrence of any of the following events
-----------------
shall constitute an Event of Default hereunder:
(a) Failure to Pay. Any Borrower shall fail to pay (i) all or any
--------------
portion of the principal amount of any Loan when due or (ii) any other
Obligation within five days after such Obligation is due and payable.
(b) Breach of Certain Covenants. Any Credit Party or any Subsidiary of a
---------------------------
Credit Party shall fail to comply with any covenant contained in (i) Article 7
---------
and such failure continues for five days after the occurrence thereof or (ii)
Article 8, provided, that any non-compliance with the first sentence of Section
- --------- -------- -------
8.1 shall not be an Event of Default unless and until the Borrowers have failed
- ---
to cure such non-compliance as of the Rental Equipment Utilization Cure Date
applicable thereto.
(c) Breach of Representation or Warranty. Any representation or warranty
------------------------------------
made or deemed to be made by any Credit Party in this Credit Agreement or in any
other Credit Document (and in any statement or certificate given under this
Credit Agreement or any other Credit Document), shall be false or misleading in
any material respect when made or deemed to be made.
(d) Other Defaults. Any Credit Party shall fail to comply with any
--------------
provisions contained in any Credit Document to which such Credit Party is a
party, other than as set forth in Section 9.1(b) or 9.1(c), and such failure
-------------- ------
shall not have been remedied or waived within 10 days after receipt by the
Credit Parties of notice thereof from the Agent or any Lender.
(e) Dissolution. Any Credit Party shall dissolve, wind up or otherwise
-----------
cease its business unless permitted hereunder.
(f) Judgments and Attachments. Any money judgment, arbitration award
-------------------------
(other than a money judgment or award covered by insurance, but only if the
insurer has admitted liability with respect to such money judgment), writ or
warrant of attachment, or similar process involving in any case an amount in
excess of $1,000,000 shall be entered or filed against any Credit Party or any
of their respective assets and shall remain undischarged, unvacated, unbonded or
unstayed for a period of 60 days.
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(g) Insolvency Event. Any Credit Party shall become the subject of an
----------------
Insolvency Event.
(h) Change of Control. A Change of Control shall occur or a Person or
-----------------
Persons shall acquire, directly or indirectly, or obtain a Lien on any of the
capital stock of any Credit Party, other than (i) the Lien (but not foreclosure
thereon) arising under the Citicorp Documents on the capital stock of the Parent
Guarantors and (ii) the Liens granted to the Agent, for the benefit of the
Holders, pursuant to the Loan Documents.
(i) Cross Default. AAHC, any Credit Party or any of their respective
-------------
Subsidiaries shall fail to make any payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) with respect
to any Indebtedness (other than an Obligation) of AAHC, any Credit Party or any
of their respective Subsidiaries aggregating $1,000,000 or more; or any breach,
default or event of default shall occur, or any other condition shall exist
under any Contractual Obligation pertaining to any such Indebtedness, if the
effect thereof is to cause an acceleration, mandatory redemption or other
required repurchase of such Indebtedness, or permit the holder(s) of such
Indebtedness to accelerate the maturity of any such Indebtedness or require a
redemption or other repurchase of such Indebtedness; or any such Indebtedness
shall be otherwise declared to be due and payable (by acceleration or otherwise)
or required to be prepaid, redeemed or otherwise repurchased by AAHC, any Credit
Party or any of their respective Subsidiaries (other than by a regularly
scheduled required prepayment) prior to the stated maturity thereof; or the
holder of any Lien (other than Liens upon property leased to AAHC, any Credit
Party or any of their respective Subsidiaries which were created by the lessor
prior to the commencement of the lease), in any amount, shall commence
foreclosure of such Lien upon property of AAHC, any Credit Party or any of their
respective Subsidiaries having an aggregate value in excess of $1,000,000 and
such foreclosure shall continue against such property to a date less than thirty
days prior to the date of the proposed foreclosure sale.
(j) Citicorp Documents. AAHC shall fail to make any payment when due
------------------
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) with respect to any Indebtedness under the Citicorp Documents; or any
breach, default or event of default shall occur, or any other condition shall
exist under the Citicorp Purchase Agreement, any Citicorp Document or any
instrument, agreement or document pertaining to the Indebtedness thereunder, if
the effect thereof is to cause the acceleration of, or permit Citicorp (or other
holder or holders of such Indebtedness) to accelerate, the maturity of any such
Indebtedness; or the Citicorp Purchase Agreement, any Citicorp Document or any
instrument, agreement or document pertaining to the Indebtedness thereunder is
amended or modified without the prior written consent of the Agent to the extent
such
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amendment or modification could reasonably be expected to adversely affect the
rights of the Agent or any Holder.
(k) Failure of Enforceability of Credit Documents; Security. Any
-------------------------------------------------------
covenant, agreement or obligation of any Credit Party contained in or evidenced
by any of the Credit Documents shall cease to be enforceable, or shall be
determined to be unenforceable, in accordance with its terms; any Credit Party
shall deny or disaffirm its obligations under any of the Credit Documents or any
Liens granted in connection therewith; or, any Liens granted to the Agent, for
the benefit of the Holders, in any of the Collateral shall be determined to be
void, voidable, invalid or (unless (i) such Liens cannot, under applicable law,
be perfected by the filing of financing statements, the recording of security
agreements and the required cover sheets with the United States Patent and
Trademark Office or, to the extent required to be delivered on the Closing Date
or thereafter pursuant to the Security Agreement, the taking of possession of
instruments, investment property or certificates of title (or any combination
thereof) and (ii) the Agent has not, in accordance with the Credit Documents,
required the applicable Credit Party to take such other actions under applicable
law which would be sufficient to perfect such Liens) unperfected, are
subordinated or not given the priority contemplated by this Credit Agreement.
(l) Termination Event. Any Termination Event occurs which could
-----------------
reasonably be expected to subject any Credit Party or ERISA Affiliate to
liability in excess of $1,000,000.
(m) Waiver Application. The plan administrator of any Benefit Plan
------------------
applies under Section 412(d) of the Internal Revenue Code for a waiver of the
minimum funding standards of Section 412(a) of the Internal Revenue Code and the
Agent believes that the substantial business hardship upon which the application
for the waiver is based could subject any Credit Party or ERISA Affiliate to
liability in excess of $1,000,000.
(n) AAHC Subsidiaries. AAHC shall, directly or indirectly, form or
-----------------
acquire any Subsidiary other than (i) Acme Acquisition, (ii) Acme Holdings and
(iii) Subsidiaries of Acme Acquisition, Acme Holdings or any Borrower permitted
to be formed or acquired pursuant to Section 8.20.
------------
9.2 Acceleration and Cash Collateralization. Upon the occurrence and
---------------------------------------
during the continuance of an Event of Default, the Agent may take any or all of
the following actions, without prejudice to the rights of the Agent or any
Lender to enforce its claims against the Credit Parties:
(a) Acceleration. Upon the written request, or with the written consent,
------------
of the Majority Lenders, and by delivery of written notice to the Borrowers from
the Agent, all Obligations shall be declared to be immediately due and payable
without
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presentment, demand, protest or any other action or obligation of the Agent or
any Lender.
(b) Termination of Commitments. Upon the written request of the Majority
--------------------------
Lenders, and by delivery of written notice to the Borrowers from the Agent, the
Commitments shall be immediately terminated (except with respect to any Event of
Default set forth in Section 9.1(g), in which case the Commitments shall
--------------
automatically be terminated without the necessity of any request of the Majority
Lenders or notice or other demand to any Borrower) and, at all times thereafter,
all Loans made by any Lender pursuant to this Credit Agreement shall be at such
Lender's sole discretion unless the termination of the Commitments has been
rescinded pursuant to Section 9.3.
-----------
(c) Cash Collateralization. On demand of the Agent or the Majority
----------------------
Lenders, the Borrowers shall immediately deposit with the Agent cash or Cash
Equivalents in an amount equal to 110% of the Letter of Credit Obligations then
outstanding.
9.3 Rescission of Acceleration. After acceleration of the maturity of
--------------------------
the Loans or the termination of the Commitments, if the Borrowers pay all
accrued interest and all principal due (other than by reason of the
acceleration) and all Defaults and Events of Default are otherwise remedied or
waived in accordance with Section 12.11, the Majority Lenders may elect, in
-------------
their sole discretion, to rescind the acceleration or termination and return any
cash collateral. This Section 9.3 is intended only to bind all of the Lenders
-----------
to a decision of the Majority Lenders and not to confer any right on the
Borrowers, even if the described conditions for the Majority Lenders' election
may be met.
9.4 Remedies. Upon the occurrence and during the continuance of an
--------
Event of Default, the Agent may do any or all of the following:
(a) remove all documents, instruments, files and records (including the
copying of any computer records) relating to the Collateral or use (at the
expense of the Credit Parties) such supplies or space of any Credit Party at
the Credit Party's place of business necessary to properly administer and
collect the Accounts thereon;
(b) accelerate or extend the time of payment, compromise, issue credits,
or bring suit on the Accounts (in the name of the Borrowers or the Lenders)
and otherwise administer and collect the Accounts;
(c) sell, assign and deliver the Collateral and any returned, reclaimed or
repossessed merchandise, with or without advertisement, at public or private
sale, for cash, on credit or otherwise; and
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(d) foreclose the Liens created pursuant to the Credit Documents by any
available procedure, or take possession of any or all of the Collateral
without judicial process and enter any premises where any Collateral may be
located for the purpose of taking possession of or removing the same.
Any Lender may bid or become a purchaser at any sale, free from any right of
redemption, which right is expressly waived by the Credit Parties. If notice of
intended disposition of any Collateral is required by law, it is agreed that
five Business Days notice shall constitute reasonable notification. The Credit
Parties will assemble the Collateral and make it available to the Agent at such
locations as the Agent may specify, whether at the premises of the Credit
Parties or elsewhere, and will make available to the Agent the premises and
facilities of the Credit Parties for the purpose of the Agent's taking
possession of, removing or putting the Collateral in saleable form.
9.5 Right of Setoff. In addition to and not in limitation of all rights
---------------
of offset that the Agent, any Lender or the Issuing Bank may have under
applicable law, upon the occurrence and during the continuance of any Event of
Default, and whether or not the Agent, any Lender or the Issuing Bank has made
any demand or the Obligations of any Credit Party have matured, the Agent, each
Lender and the Issuing Bank shall have the right to appropriate and apply to the
payment of the Obligations of such Credit Party (a) all deposits and other
obligations then or thereafter owing by the Agent, such Lender or the Issuing
Bank to such Credit Party and (b) any moneys, credits or other property
belonging to any Guarantor, at any time held by or coming into the possession of
such Lender, the Issuing Bank, the Agent or any of their respective Affiliates.
Each Lender or the Issuing Bank exercising such rights shall notify the Agent
thereof and any amount received as a result of the exercise of such rights shall
be shared in accordance with Section 2.7.
-----------
9.6 License for Use of Software and Other Intellectual Property.
-----------------------------------------------------------
Unless expressly prohibited by the licensor thereof, if any, the Agent is hereby
granted a license to use, without charge, each Credit Party's computer programs,
software, printouts and other computer materials, technical knowledge or
processes, data bases, materials, trademarks, registered trademarks, trademark
applications, service marks, registered service marks, service mark
applications, patents, patent applications, trade names, rights of use of any
name, labels, fictitious names, inventions, designs, trade secrets, goodwill,
registrations, copyrights, copyright applications, permits, licenses,
franchises, customer lists, credit files, correspondence, and advertising
materials or any property of a similar nature, as it pertains to the respective
Credit Party's Collateral, or any rights to any of the foregoing, in completing
production of, advertising for sale, and selling any of the respective Credit
Party's Collateral, and each Credit Party's
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rights under all licenses and franchise agreements shall inure to the Agent's
benefit. The Agent agrees not to use any such license prior to the occurrence of
an Event of Default without giving the Credit Parties prior notice.
9.7 No Marshalling; Deficiencies; Remedies Cumulative. None of the
-------------------------------------------------
Agent, the Lenders or the Issuing Bank shall be under any obligation to marshall
any assets in favor of any Credit Party or any other party or against or in
payment of any or all of the Obligations. The net cash proceeds resulting from
the Agent's exercise of any of the foregoing rights to liquidate all or
substantially all of the Collateral (after deducting all of the Agent's Expenses
related thereto) shall be applied by the Agent to the payment of the
Obligations, whether due or to become due, in the order specified in Section
-------
4.11(b)(iii). The Credit Parties shall remain liable to the Agent, the Issuing
- ------------
Bank and the Lenders for any deficiencies, and the Agent, the Issuing Bank and
the Lenders in turn agree to remit to the Credit Parties or their successors or
assigns, any surplus resulting therefrom. The foregoing remedies are not
intended to be exhaustive and the full or partial exercise of any of them shall
not preclude the full or partial exercise of any other available remedy under
this Credit Agreement, under any other Credit Document, at equity or at law.
ARTICLE 10
GUARANTY OF PARENT GUARANTORS
-----------------------------
10.1 Guaranty. (a) For value received and in consideration of any Loan,
--------
advance or financial accommodation of any kind whatsoever heretofore, now or
hereafter made, given or granted by the Agent, the Lenders or the Issuing Bank
to Acme Rents, Acme Dixie, Acme Duval or any other Subsidiary of Acme Holdings
which becomes a Borrower under this Credit Agreement (collectively, the "Acme
----
Holdings Borrowers"), Acme Holdings unconditionally guarantees for the benefit
- ------------------
of each of the Agent, the Lenders and the Issuing Bank the full and prompt
payment when due, whether at maturity or earlier, by reason of acceleration or
otherwise, and at all times thereafter, of all of the Obligations of the Acme
Holdings Borrowers (including, without limitation, interest accruing following
an Insolvency Event of any Acme Holdings Borrower, at the applicable rate
specified in this Credit Agreement, whether or not such interest is allowed as a
claim in bankruptcy). At any time after the occurrence and during the
continuance of an Event of Default, Acme Holdings shall pay to the Agent, for
the benefit of the Agent, the Lenders and the Issuing Bank, on demand and in
immediately available funds, the full amount of the Obligations of the Acme
Holdings Borrowers (including any portion thereof which is not yet due and
payable). Acme Holdings further agrees to pay to the Agent, for the benefit of
the Agent, the Lenders and the Issuing Bank, on
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demand and in immediately available funds, (i) all losses (including, without
limitation, lost profits), fees, costs and expenses (including, without
limitation, all court costs and reasonable attorneys' and paralegals' fees,
costs and expenses) paid or incurred by the Agent, any Lender or the Issuing
Bank in: (A) enforcing or defending such Person's rights under or in respect of
this Credit Agreement, the other Credit Documents or any other document or
instrument now or hereafter executed and delivered in connection herewith, (B)
in collecting all or any part of the Obligations of the Acme Holdings Borrowers
or Acme Holdings, (C) in foreclosing or otherwise collecting upon the Collateral
for the Obligations of the Acme Holdings Borrowers or Acme Holdings or any part
thereof and (D) obtaining any legal, accounting or other advice in connection
with any of the foregoing and (ii) interest on (A) the Obligations of the Acme
Holdings Borrowers which do not constitute interest, (B) to the extent permitted
by applicable law, the Obligations of the Acme Holdings Borrowers which
constitute interest, and (C) the expenses described in clause (i) above, from
----------
the date of demand hereunder until paid in full at the per annum rate of
interest described in Section 4.6. Acme Holdings hereby agrees that its
-----------
guaranty under this Article 10 is an absolute guaranty of payment and is not a
----------
guaranty of collection.
(b) For value received and in consideration of any Loan, advance or
financial accommodation of any kind whatsoever heretofore, now or hereafter
made, given or granted by the Agent, the Lenders or the Issuing Bank to Acme
Alabama, Air & Pump, Walker Jones or any other Subsidiary of Acme Acquisition
which becomes a Borrower under this Credit Agreement (collectively, the "Acme
----
Acquisition Borrowers"), Acme Acquisition unconditionally guarantees for the
- ---------------------
benefit of each of the Agent, the Lenders and the Issuing Bank the full and
prompt payment when due, whether at maturity or earlier, by reason of
acceleration or otherwise, and at all times thereafter, of all of the
Obligations of the Acme Acquisition Borrowers (including, without limitation,
interest accruing following an Insolvency Event of any Acme Acquisition
Borrower, at the applicable rate specified in this Credit Agreement, whether or
not such interest is allowed as a claim in bankruptcy). At any time after the
occurrence and during the continuance of an Event of Default, Acme Acquisition
shall pay to the Agent, for the benefit of the Agent, the Lenders and the
Issuing Bank, on demand and in immediately available funds, the full amount of
the Obligations of the Acme Acquisition Borrowers (including any portion thereof
which is not yet due and payable). Acme Acquisition further agrees to pay to
the Agent, for the benefit of the Agent, the Lenders and the Issuing Bank, on
demand and in immediately available funds, (i) all losses (including, without
limitation, lost profits), fees, costs and expenses (including, without
limitation, all court costs and reasonable attorneys' and paralegals' fees,
costs and expenses) paid or incurred by the Agent, any Lender or the Issuing
Bank in: (A) enforcing or defending such Person's rights under or in respect
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of this Credit Agreement, the other Credit Documents or any other document or
instrument now or hereafter executed and delivered in connection herewith, (B)
in collecting all or any part of the Obligations of the Acme Acquisition
Borrowers or Acme Acquisition, (C) in foreclosing or otherwise collecting upon
the Collateral for the Obligations of the Acme Acquisition Borrowers or Acme
Acquisition or any part thereof and (D) obtaining any legal, accounting or other
advice in connection with any of the foregoing and (ii) interest on (A) the
Obligations of the Acme Acquisition Borrowers which do not constitute interest,
(B) to the extent permitted by applicable law, the Obligations of the Acme
Acquisition Borrowers which constitute interest, and (C) the expenses described
in clause (i) above, from the date of demand hereunder until paid in full at the
----------
per annum rate of interest described in Section 4.6. Acme Acquisition hereby
-----------
agrees that its guaranty under this Article 10 is an absolute guaranty of
----------
payment and is not a guaranty of collection.
10.2 Guaranty Absolute. Each of the Parent Guarantors agrees that its
-----------------
Obligations under the Credit Documents are independent of the Obligations of the
Borrowers and any other guarantor of all or any part of the Obligations
guaranteed by such Parent Guarantor, and a separate action or actions may be
brought and prosecuted against such Parent Guarantor whether or not any action
is brought against any Borrower or any of such other guarantors and whether or
not any Borrower is joined in any such action or actions. The liability of each
Parent Guarantor under the Credit Documents shall be absolute and unconditional,
and shall not be affected or released in any way, irrespective of:
(a) the validity, enforceability, avoidance, novation or subordination of
any of the Obligations or any of the Credit Documents;
(b) the absence of any attempt by, or on behalf of, any Lender, the
Issuing Bank or the Agent to collect, or to take any other action to enforce,
all or any part of the Obligations whether from or against any Borrower, any
other guarantor of the Obligations or any other Person;
(c) the election of any remedy by, or on behalf of, any Lender, the
Issuing Bank or the Agent with respect to all or any part of the Obligations;
(d) the waiver, consent, extension, forbearance or granting of any
indulgence by, or on behalf of, any Lender, the Issuing Bank or the Agent
with respect to any provision of any of the Credit Documents;
(e) the failure of the Agent to take any steps to perfect and maintain
its security interest in, or to preserve its rights to, any security or
collateral for the Obligations;
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(f) the election by, or on behalf of, any one or more of the Lenders, the
Issuing Bank and the Agent, in any proceeding instituted under Chapter 11 of
the Bankruptcy Code, of the application of Section 1111(b)(2) of the
Bankruptcy Code;
(g) any borrowing or grant of a security interest by any Borrower, as
debtor-in-possession, under Section 364 of the Bankruptcy Code;
(h) the disallowance, under Section 502 of the Bankruptcy Code, of all or
any portion of the claims of any of the Lenders, the Issuing Bank or the
Agent for repayment of all or any part of the Obligations or any expenses
described in Section 10.1;
------------
(i) any refusal of payment by the Agent, any Lender or the Issuing Bank,
in whole or in part, from any obligor or guarantor in connection with any of
the Obligations, whether or not with notice to, or further asset by, or any
reservation of rights against, the Parent Guarantors;
(j) any change, restructuring or termination of the corporate structure
or existence of any Credit Party, or any modification, compounding,
compromise, settlement or release by the Agent, any Lender, the Issuing Bank
or any other Person (or by operation of law or otherwise), collection or
other liquidation of the Obligations or the liability of any Credit Party, or
of the Collateral, in whole or in part; or
(k) any other circumstance (other than payment in cash of the Obligations
of, and guaranteed by, such Parent Guarantor) which might otherwise
constitute a legal or equitable discharge or defense of any Borrower, any
Parent Guarantor or any other guarantor of such Obligations.
10.3 Enforcement; Application of Payments. Upon the occurrence and
------------------------------------
during the continuance of an Event of Default, the Agent may proceed directly
and at once, without notice, against the Parent Guarantors to obtain performance
of and to collect and recover the full amount, or any portion, of the
Obligations guaranteed by such Parent Guarantor, without first proceeding
against the applicable Borrowers or any other Person, or against any security or
collateral for the Obligations. Subject only to the terms and provisions of
this Credit Agreement, the Agent shall have the exclusive right to determine the
application of payments and credits, if any, from the Parent Guarantor, the
Borrowers or from any other Person on account of the Obligations or any other
liability of the Parent Guarantor to the Agent, any Lender or the Issuing Bank,
without affecting the liability of the Parent Guarantors hereunder.
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10.4 Waivers. (a) Each of the Parent Guarantors hereby waives:
-------
(i) diligence, presentment, demand of payment (except as expressly
required under this Article 10), filing of claims with a court in the
----------
event of receivership or bankruptcy of any Borrower, protest or notice
with respect to the Obligations, all setoffs and counterclaims and all
presentments, demands for performance, notices of nonperformance,
protests, notices of protest, notices of dishonor and notices of
acceptance of this Credit Agreement, the benefits of all statutes of
limitation, and all other demands (except as expressly required under this
Article 10) whatsoever (and shall not require that the same be made on any
----------
Borrower as a condition precedent to the Parent Guarantor's obligations
hereunder);
(ii) all notices of the existence, creation or incurring of new or
additional indebtedness, arising either from additional loans extended to
any Borrower or otherwise;
(iii) all notices that the principal amount, or any portion thereof,
and/or any interest on any instrument or document evidencing all or any
part of the Obligations is due (except as expressly required under this
Article 10), notices of any and all proceedings to collect from the maker,
----------
any endorser or any other guarantor of all or any part of the Obligations,
or from any other Person, and, to the extent permitted by law, notices of
exchange, sale, surrender or other handling of any security or collateral
given to the Agent to secure payment of all or any part of the
Obligations; and
(iv) any defense based upon any Requirement of Law which provides that
the obligation of a surety must be neither larger in amount nor in other
respects more burdensome than that of the principal;
(b) Each of the Parent Guarantors understands that it shall be liable for
the full amount of its liability under this Credit Agreement, notwithstanding
foreclosure of any real property by trustee sale or any other reason impairing
the right of such Parent Guarantor or the Agent, any Lender or the Issuing Bank
to proceed against any Borrower or its property. Each Parent Guarantor hereby
waives, in accordance with Section 2856 of the California Civil Code, (i) all
rights and defenses arising out of an election of remedies by the creditor (the
Agent, any Lender or the Issuing Bank), even though that election of remedies,
such as nonjudicial foreclosure with respect to security for a guaranteed
obligation, has destroyed such Parent Guarantor's rights of subrogation and
reimbursement against the principal (the Borrowers) by the operation of Section
580d of the
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California Code of Civil Procedure or otherwise and (ii) without limiting the
generality of the foregoing or any other provision hereof, all rights and
benefits under California Civil Code Sections 2787 to 2855, inclusive, 2899 and
3433 (or any similar law in any other jurisdiction). No other provision of this
Article 10 shall be construed as limiting the generality of any of the covenants
- ----------
and waivers set forth in this Section 10.4(b). In accordance with Section 12.1
--------------- ------------
below, this Credit Agreement shall be governed by, and shall be construed and
enforced in accordance with, the internal laws (as opposed to the conflicts of
laws provisions other than those contained in New York General Obligations Law
Section 5-1401) and decisions of the State of New York. This Section 10.4(b) and
---------------
other referenced provisions of California law are included solely out of an
abundance of caution, and shall not be construed to mean that any of the
referenced provisions of California law are in any way applicable to this Credit
Agreement or to any of the Obligations.
(c) The Agent, the Lenders and the Issuing Bank, either themselves or
acting through the Agent, are hereby authorized, without notice or demand and
without affecting the liability of the Parent Guarantors hereunder, from time to
time, (i) to renew, extend, accelerate or otherwise change the time for payment
of, or other terms relating to, all or any part of the Obligations, or to
otherwise modify, amend or change the terms of any of the Credit Documents; (ii)
to accept partial payments on all or any part of the Obligations; (iii) to take
and hold security or collateral for the payment of all or any part of the
Obligations, the guaranty of the Parent Guarantors, or any other guaranties of
all or any part of the Obligations or other liabilities of the Borrowers, (iv)
to exchange, enforce, waive and release any such security, collateral or
guaranties; (v) to apply such security or collateral and direct the order or
manner of sale thereof as in their reasonable discretion they may determine; and
(vi) to settle, release, exchange, enforce, waive, compromise or collect or
otherwise liquidate all or any part of the Obligations, the guaranty of the
Parent Guarantors, any other guaranty of all or any part of the Obligations, and
any security or collateral for the Obligations or for any such guaranty. Any of
the foregoing may be done in any manner, without affecting or impairing the
Obligations of the Parent Guarantors hereunder.
10.5 Financial Information. Each of the Parent Guarantors hereby
---------------------
assumes responsibility for keeping itself informed of the financial condition of
the applicable Borrowers and any and all endorsers and/or other guarantors of
all or any part of the Obligations guaranteed by such Parent Guarantor, and of
all other circumstances bearing upon the risk of nonpayment of such Obligations,
or any part thereof, that diligent inquiry would reveal, and each of the Parent
Guarantors hereby agrees that none of the Agent, the Lenders or the Issuing Bank
shall have any duty to advise such Parent Guarantor of information known to any
of them regarding such condition or any such circumstances. In the
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event the Agent, any Lender or the Issuing Bank, in its sole discretion,
undertakes at any time or from time to time to provide any such information to
any Parent Guarantor, such Holder shall be under no obligation (a) to undertake
any investigation not a part of its regular business routine, (b) to disclose
any information which such Holder, pursuant to accepted or reasonable commercial
finance or banking practices, wishes to maintain confidential or (c) to make any
other or future disclosures of such information or any other information to any
Parent Guarantor.
10.6 Reinstatement. Each of the Parent Guarantors agrees that, to the
-------------
extent that any Borrower, such Parent Guarantor or any other guarantor of all or
any part of the Obligations guaranteed by such Parent Guarantor makes a payment
or payments to any Lender, the Issuing Bank or the Agent, or such Holder
receives any proceeds of Collateral, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to such Borrower, such Parent Guarantor,
such other guarantor or any other Person, or their respective estates, trustees,
receivers or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or repayment,
the part of the Obligations guaranteed by such Parent Guarantor which has been
paid, reduced or satisfied by such amount shall be reinstated and continued in
full force and effect as of the time immediately preceding such initial payment,
reduction or satisfaction.
10.7 Subrogation, Contribution, Etc. Until the Obligations have been
-------------------------------
paid in full in cash and the Commitments have been terminated, each Parent
Guarantor hereby agrees to not to assert (a) any claim, right or remedy, direct
or indirect, that such Parent Guarantor now has or may hereafter have against
any Borrower or any of its assets in connection with such Parent Guarantor's
guaranty of the Obligations or the performance by such Parent Guarantor of its
obligations hereunder, in each case whether such claim, right or remedy arises
in equity, under contract, by statute (including, without limitation, under
Section 509 of the Bankruptcy Code or Section 2847, 2848 or 2849 of the
California Civil Code), under common law or otherwise and including without
limitation (i) any right of subrogation, reimbursement or indemnification that
such Parent Guarantor now has or may hereafter have against any Borrower, (ii)
any right to enforce, or to participate in, any claim, right or remedy that the
Agent, any Lender or the Issuing Bank now has of may hereafter have against any
Borrower and (iii) any benefit of, and any right to participate in, any
collateral or security now or hereafter held by Agent, any Lender or the Issuing
Bank, and (b) any right of contribution such Parent Guarantor may have against
any other guarantor (including any other Parent Guarantor) of any of the
Obligations (including, without limitation, any such right of contribution under
Section 2848 of the California Civil Code).
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Each Parent Guarantor further agrees that, to the extent the foregoing agreement
with respect to its rights of subrogation, reimbursement, indemnification and
contribution as set forth herein is found by a court of competent jurisdiction
to be void or voidable for any reason, any rights of subrogation, reimbursement
or indemnification such Parent Guarantor may have against any Borrower or
against any collateral or security, and any rights of contribution such
Guarantor may have against any such other guarantor, shall be subordinated to
the payment of the Obligations as set forth in Section 10.8.
------------
10.8 Subordination. Each of the Parent Guarantors agrees that any and
-------------
all claims of such Parent Guarantor against any Borrower, any endorser or any
other guarantor of all or any part of the Obligations, or against any of their
respective properties, shall be subordinate and subject in right of payment to
the prior payment, in full and in cash, of all Obligations. Notwithstanding any
right of any Parent Guarantor to ask, demand, sue for, take or receive any
payment from any Borrower, all rights, liens and security interests of such
Parent Guarantor, whether now or hereafter arising and howsoever existing, in
any assets of any Borrower (whether constituting part of the security or
collateral given to any Lender, the Issuing Bank or the Agent to secure payment
of all or any part of the Obligations or otherwise) shall be and hereby are
subordinated to the rights of the Holders and the Agent in those assets. Except
as permitted by this Credit Agreement, the Parent Guarantors shall have no right
to possession of any such asset or to foreclose upon any such asset, whether by
judicial action or otherwise, unless and until all of the Obligations shall have
been fully paid in cash and the Commitments have been terminated. If all or any
part of the assets of any Borrower, or the proceeds thereof, are subject to any
distribution, division or application to the creditors of such Borrower, whether
partial or complete, voluntary or involuntary, and whether by reason of
liquidation, bankruptcy, arrangement, receivership, assignment for the benefit
of creditors or any other action or proceeding, or if the business of such
Borrower is dissolved or (except as permitted by this Credit Agreement) if
substantially all of the assets of such Borrower are sold, then, and in any such
event, any payment or distribution of any kind or character, either in cash,
securities or other property, which shall be payable or deliverable upon or with
respect to any Indebtedness of any such Borrower to any Parent Guarantor
("Borrower Indebtedness" of such Borrower) shall be paid or delivered directly
- -----------------------
to the Agent for application on any of the Obligations, due or to become due,
until such Obligations shall have first been fully paid in cash. Each of the
Parent Guarantors irrevocably authorizes and empowers the Agent to demand, sue
for, collect and receive every such payment or distribution and give acquittance
therefor and to make and present for and on behalf of such Parent Guarantor such
proofs of claim and take such other action, in the Agent's own name or in the
name of such Parent Guarantor or otherwise, as the Agent may
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<PAGE>
deem necessary or advisable for the enforcement of this Credit Agreement. The
Agent may vote such proofs of claim in any such proceeding, receive and collect
any and all dividends or other payments or disbursements made on Borrower
Indebtedness in whatever form the same may be paid or issued and apply the same
on account of any of the Obligations. Should any payment, distribution, security
or instrument or proceeds thereof be received by any Parent Guarantor upon or
with respect to any Borrower Indebtedness prior to the payment in full in cash
of all of the Obligations and the termination of the Commitments, such Parent
Guarantor shall receive and hold the same in trust, as trustee, for the benefit
of the Agent, the Lenders and the Issuing Bank, and shall forthwith deliver the
same to the Agent, for the benefit of the Agent, the Lenders and the Issuing
Bank, in precisely the form received (except for the endorsement or assignment
of such Parent Guarantor where necessary), for application to any of the
Obligations, due or not due, and, until so delivered, the same shall be held in
trust by such Parent Guarantor as the property of the Agent, for the benefit of
the Agent, the Lenders and the Issuing Bank. If such Parent Guarantor fails to
make any such endorsement or assignment to the Agent, the Agent or any of its
officers or employees are hereby irrevocably authorized to make the same. Each
of the Parent Guarantors agrees that until the Obligations have been paid in
full in cash and the Commitments have been terminated, such Parent Guarantor
will not assign or transfer to any Person any claim such Parent Guarantor has or
may have against any Borrower.
10.9 Waivers. Failure by any of the Lenders, the Issuing Bank or the
-------
Agent at any time or times hereafter to require strict performance by any
Borrower, any Parent Guarantor, any other guarantor of all or any part of the
Obligations or any other Person of any of the provisions, warranties, terms and
conditions contained in any of the Credit Documents now or at any time or times
hereafter executed by such Persons and delivered to the Agent, any Lender or the
Issuing Bank shall not waive, affect or diminish any right of the Agent or such
Holder at any time or times hereafter to demand strict performance thereof and
such right shall not be deemed to have been waived by any act or knowledge of
the Agent or such Holder, or their respective agents, officers or employees,
unless such waiver is contained in an instrument in writing, directed and
delivered to the applicable Borrower or Parent Guarantor, specifying such
waiver, and is signed by the party or parties necessary to give such waiver
under this Credit Agreement. No waiver of any Event of Default by the Agent,
any Lender or the Issuing Bank shall operate as a waiver of any other Event of
Default or the same Event of Default on a future occasion, and no action by the
Agent or such Holder permitted hereunder shall in any way affect or impair the
Agent's or such Holder's rights and remedies or the Obligations of the Parent
Guarantors under this Credit Agreement. Any determination by a court of
competent jurisdiction of the amount of any principal and/or interest owing by
any Borrower to
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<PAGE>
the Agent, any Lender or the Issuing Bank shall be conclusive and binding on the
applicable Parent Guarantor irrespective of whether such Parent Guarantor was a
party to the suit or action in which such determination was made.
10.10 Termination. The guaranty of each Parent Guarantor shall continue
-----------
in full force and effect and may not be terminated or otherwise revoked until
the Obligations shall have been fully paid in cash and the Commitments shall
have been terminated. Each of the Parent Guarantors hereby expressly waives the
benefits of Section 2815 of the California Civil Code (or any similar law in any
other jurisdiction) purporting to allow a guarantor to revoke a continuing
guaranty with respect to any transactions occurring after the date of the
guaranty. If, notwithstanding the foregoing, any Parent Guarantor shall have
any right under applicable law to terminate or revoke its guaranty of the
Obligations, such Parent Guarantor agrees that such termination or revocation
shall not be effective until a written notice of such revocation or termination,
specifically referring hereto, signed by such Parent Guarantor, is actually
received by the Agent. Such notice shall not affect the right and power of any
Lender, the Issuing Bank or the Agent to enforce rights arising prior to receipt
thereof by the Agent. If the Agent, any Lender or the Issuing Bank grants loans
or takes other action after such Parent Guarantor terminates or revokes its
guaranty of the Obligations but before the Agent receives such written notice,
the rights of such Holder with respect thereto shall be the same as if such
termination or revocation had not occurred.
10.11 Advice of Counsel. Each of the Parent Guarantors represents and
-----------------
warrants that it has consulted with its legal counsel regarding all waivers
under this Article 10, including without limitation those under Section 10.4,
---------- ------------
that it believes that it fully understands all rights that it is waiving and the
effect of such waivers, that it assumes the risk of any misunderstanding that it
may have regarding any of the foregoing, and that it intends that such waivers
shall be a material inducement to the Agent, the Lenders and the Issuing Bank to
extend the indebtedness guaranteed hereby.
10.12 Collateral. Each of the Parent Guarantors hereby acknowledges and
----------
agrees that its Obligations under this Credit Agreement are secured pursuant to
the terms and provisions of the Collateral Documents to which it is a party.
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ARTICLE 11
THE AGENT
---------
11.1 Appointment of Agent.
--------------------
(a) Each Lender and the Issuing Bank hereby designates BTCC as its Agent
and irrevocably authorizes the Agent to take action on its behalf under the
Credit Documents, to exercise the powers and perform the duties described
therein, and to exercise such other powers reasonably incidental thereto. The
Agent may perform any of its duties through its agents or employees.
(b) Other than the Borrowers' rights under Section 11.8, this Article 11
------------ ----------
is for the benefit of the Agent, the Issuing Bank and the Lenders only. The
Agent shall act only for the Lenders and assumes no obligation to or agency or
trust relationship with any Credit Party.
11.2 Nature of Duties of Agent. The Agent has no duties or
-------------------------
responsibilities except those expressly set forth in the Credit Documents.
Neither the Agent nor any of its officers, directors, employees or agents shall
be liable for any action taken or omitted hereunder or in connection herewith.
The duties of the Agent shall be mechanical and administrative in nature. The
Agent shall not have a fiduciary relationship to the Issuing Bank, any Lender or
any participant of any Lender.
11.3 Lack of Reliance on Agent. Independently and without reliance upon
-------------------------
the Agent, each Lender, the Issuing Bank and each Holder has made and shall
continue to make its own independent investigation and analysis of the content
and validity of the Credit Documents or of the performance and creditworthiness
of the Credit Parties thereunder. The Agent assumes no responsibility and
undertakes no obligation to make inquiry with respect to such matters, unless
specifically requested to do so in writing by a Lender.
11.4 Certain Rights of the Agent. The Agent may request instructions
---------------------------
from the Majority Lenders at any time. If the Agent requests instructions from
the Majority Lenders with respect to any action or inaction, the Agent shall be
entitled to await instructions from the Majority Lenders before such action or
inaction. Neither the Issuing Bank, any Lender or any other Holder shall have
any right of action based upon the Agent's action or inaction in response to
instructions from the Majority Lenders.
11.5 Reliance by Agent. The Agent may rely upon written or telephonic
-----------------
communication it believes to be genuine and to have been signed, sent or made by
the proper person. The Agent may obtain the advice of legal counsel (including,
for matters concerning the Credit Parties, counsel for the Credit Parties),
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independent public accountants and other experts selected by it and shall have
no liability for action or inaction in good faith based upon such advice.
11.6 Indemnification of Agent. To the extent the Agent is not
------------------------
reimbursed and indemnified by the Credit Parties, each Lender will reimburse and
indemnify the Agent, to the extent of its Proportionate Share (without giving
effect to any adjustments under Section 2.8), for any and all liabilities,
-----------
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including counsel fees and disbursements) or disbursements of any kind
or nature whatsoever (including all Expenses) which may be imposed on, incurred
by or asserted against the Agent in performing its duties hereunder or otherwise
relating to the Credit Documents, unless resulting from the Agent's gross
negligence or willful misconduct.
11.7 The Agent in its Individual Capacity. In its individual capacity,
------------------------------------
the Agent shall have the same rights and powers hereunder as any other Lender
and may exercise them as though it was not performing the duties specified
herein. The terms "Lenders," "Majority Lenders," or any similar terms shall,
unless the context clearly otherwise indicates, include the Agent in its
individual capacity. The Agent and its Affiliates may accept deposits from,
lend money to, acquire equity interests in, and generally engage in any kind of
banking, trust, financial advisory or other business with the Credit Parties or
any Affiliate of the Credit Parties as if it were not performing the duties
specified herein, and may accept fees and other consideration from the Credit
Parties for services in connection with this Credit Agreement and otherwise
without having to account for the same to the Lenders.
11.8 Successor Agent.
---------------
(a) The Agent may, upon 30 days' notice to the Lenders and the Borrowers,
resign by giving written notice thereof to the Lenders and the Borrowers. The
Agent's resignation shall be effective upon the appointment of a successor
Agent.
(b) Upon receipt of the Agent's resignation, the Majority Lenders may
appoint a successor Agent. Unless an Event of Default shall have occurred and
be continuing at the time of such appointment, the successor Agent shall be
subject to approval by the Borrowers, which approval shall not be unreasonably
withheld and shall be given or denied to the Majority Lenders within 10 Business
Days after the Borrowers' receipt of notice of a proposed successor Agent. If a
successor Agent has not accepted its appointment within 30 days after date of
the Agent's resignation notice, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent.
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(c) Upon its acceptance of the agency hereunder, a successor Agent shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations under this Credit Agreement. The retiring Agent shall
continue to have the benefit of this Article 11 for any action or inaction while
----------
it was Agent.
(d) Any resignation of the Agent pursuant to this Section 11.8 shall also
------------
constitute the resignation of Bankers Trust Company as Issuing Bank (to the
extent provided in Section 12.8(f)), and any successor Agent appointed pursuant
---------------
to this Section 11.8 shall, upon its acceptance of such appointment, become the
------------
successor Issuing Bank or shall have made arrangements for a successor Issuing
Bank to issue Letters of Credit pursuant to the terms of this Credit Agreement.
11.9 Collateral Matters; Releases from Credit Documents.
--------------------------------------------------
(a) Each Lender and the Issuing Bank, and each Holder by accepting the
benefits of the Credit Documents, authorizes and directs the Agent to enter into
the Collateral Documents for the benefit of the Holders. Except as otherwise
set forth herein, any action or exercise of powers by the Majority Lenders under
the Credit Documents, together with such other powers as are reasonably
incidental thereto, shall be authorized and binding upon all of the Holders.
Prior to an Event of Default, without notice to or consent from any Holder, the
Agent may take any action necessary or advisable to perfect and maintain the
perfection of the Liens in favor of the Agent, for the benefit of the Holders,
upon the Collateral.
(b) The Agent is authorized to release any Lien granted to or held by the
Agent, for the benefit of the Holders, upon any Collateral (i) upon termination
of the Commitments and Payment In Full of all of the Obligations, (ii) upon
receipt of the proceeds of sales of the Collateral permitted hereunder or (iii)
if the release can be and is approved by the Majority Lenders. In addition, to
the extent necessary upon the sale of the capital stock of a Borrower in
accordance with Section 8.9(vi), the Agent is authorized to release such
---------------
Borrower from its Obligations under the Credit Documents to which such Borrower
is a party. The Agent may request, and thereupon the Lenders shall provide,
confirmation of the Agent's authority to execute and deliver releases with
respect to the Collateral and such Obligations of a Borrower whose capital stock
has been sold used in accordance with Section 8.9(vi) as herein set forth, and
---------------
upon receipt of such approvals from the Lenders as are required by Section
-------
12.11, the Agent shall execute and deliver such releases to the Borrowers.
(c) The Agent shall have no obligation to assure that the Collateral
exists or is owned by the Credit Parties or their
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respective Subsidiaries, that such Collateral is cared for, protected or
insured, or that the Liens of the Agent, for the benefit of the Holders, in the
Collateral have been created, perfected, or have any particular priority. With
respect to the Collateral, the Agent may act in any manner it may deem
appropriate, in its sole discretion, given the Agent's own interest in the
Collateral as one of the Lenders, and it shall have no duty or liability
whatsoever to the Lenders, except for its gross negligence or willful
misconduct.
11.10 Actions with Respect to Defaults. In addition to the Agent's
--------------------------------
right to take actions on its own accord as permitted under this Credit
Agreement, the Agent shall take such action with respect to a Default or Event
of Default as shall be directed by the Majority Lenders. Until the Agent shall
have received such directions, the Agent may act (or not act) as it deems
advisable and in the best interests of the Lenders.
ARTICLE 12
MISCELLANEOUS
-------------
12.1 GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
-------------
THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND ANY DISPUTE ARISING OUT
OF OR IN CONNECTION WITH THIS CREDIT AGREEMENT OR ANY OF THE CREDIT DOCUMENTS,
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY
THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS OTHER THAN
THOSE CONTAINED IN NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401) AND
DECISIONS OF THE STATE OF NEW YORK EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF
LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE LIENS
GRANTED PURSUANT TO, OR ANY OF THE REMEDIES PROVIDED WITH RESPECT TO, ANY
PARTICULAR COLLATERAL, MAY BE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN
THE STATE OF NEW YORK.
12.2 SUBMISSION TO JURISDICTION. ALL DISPUTES AMONG THE CREDIT PARTIES,
--------------------------
THE ISSUING BANK AND THE LENDERS (OR THE AGENT ACTING ON THEIR BEHALF), WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE
AND FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, AND THE COURTS TO WHICH AN
APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT THE AGENT, ON BEHALF OF
-------- -------
THE HOLDERS, SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE CREDIT PARTIES OR THEIR RESPECTIVE PROPERTY IN ANY LOCATION
REASONABLY SELECTED BY THE AGENT IN GOOD FAITH TO ENABLE THE AGENT TO REALIZE ON
SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
AGENT. EACH OF THE CREDIT PARTIES AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY THE AGENT.
EACH OF THE CREDIT PARTIES WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION
OF THE COURT IN WHICH THE AGENT HAS COMMENCED A
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PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON FORUM NON CONVENIENS.
12.3 SERVICE OF PROCESS. EACH OF THE CREDIT PARTIES HEREBY IRREVOCABLY
------------------
DESIGNATES CSC NETWORKS AS THE DESIGNEE, APPOINTEE AND AGENT OF SUCH CREDIT
PARTY TO RECEIVE, FOR AND ON BEHALF OF SUCH CREDIT PARTY, SERVICE OF PROCESS IN
SUCH RESPECTIVE JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS CREDIT AGREEMENT OR ANY OTHER CREDIT DOCUMENT. IT IS UNDERSTOOD THAT A
COPY OF SUCH PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS WILL BE PROMPTLY
FORWARDED BY MAIL TO THE CREDIT PARTIES, BUT FAILURE OF THE CREDIT PARTIES TO
RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS.
12.4 JURY TRIAL. THE CREDIT PARTIES, THE AGENT, THE ISSUING BANK AND
----------
THE LENDERS EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY. INSTEAD, ANY
DISPUTES WILL BE RESOLVED IN A BENCH TRIAL.
12.5 LIMITATION OF LIABILITY. NONE OF THE AGENT, THE ISSUING BANK OR
-----------------------
THE LENDERS SHALL HAVE ANY LIABILITY TO THE CREDIT PARTIES (WHETHER SOUNDING IN
TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE CREDIT PARTIES OR THEIR
RESPECTIVE SUBSIDIARIES, AND EACH OF THE CREDIT PARTIES HEREBY WAIVES AND
RELEASES ANY CLAIMS, IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED
TO THE TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THE CREDIT DOCUMENTS, OR
ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS
DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON THE
AGENT, THE ISSUING BANK OR ANY SUCH LENDER, THAT THE LOSSES WERE THE RESULT OF
ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE, WILLFUL MISCONDUCT, BREACH OF
CONTRACT OR KNOWING OR GROSSLY NEGLIGENT VIOLATIONS OF APPLICABLE REQUIREMENTS
OF LAW. EACH OF THE CREDIT PARTIES AGREES NOT TO ASSERT ANY CLAIM AGAINST ANY
OF THE AGENT, THE ISSUING BANK, ANY LENDER OR ANY OTHER HOLDER ON ANY THEORY OF
LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT
OF, OR IN ANY WAY IN CONNECTION WITH, THE COMMITMENTS, THE OBLIGATIONS OR ANY
OTHER MATTERS GOVERNED BY THIS CREDIT AGREEMENT OR THE OTHER CREDIT DOCUMENTS.
12.6 Delays. No delay or omission of the Agent, the Issuing Bank or the
------
Lenders to exercise any right or remedy hereunder shall impair any such right or
operate as a waiver thereof.
12.7 Notices. Except as otherwise provided herein, all notices and
-------
correspondences hereunder shall be in writing and sent by certified or
registered mail, return receipt requested, by facsimile transmission or by
overnight delivery service, with all charges prepaid, as follows:
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<PAGE>
(a) if to the Agent, the Issuing Bank or any of the Lenders, to
BT Commercial Corporation
300 South Grand Avenue, 41st Floor
Los Angeles, CA 90071
Attention: Richard Faulkner
Telecopier No.: (213) 620-8394
with a copy to:
Sidley & Austin
555 West Fifth Street, Suite 4000
Los Angeles, CA 90013
Attention: Edward D. Eddy, III
Telecopier No.: (213) 896-6600
(b) if to the Credit Parties, to
c/o Rental Service Corporation
14505 North Hayden Road, #322
Scottsdale, Arizona 85260
Attention: Douglas Waugaman
Telecopier No.: (602) 905-3400.
All such notices and correspondence shall be deemed given (i) if sent by
certified or registered mail, three Business Days after being postmarked, (ii)
if sent by overnight delivery service, when received at the above stated
addresses or when delivery is refused and (iii) if sent by facsimile
transmission, upon receipt of such transmission.
12.8 Assignments and Participations.
------------------------------
(a) Credit Party Assignment. None of the Credit Parties shall assign
-----------------------
this Credit Agreement or any of the Credit Documents, or any rights or
obligations hereunder, without the prior written consent of the Agent and the
Lenders.
(b) Lender Assignments. Each Lender may assign to one or more Eligible
------------------
Assignees all, or a percentage interest in all, of its rights and obligations
under this Credit Agreement, the Notes and the other Credit Documents, with the
consent of the Agent (which shall not be unreasonably withheld), and upon
execution and delivery to the Agent, for its acceptance and recording in the
Register, of an agreement in substantially the form of Exhibit R (an "Assignment
--------- ----------
and Assumption Agreement"), together with surrender of any Note or Notes subject
- ------------------------
to such assignment and a processing and recordation fee of $2,500. No such
assignment shall be for less than $5,000,000 of the Commitments unless it is to
another Lender. This Section 12.8(b) does not apply to branches and Affiliates
---------------
of a Lender, it being understood that a Lender may make, carry or transfer Loans
and other
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<PAGE>
Obligations in any amount at or for the account of any of its branch offices or
Affiliates without consent of the Agent or payment of any recordation fee.
(c) Agent's Register. The Agent shall maintain a register of the names
----------------
and addresses of the Lenders, their Commitments, and the principal amount of
their Loans (the "Register"). The Agent shall also maintain a copy of each
--------
Assignment and Assumption Agreement delivered to and accepted by it and modify
the Register to give effect to each Assignment and Assumption Agreement. Upon
its receipt of each Assignment and Assumption Agreement and surrender of the
affected Note or Notes, the Agent will give prompt notice thereof to the
Borrowers and deliver to the Borrowers a copy of the Assignment and Assumption
Agreement and the surrendered Note or Notes. Within ten days after its receipt
of such notice, the Borrowers shall execute and deliver to the Agent a new Note
or Notes to the order of the Eligible Assignee in the amount of the Commitment
or Commitments assumed by it and to the assignor in the amount of the Commitment
or Commitments retained by it, if any. Such new Note or Notes shall re-evidence
the Indebtedness outstanding under the surrendered Note or Notes and shall be
dated as of the Closing Date. The Agent shall be entitled to rely upon the
Register exclusively for purposes of identifying the Lenders hereunder.
(d) Lender Participations. Each Lender may sell participations (without
---------------------
the consent of the Agent, the Credit Parties or any other Lender) to one or more
parties in or to all or a portion of its rights and obligations under this
Credit Agreement, the Notes and the other Credit Documents. Notwithstanding a
Lender's sale of a participation interest, its obligations hereunder shall
remain unchanged. The Credit Parties, the Agent, and the other Lenders shall
continue to deal solely and directly with such Lender. No participant shall
have rights to approve any amendment or waiver of this Credit Agreement or any
Credit Document except to the extent such amendment or waiver would (i) increase
the Commitment of the Lender from whom the participant purchased its
participation interest, (ii) reduce the principal of, or rate or amount of
interest on the Loans subject to such participation (other than by the payment
or prepayment thereof), (iii) postpone any date fixed for any payment of
principal of, or interest on, the Loans subject to the participation interest or
(iv) release all or a substantial portion of the Collateral, other than when
otherwise permitted hereunder.
(e) Lenders' Creation of Security Interests. Notwithstanding any other
---------------------------------------
provision set forth in this Credit Agreement, any Lender may at any time,
without consent of the Agent or the payment of any fee, create a security
interest in all or any portion of its rights under this Credit Agreement
(including, without limitation, Obligations owing to it and any
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<PAGE>
Note held by it) in favor of any Federal Reserve Bank in accordance with
Regulation A.
(f) Assignments by BTCC. If BTCC ceases to be a Lender under this Credit
-------------------
Agreement by virtue of any assignment made pursuant to this Section 12.8, then,
------------
as of the effective date of such cessation, Bankers Trust Company's obligations
to issue Letters of Credit pursuant to Article 3 shall terminate and Bankers
---------
Trust Company shall be an Issuing Bank hereunder only with respect to
outstanding Letters of Credit issued prior to such date.
12.9 Confidentiality. Each Lender agrees that it will not disclose
---------------
without the prior consent of the Credit Parties any information with respect to
the Credit Parties or their Subsidiaries which is furnished pursuant to this
Credit Agreement and which is designated by the Credit Parties to the Lenders in
writing as confidential, provided, that any Lender may disclose any such
--------
information (a) to its employees, auditors, or counsel, or to another Lender if
the disclosing Lender or such disclosing Lender's holding or parent company in
its sole discretion determines that any such party should have access to such
information, (b) as has become generally available to the public, (c) as may be
required or appropriate in any report, statement or testimony submitted to any
Governmental Authority having or claiming to have jurisdiction over such Lender,
(d) as may be required or appropriate in response to any summons or subpoena or
in connection with any litigation, (e) in order to comply with any Requirement
of Law and (f) to any prospective or actual transferee or participant in
connection with any contemplated transfer or participation of any of the Notes
or Commitments or any interest therein by such Lender, provided, further, that,
-------- -------
unless specifically prohibited by applicable law or court order, each Lender
revealing confidential information pursuant to clause (c), (d) or (e) of this
---------- --- ---
Section 12.9 shall notify the Credit Parties of any request, summons or subpoena
- ------------
by any governmental agency or representative thereof, or in connection with any
litigation, for the disclosure of any such confidential information prior to the
disclosure of such information.
12.10 Indemnification; Reimbursement of Expenses of Collection. The
--------------------------------------------------------
Borrowers hereby jointly and severally indemnify and agree to defend and hold
harmless the Agent, the Issuing Bank and each of the Lenders and their
respective directors, officers, agents, employees and counsel from and against
any and all losses, claims, damages, liabilities, deficiencies, judgments or
expenses incurred by any of them (except to the extent that it is finally
judicially determined to have resulted from their own gross negligence or
willful misconduct) arising out of or by reason of (a) any litigation,
investigations, claims or proceedings which arise out of or are in any way
related to (i) this Credit Agreement or the transactions contemplated hereby,
(ii) the issuance of the Letters of Credit, (iii) the
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<PAGE>
failure of the Issuing Bank to honor a drawing under any Letter of Credit, as a
result of any act or omission, whether rightful or wrongful, of any present or
future de jure or de facto government or Governmental Authority, (iv) any actual
or proposed use by any Person at any time party hereto as a Borrower of the
proceeds of the Loans, (v) the Agent's or the Lenders' entering into this Credit
Agreement, the other Credit Documents or any other agreements and documents
relating hereto or (vi) any aspect of the Restructuring, including, without
limitation, amounts paid in settlement, court costs and the fees and
disbursements of counsel incurred in connection with any such litigation,
investigation, claim or proceeding or any advice rendered in connection with any
of the foregoing and (b) any remedial or other action taken by a Credit Party or
any of the Lenders in connection with compliance by a Credit Party or any of its
Subsidiaries, or any of their respective properties, with any federal, state or
local environmental laws, acts, rules, regulations, orders, directions,
ordinances, criteria or guidelines. In addition, the Borrowers shall, upon
demand, pay to the Agent and any Lender all costs and expenses (including the
reasonable fees and disbursements of counsel and other professionals) paid or
incurred by the Agent or such Lender in (w) enforcing or defending its rights
under or in respect of this Credit Agreement, the other Credit Documents or any
other document or instrument now or hereafter executed and delivered in
connection herewith, (x) in collecting all or any part of the Obligations, (y)
in foreclosing or otherwise collecting upon the Collateral or any part thereof
and (z) obtaining any legal, accounting or other advice in connection with any
of the foregoing.
12.11 Amendments and Waivers. No amendment or waiver of any provision
----------------------
of this Credit Agreement, any part of Schedule D, or any other Credit Document
----------
shall be effective unless in writing and signed by the Majority Lenders (or by
the Agent on their behalf), except that:
(a) the consent of all the Lenders is required to (i) increase the
Commitments, (ii) reduce the principal of, or interest on, the Notes, any
Letter of Credit Obligations or any Fees hereunder (other than Fees that are
exclusively for the account of the Agent or the Issuing Bank), (iii) postpone
any date fixed for any payment in respect of principal of, or interest on,
the Notes, any Letter of Credit reimbursement obligations or any Fees
hereunder, (iv) change the percentage of the Commitments, or any minimum
requirement necessary for the Lenders or the Majority Lenders to take any
action hereunder, (v) amend or waive this Section 12.11(a), or change the
----------------
definition of Majority Lenders or Proportionate Share or (vi) other than as
expressly provided herein or in any Collateral Document release any Liens in
favor of the Agent, for the benefit of the Holders, on all or a substantial
portion of the Collateral;
-118-
<PAGE>
(b) the consent of the Agent or the Issuing Bank, as the case may be,
shall be required for any amendment, waiver or consent affecting the rights
or duties of the Agent or the Issuing Bank under any Credit Document, in
addition to the consent of the Lenders otherwise required by this Section
-------
12.11; and
-----
(c) no consent is needed to amend Schedule D, Parts 6.1, 6.10 and 6.13,
------------------------------------
Exhibits A, D, E and F to the Security Agreement or Exhibits A and B to the
Trademark Security Agreement or for the Agent to execute releases with
respect to Liens and Obligations pursuant to Section 11.9(b), to the extent
---------------
such amendments and releases pertain to actions expressly permitted to be
taken under the Credit Documents.
The consent of the Borrowers shall not be required for any amendment,
modification or waiver of the provisions of Article 11 (other than Section
---------- -------
11.8). The Borrowers and the Lenders hereby authorize the Agent to modify this
Credit Agreement by unilaterally amending or supplementing Annex I to reflect
-------
assignments of the Commitments.
12.12 Counterparts and Effectiveness. This Credit Agreement and any
------------------------------
waiver or amendment hereto may be executed in any number of counterparts and by
the different parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. This Credit Agreement shall become
effective on the date on which all of the parties hereto shall have signed a
copy hereof (whether the same or different copies) and shall have delivered the
same to the Agent pursuant to Section 12.7 or, in the case of the Lenders, shall
------------
have given to the Agent written, telecopied or telex notice (actually received)
at such office that the same has been signed and mailed to it.
12.13 Severability. In case any provision in or obligation under this
------------
Credit Agreement or the Notes or the other Credit Documents shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
12.14 Maximum Rate. Notwithstanding anything to the contrary contained
------------
elsewhere in this Credit Agreement or in any other Credit Document, the Credit
Parties, the Agent, the Issuing Bank and the Lenders hereby agree that all
agreements among them under this Credit Agreement and the other Credit
Documents, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever shall
the amount paid, or agreed to be paid, to the Agent, the Issuing Bank or any
Lender for the use, forbearance,
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<PAGE>
or detention of the money loaned to the Borrowers and evidenced hereby or
thereby or for the performance or payment of any covenant or obligation
contained herein or therein, exceed the Highest Lawful Rate. If due to any
circumstance whatsoever, fulfillment of any provisions of this Credit Agreement
or any of the other Credit Documents at the time performance of such provision
shall be due shall exceed the Highest Lawful Rate, then, automatically, the
obligation to be fulfilled shall be modified or reduced to the extent necessary
to limit such interest to the Highest Lawful Rate, and if from any such
circumstance the Agent, the Issuing Bank or any Lender should ever receive
anything of value deemed interest by applicable law which would exceed the
Highest Lawful Rate, such excessive interest shall be applied to the reduction
of the principal amount then outstanding hereunder or on account of any other
then outstanding Obligations and not to the payment of interest, or if such
excessive interest exceeds the principal unpaid balance then outstanding
hereunder and such other then outstanding Obligations, such excess shall be
refunded to the Borrowers. All sums paid or agreed to be paid to the Agent, the
Issuing Bank or any Lender for the use, forbearance, or detention of the
Obligations and other Indebtedness of the Borrowers to the Agent, the Issuing
Bank or any Lender, to the extent permitted by applicable law, shall be
amortized, prorated, allocated and spread throughout the full term of such
Indebtedness, until payment in full thereof, so that the actual rate of interest
on account of all such Indebtedness does not exceed the Highest Lawful Rate
throughout the entire term of such Indebtedness. The terms and provisions of
this Section 12.14 shall control every other provision of this Credit Agreement
-------------
and all agreements among the Credit Parties, the Agent and the Lenders.
12.15 Intercreditor Agreement. Each Lender and the Issuing Bank, by
-----------------------
executing this Credit Agreement or the Assignment and Assumption Agreement by
which such Person became a Lender, and each Holder, by accepting the benefits of
the Credit Documents, hereby directs the Agent, acting on behalf of the Agent,
the Lenders, the Issuing Bank and the Holders, to agree to and acknowledge the
terms of the Intercreditor Agreement.
12.16 Entire Agreement; Successors and Assigns. This Credit Agreement
----------------------------------------
and the Other Credit Documents constitute the entire agreement among the Credit
Parties, the Agent, the Issuing Bank and the Lenders, supersedes any prior
agreements among them, and shall bind and benefit the Credit Parties, the Agent,
the Issuing Bank and the Lenders and their respective successors and permitted
assigns. The successors of any Credit Party shall include, without limitation,
a receiver, trustee and debtor-in-possession of or for such Credit Party.
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<PAGE>
12.17 Schedules and Exhibits. The schedules and exhibits attached to
----------------------
this Credit Agreement are incorporated herein and shall be considered a part of
this Credit Agreement for the purposes stated herein.
[SIGNATURE PAGES FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement
to be executed and delivered by their proper and duly authorized officers as of
the date set forth above.
BORROWERS: ACME ALABAMA, INC.,
- --------- an Alabama corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
---------
ACME DIXIE INC.,
a Delaware corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
---------
ACME DUVAL INC.,
a Delaware corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
---------
ACME RENTS, INC.,
a California corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
---------
THE AIR & PUMP COMPANY,
a Texas corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
---------
WALKER JONES EQUIPMENT, INC.,
a Mississippi corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
---------
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<PAGE>
PARENT GUARANTORS: ACME ACQUISITION CORP.,
- ----------------- a Delaware corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
---------
ACME HOLDINGS INC.,
a Delaware corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
--------------------
AGENT: BT COMMERCIAL CORPORATION,
- ----- as Agent
By: /s/ PATTY CHAN
-----------------------
Vice President
ISSUING BANK: BANKERS TRUST COMPANY
- ------------
By: /s/ PATTY CHAN
-----------------------
Vice President
LENDERS: BT COMMERCIAL CORPORATION
- -------
By: /s/ PATTY CHAN
-----------------------
Vice President
UNION BANK
By: /s/ LINDA C. JAHNKE
-----------------------
Vice President
SANWA BANK CALIFORNIA
By: /s/ ROBERT G. MOORE
-----------------------
Vice President
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<PAGE>
ANNEX I
-------
LENDERS AND COMMITMENT AMOUNTS
Name and Address of Lender Commitment
- -------------------------- ----------
Bankers Trust Commercial Corporation $ 55,000,000.00
Domestic Lending Office:
14 Wall Street, 3rd Floor
New York, New York 10005
Attention: Bharathi Baliga
Telecopy No: 212-618-2428
Eurodollar Lending Office:
14 Wall Street, 3rd Floor
New York, New York 10005
Attention: Bharathi Baliga
Telecopy No: 212-618-2428
Union Bank $ 10,000,000.00
Domestic Lending Office:
Commercial Finance Division
70 South Lake Avenue
Suite 900
Pasadena, California 91101
Attention: Paul A. Rand
Telecopy No: 818-304-1845
Eurodollar Lending Office:
Commercial Finance Division
70 South Lake Avenue
Suite 900
Pasadena, California 91101
Attention: Paul A. Rand
Telecopy No: 818-304-1845
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<PAGE>
Sanwa Bank California $ 5,000,000.00
Domestic Lending Office:
601 South Figueroa Street
Los Angeles, California 90017
Attention: Robert G. Moore
Telecopy No: 213-896-7090
Eurodollar Lending Office:
601 South Figueroa Street
Los Angeles, California 90017
Attention: Robert G. Moore
Telecopy No: 213-896-7090
Total Commitments: $70,000,000.00
===============
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<PAGE>
EXHIBIT 10.2
FIRST AMENDMENT
TO
CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "First Amendment") dated
---------------
as of September 26, 1995 relates to that certain Credit Agreement dated as of
September 12, 1995 (as amended, restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among Acme Alabama, Inc., Acme Dixie
----------------
Inc., Acme Duval Inc., Acme Rents, Inc., The Air & Pump Company and Walker Jones
Equipment, Inc. (collectively, the "Borrowers"), Acme Acquisition Corp. and Acme
---------
Holdings Inc. (collectively, the "Parent Guarantors"), each financial
-----------------
institution identified on Annex I thereto (together with its successors and
permitted assigns pursuant to Section 12.8 thereof, a "Lender"), the Issuing
------
Bank and BT Commercial Corporation acting as agent for the Lenders and the
Issuing Bank (in such capacity, together with any successor agent appointed
pursuant to Section 11.8 thereof, the "Agent").
-----
1. DEFINITIONS. Capitalized terms used and not otherwise defined
-----------
herein have the meanings assigned to them in the Credit Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT. Upon the "Effective Date"
----------------------------------
(as defined in Section 4 below), the Credit Agreement is hereby amended as
follows:
2.1 AMENDMENT TO SECTION 5.1(C)(IV). Section 5.1(c)(iv) of the
-------------------------------
Credit Agreement is hereby amended to delete the following parenthetical
phrase at the end thereof: "(including, without limitation, a Uniform
Commercial Code financing statement to be filed with the Louisiana
Department of Public Safety and Corrections, Office of Motor Vehicles, with
respect to Equipment and Rental Equipment for which a certificate of title
has been issued by such office as of the Closing Date)."
2.2 AMENDMENT TO SECTION 7.6(IV). Section 7.6(iv) of the Credit
----------------------------
Agreement is hereby amended by adding the following parenthetical phrase
immediately after the reference to "at least 30 days' written notice"
therein: "(or, in the case of non-payment of premiums, at least 10 days'
written notice)."
2.3 AMENDMENT TO SECTION 7.18. Section 7.18 of the Credit
-------------------------
Agreement is hereby amended by deleting the provisions thereof in their
entirety and inserting in lieu thereof the following:
Within 15 days following the Closing Date, Acme Dixie and
Air & Pump shall cause their counsel to deliver to the
Agent, the Issuing Bank and the Lenders a legal opinion with
respect to the
<PAGE>
perfection of security interests in such Credit Parties'
assets (including, without limitation, Collateral which is
subject to a certificate of title and which is held in
inventory for lease) located or deemed located in the State
of Louisiana.
3. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers hereby
------------------------------
represents and warrants to each Lender, the Issuing Bank and the Agent that:
(a) Each of the representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct on and as of
the Effective Date, as if then made, other than representations and
warranties that relate solely to an earlier date;
(b) No Default or Event of Default shall have occurred and is
continuing; and
(c) After giving effect to the Restructuring, no change, occurrence,
event or development or event involving a prospective change that is
reasonably likely to have a Material Adverse Effect shall have occurred and
be continuing.
4. EFFECTIVE DATE. The First Amendment shall become effective as of
--------------
the date first written above (the "Effective Date") upon the Agent's receipt of
--------------
(a) counterparts hereof executed by each Borrower, each Parent Guarantor, the
Agent and the Majority Lenders and (b) a certificate of the Secretary or
Assistant Secretary of each Credit Party certifying the resolutions of the Board
of Directors of the Credit Party authorizing the execution, delivery and
performance of this First Amendment.
5. MISCELLANEOUS. This First Amendment is a Credit Document. The
-------------
headings herein are for convenience of reference only and shall not alter or
otherwise affect the meaning hereof. Except to the extent specifically amended
or modified hereby, the provisions of the Credit Agreement shall not be amended,
modified, impaired or otherwise affected hereby and the Credit Agreement and all
of the Obligations are hereby confirmed in full force and effect. The
execution, delivery and effectiveness of this First Amendment shall not, except
as expressly provided herein, operate as a waiver of any right, power or remedy
of the Agent, any Lender or the Issuing Bank under any of the Credit Documents,
nor constitute a waiver of any provision of any of the Credit Documents.
6. COUNTERPARTS. This First Amendment may be executed in any number
------------
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
7. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
-------------
THIS FIRST AMENDMENT AND ANY DISPUTE ARISING
-2-
<PAGE>
OUT OF OR IN CONNECTION WITH THIS FIRST AMENDMENT, WHETHER SOUNDING IN CONTRACT,
TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO
THE CONFLICTS OF LAWS PROVISIONS OTHER THAN THOSE CONTAINED IN NEW YORK GENERAL
OBLIGATIONS LAW SECTION 5-1401) AND DECISIONS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Agent, the Majority Lenders, the Borrowers and
the Parent Guarantors have caused this First Amendment to be executed by their
respective officers thereunto duly authorized as of the date first above
written.
BORROWERS: ACME ALABAMA, INC.,
- ---------
an Alabama corporation
By:/s/ DOUGLAS A. WAUGAMAN
-----------------------
Title:Secretary
---------
ACME DIXIE INC.,
a Delaware corporation
By:/s/ DOUGLAS A. WAUGAMAN
-----------------------
Title:Secretary
---------
ACME DUVAL INC.,
a Delaware corporation
By:/s/ DOUGLAS A. WAUGAMAN
-----------------------
Title:Secretary
---------
ACME RENTS, INC.,
a California corporation
By:/s/ DOUGLAS A. WAUAGAMAN
------------------------
Title:Secretary
---------
THE AIR & PUMP COMPANY,
a Texas corporation
By:/s/ DOUGLAS A. WAUGAMAN
-----------------------
Title:Secretary
---------
-3-
<PAGE>
WALKER JONES EQUIPMENT, INC.,
a Mississippi corporation
By:/s/ DOUGLAS A. WAUGAMAN
-----------------------
Title:Secretary
---------
PARENT GUARANTORS: ACME ACQUISITION CORP.,
- -----------------
an Delaware corporation
By:/s/ DOUGLAS A. WAUGAMAN
-----------------------
Title:Secretary
---------
ACME HOLDINGS INC.,
a Delaware corporation
By:/s/ DOUGLAS A. WAUGAMAN
-----------------------
Title:Secretary
---------
AGENT: BT COMMERCIAL CORPORATION,
- -----
as Agent
By:/s/ PATTY CHAN
--------------
Vice President
LENDERS: BT COMMERCIAL CORPORATION,
- -------
By:/s/ PATTY CHAN
--------------
Vice President
UNION BANK
By:/s/ LINDA C. JAHNKE
-------------------
Vice President
SANWA BANK OF CALIFORNIA
By:/s/ ROBERT G. MOORE
-------------------
Vice President
-4-
<PAGE>
EXHIBIT 10.3
SECOND AMENDMENT AND CONSENT
TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT AND CONSENT TO CREDIT AGREEMENT (the "Second
------
Amendment") dated as of December 21, 1995 relates to that certain Credit
- ---------
Agreement dated as of September 12, 1995, as amended by that certain First
Amendment to Credit Agreement dated as of September 26, 1995 (as further
amended, restated, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Acme Alabama, Inc., Acme Dixie Inc., Acme Duval Inc.,
- -----------------
Acme Rents, Inc., The Air & Pump Company and Walker Jones Equipment, Inc.
(collectively, the "Borrowers"), Acme Acquisition Corp. and Acme Holdings Inc.
---------
(collectively, the "Parent Guarantors"), each financial institution identified
-----------------
on Annex I thereto (together with its successors and permitted assigns pursuant
to Section 12.8 thereof, a "Lender"), the Issuing Bank and BT Commercial
------
Corporation ("BTCC") acting as agent for the Lenders and the Issuing Bank (in
----
such capacity, together with any successor agent appointed pursuant to Section
11.8 thereof, the "Agent").
-----
1. DEFINITIONS. Capitalized terms used and not otherwise defined
-----------
herein have the meanings assigned to them in the Credit Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT. Upon the "Effective Date" (as
----------------------------------
defined in Section 5 below), the Credit Agreement is hereby amended as follows:
2.1 AMENDMENT TO SECTION 1.1. Section 1.1 of the Credit
------------------------
Agreement is hereby amended to delete in the definition of "Commitment" the
reference therein to "$70,000,000" and to substitute in lieu thereof
"$95,000,000".
2.2 AMENDMENTS TO REFERENCES TO AAHC. Each reference to AAHC in
--------------------------------
the Credit Agreement shall be deemed to be a reference to Rental Service
Corporation, a Delaware corporation.
2.3 AMENDMENT TO ANNEX I. Annex I to the Credit Agreement is
--------------------
hereby deleted in its entirety and new Annex I, attached hereto as Exhibit
-------
I, is substituted in lieu thereof.
-
2.4 AMENDMENT TO SCHEDULE B. Schedule B to the Credit Agreement
-----------------------
is hereby amended by adding the real property locations and the information
pertaining thereto set forth on Exhibit II attached hereto.
----------
<PAGE>
3. CONSENT. As of the Effective Date, the Lenders hereby approve (a)
-------
the Acquisition by Acme Dixie of substantially all of the assets of CVM, Inc., a
Delaware corporation ("CVM") relating to the equipment rental business of U Rent
---
M in the State of Texas, for a purchase price not to exceed $10,500,000,
together with reasonable post-closing adjustments made pursuant to the agreement
entered into in connection with such Acquisition (the "CVM Acquisition"), and
---------------
(b) the Acquisition by Acme Dixie of the equipment rental business in the State
of Texas of Charles Mancuso, Inc., a Texas corporation ("CMI"), for a purchase
---
price not to exceed $1,150,000, together with reasonable post-closing
adjustments made pursuant to the agreement entered into in connection with such
Acquisition (the "CMI Acquisition"), provided that (x) the aggregate purchase
--------------- --------
price, together with such post-closing adjustments, for the CVM Acquisition and
the CMI Acquisition shall not exceed $14,999,950 and (y) on or before the
consummation of the CVM Acquisition and the CMI Acquisition, AAHC has received
proceeds of the sale of AAHC Preferred Stock and AAHC common stock in an
aggregate amount not less than $14,999,950, and that portion of such proceeds
necessary to pay the respective purchase prices on the closing date of the CVM
Acquisition and the CMI Acquisition are contributed by AAHC to Acme Holdings and
further contributed by Acme Holdings to Acme Dixie (collectively, the "New
---
Equity Contribution"). Regardless of the date of consummation of the CVM
- -------------------
Acquisition and the CMI Acquisition, the Lenders hereby agree that, for purposes
of Section 8.5(f) of the Credit Agreement, such Acquisitions shall be deemed to
have occurred during the Fiscal Year ending December 31, 1995.
4. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers hereby
------------------------------
represents and warrants to each Lender, the Issuing Bank and the Agent that, as
of the Effective Date and after giving effect to this Second Amendment, the CVM
Acquisition and the CMI Acquisition:
(a) Each of the representations and warranties contained in the
Credit Agreement and the other Credit Documents are true and correct on and
as of the Effective Date, as if then made, other than representations and
warranties that relate solely to an earlier date;
(b) No Default or Event of Default shall have occurred and is
continuing;
(c) No change, occurrence, event or development or event involving a
prospective change that is reasonably likely to have a Material Adverse
Effect shall have occurred and be continuing;
-2-
<PAGE>
(d) All of the preferred stock issued by AAHC in connection with the
New Equity Contribution constitutes AAHC Preferred Stock; and
(e) No Change of Control has occurred.
5. EFFECTIVE DATE. This Second Amendment shall become effective as
--------------
of the date, on or before January 31, 1995 (the "Effective Date") when each of
--------------
the following conditions shall have been satisfied:
(a) the Agent shall have received each of the following documents, in
each case in form and substance satisfactory to the Agent:
(i) counterparts hereof executed by each Borrower, each Parent
Guarantor, the Agent and each Lender;
(ii) amended and restated Notes made payable to each Lender whose
Commitment will increase as of the Effective Date, in each case in
substantially the form of Exhibit D to the Credit Agreement;
(iii) an amendment to the Security Agreement, giving effect to
the CVM Acquisition and the CMI Acquisition;
(iv) to the extent that Acme Dixie acquires any federally
registered trademarks or trademark applications in connection with the
CVM Acquisition or the CMI Acquisition, an amendment to the Trademark
Security Agreement, giving effect to the CVM Acquisition and the CMI
Acquisition;
(v) to the extent not delivered to the Agent prior to the date
hereof, Collateral Access Agreements executed by the seller or selling
shareholders in the CVM Acquisition, with respect to each real
property location (A) owned or leased by such Persons, (B) leased or
subleased by the Credit Parties and (C) where assets acquired in the
CVM Acquisition are or will be located;
(vi) to the extent not delivered to the Agent prior to the date
hereof, Uniform Commercial Code financing statements as to the assets
acquired in the CVM Acquisition or the CMI Acquisition for all
jurisdictions as may be necessary or desirable to perfect the Liens
granted to the Agent, for the benefit of the Holders, in such assets;
-3-
<PAGE>
(vii) a copy of the appraisal performed by Daley-Hodkin of the
Rental Equipment acquired in the CVM Acquisition or the CMI
Acquisition;
(viii) copies of all Phase I environmental reports delivered
with respect to real property leased or to be leased by the Credit
Parties where assets acquired in the CVM Acquisition or the CMI
Acquisition are or will be located;
(ix) a certificate of the Secretary or Assistant Secretary of
each Credit Party certifying the resolutions of the Board of Directors
of such Credit Party authorizing, to the extent applicable, the CVM
Acquisition and the CMI Acquisition and the execution, delivery and
performance of this Second Amendment;
(x) a certificate of the chief executive officer, chief
financial officer or treasurer of each Credit Party executed and
delivered on behalf of such Credit Party certifying that all
conditions precedent to the effectiveness of this Second Amendment
(other than conditions within the control of the Agent and the
Lenders) have been met and (after giving effect to the New Equity
Contribution, the CVM Acquisition and the CMI Acquisition) no Default
or Event of Default has occurred or is continuing;
(xi) an opinion of counsel to the Credit Parties with respect to
this Second Amendment and other matters which the Agent may reasonably
request; and
(xii) such additional documentation as the Agent may reasonably
request.
(b) The Agent shall have completed its review of the business,
operations, assets, liabilities and Contractual Obligations of the
Borrowers, after giving effect to the New Equity Contribution, the CVM
Acquisition and the CMI Acquisition, the results of which shall have
provided the Agent and each Lender with results and information which, in
the judgment of each such Person, are satisfactory to permit the Agent and
each Lender to enter into this Second Amendment, provided, however, that
-------- -------
the failure of the Agent and the Lenders to notify the Credit Parties, on
or before the close of business (Los Angeles time) on January 3, 1996, that
the condition set forth in this Section 5(b) has not been satisfied shall
------------
constitute evidence that this condition has been satisfied as to the Agent
and each Lender.
-4-
<PAGE>
(c) All aspects of the CVM Acquisition, the CMI Acquisition and the
New Equity Contribution shall have been, or concurrently herewith will be,
consummated, in each case in compliance with all applicable Requirements of
Law, the Credit Agreement (as amended by this Second Amendment) and the
other Credit Documents.
(d) No law, regulation, order, judgment or decree of any Governmental
Authority shall, and the Agent shall not have received any notice that
litigation is pending or threatened which is likely to, enjoin, prohibit or
restrain the consummation of the transactions contemplated by this Second
Amendment, except for such laws, regulations, orders or decrees, or pending
or threatened litigation that in the aggregate could not reasonably be
expected to result in a Material Adverse Effect.
(e) All Fees, and all Expenses as to which the Credit Parties have
received an invoice, in each case which are payable on or before the
Effective Date shall have been paid.
6. POST-EFFECTIVE DATE DELIVERIES. The Credit Parties shall (a)
------------------------------
deliver to the Agent and the Lenders, as soon as practicable and in any event
not later than five (5) Business Days after the Effective Date, certified copies
of the Asset Purchase Agreements executed in connection with the CVM Acquisition
and the CMI Acquisition, respectively, (b) deliver to the Agent and the Lenders,
as soon as practicable and in any event not later than the date on which a
Borrowing Base Certificate including any asset acquired in the CVM Acquisition
or the CMI Acquisition is delivered pursuant to Section 7.2(a) of the Credit
Agreement, evidence that all Liens in favor of Persons other than the Agent with
respect to assets acquired in the CVM Acquisition or the CMI Acquisition have
been terminated (other than Liens permitted by the Credit Agreement) and (c) use
its best efforts to deliver, or cause to be delivered, to the Agent, a
Collateral Access Agreement from Stewart Thompson with respect to the property
located at 1104 South Market Street, Brenham, Texas 77833.
7. MISCELLANEOUS. This Second Amendment is a Credit Document.
-------------
The headings herein are for convenience of reference only and shall not alter or
otherwise affect the meaning hereof. Except to the extent specifically amended
or modified hereby, the provisions of the Credit Agreement shall not be amended,
modified, impaired or otherwise affected hereby and the Credit Agreement and all
of the Obligations are hereby confirmed in full force and effect. The
execution, delivery and effectiveness of this Second Amendment shall not, except
as expressly provided herein, operate as a waiver of any right, power or remedy
of the
-5-
<PAGE>
Agent, any Lender or the Issuing Bank under any of the Credit Documents, nor
constitute a waiver of any provision of any of the Credit Documents.
8. COUNTERPARTS. This Second Amendment may be executed in any
------------
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
9. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
-------------
THIS SECOND AMENDMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS
SECOND AMENDMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL
BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS
OTHER THAN THOSE CONTAINED IN NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401)
AND DECISIONS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Agent, the Lenders, the Borrowers and the
Parent Guarantors have caused this Second Amendment to be executed by their
respective officers thereunto duly authorized as of the date first above
written.
BORROWERS: ACME ALABAMA, INC.,
- --------- an Alabama corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
--------------------
ACME DIXIE INC.,
a Delaware corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
--------------------
ACME DUVAL INC.,
a Delaware corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
--------------------
-6-
<PAGE>
ACME RENTS, INC.,
a California corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
--------------------
THE AIR & PUMP COMPANY,
a Texas corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
--------------------
WALKER JONES EQUIPMENT, INC.,
a Mississippi corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
--------------------
PARENT GUARANTORS: ACME ACQUISITION CORP.,
- -----------------
a Delaware corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
--------------------
ACME HOLDINGS INC.,
a Delaware corporation
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------
Title: Secretary
--------------------
AGENT: BT COMMERCIAL CORPORATION,
- -----
as Agent
By: /s/ PATTY CHAN
-----------------------
Vice President
-7-
<PAGE>
LENDERS: BT COMMERCIAL CORPORATION
- -------
By: /s/ PATTY CHAN
------------------------
Vice President
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ EDWARD R. BURNS
------------------------
Assistant Vice President
CONGRESS FINANCIAL CORPORATION
By:
------------------------
Vice President
GIBRALTAR CORPORATION OF AMERICA
By: /s/ HARVEY FRIEDMAN
-------------------------
Executive Vice President
SANWA BANK CALIFORNIA
By: /s/ ROBERT G. MOORE
-------------------------
Vice President
UNION BANK
By: /s/ PAUL A. RAND
-------------------------
Vice President
-8-
<PAGE>
ANNEX 1
LENDERS AND COMMITMENT AMOUNTS
AS OF JANUARY 5, 1995
Name and Address of Lender Commitment
- -------------------------- ----------
Bankers Trust Commercial Corporation $21,500,000.00
Domestic Lending Office:
14 Wall Street, 3rd Floor
New York, New York 10005
Attention: Bharathi Baliga
Telecopy No: 212-618-2428
Eurodollar Lending Office:
14 Wall Street, 3rd Floor
New York, New York 10005
Attention: Bharathi Baliga
Telecopy No: 212-618-2428
The CIT Group/Business Credit, Inc. $15,000,000.00
Domestic Lending Office:
300 South Grand Avenue
Los Angeles CA 90071
Attention: Evelyn Lopez
Telecopier No: 213-613-2588
Eurodollar Lending Office:
300 South Grand Avenue
Los Angeles CA 90071
Attention: Evelyn Lopez
Telecopier No: 213-613-2588
<PAGE>
Congress Financial Corporation $15,000,000.00
Domestic Lending Office:
225 South Lake Avenue, Suite 1000
Pasadena CA 91101
Attention: Victor Hardies
Telecopy No: 818-304-4949
Eurodollar Lending Office:
225 South Lake Avenue, Suite 1000
Pasadena CA 91101
Attention: Victor Hardies
Telecopy No: 818-304-4949
Gibraltar Corporation of America $13,500,000.00
Domestic Lending Office:
350 Fifth Avenue, Room 2001
New York NY 10118
Attention: Irwin Schwartz
Telecopier No: 212-695-2007
Eurodollar Lending Office:
350 Fifth Avenue, Room 2001
New York NY 10118
Attention: Irwin Schwartz
Telecopier No: 212-695-2007
<PAGE>
Union Bank $15,000,000.00
Domestic Lending Office:
Commercial Finance Division
70 South Lake Avenue
Suite 900
Pasadena, California 91101
Attention: Paul A. Rand
Telecopy No: 818-304-1845
Eurodollar Lending Office:
Commercial Finance Division
70 South Lake Avenue
Suite 900
Pasadena, California 91101
Attention: Paul A. Rand
Telecopy No: 818-304-1845
Sanwa Bank California $15,000,000.00
Domestic Lending Office:
601 South Figueroa Street
Los Angeles, California 90017
Attention: Robert G. Moore
Telecopy No: 213-896-7090
Eurodollar Lending Office:
601 South Figueroa Street
Los Angeles, California 90017
Attention: Robert G. Moore
Telecopy No: 213-896-7090
Total Commitments: $95,000,000.00
==============
<PAGE>
EXHIBIT 10.4
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of July
25, 1995 by and between Acme Acquisition Holdings Corp., a Delaware corporation
("AAC" or the "Company"), and Martin R. Reid ("Reid").
A. AAC desires to issue and sell to Reid, and Reid desires to purchase
from AAC, certain shares of AAC's authorized but unissued Common Stock, $0.01
par value (the "AAC Common Stock"), upon the terms and conditions specified
herein.
B. The parties hereto desire to impose upon themselves certain
restrictions with respect to the transfer of the shares of AAC Common Stock
acquired hereunder (the "Shares") and to provide for certain other matters as
more fully set forth herein.
C. AAC desires to have, and Reid is also willing to grant to AAC, the
right and option to repurchase certain of the shares he purchases hereunder upon
the terms and conditions contained herein and on Annex A hereto, including the
vesting provisions contained herein and an Annex A hereto.
NOW, THEREFORE, in consideration of the premises and of the covenants and
conditions herein contained, the parties hereto agree as follows:
1. Purchase and Sale of Securities.
-------------------------------
(a) Purchase and Sale. AAC hereby agrees to issue and sell to Reid, and
-----------------
Reid hereby agrees to purchase from AAC such number of shares of AAC Common
Stock and in exchange for such consideration, as is set forth on Schedule I
hereto. The purchase price is $0.01 for each Share, payable in cash on the
Closing Date. All of the Shares to be purchased hereunder by Reid are subject
to vesting as set forth in Section 2. To the extent that, prior to December 31,
1995, the fully-diluted percentage of the AAC Common Stock represented by the
Shares has changed due solely to the issuance to Citibank, N.A. (or an affiliate
thereof) of AAC Common Stock or warrants to acquire AAC
1
<PAGE>
Common Stock (in an amount not in excess of that which would be customary in
issuances of similar amounts of subordinated debt to an institutional investor
in similar circumstances) in connection with the issuance by AAC of subordinated
debt to Citibank (or such affiliate), the number of Shares set forth in Schedule
I shall be deemed to be increased to a number which represents the same
percentage of the fully-diluted common stock of AAC as the percentages set forth
above.
(b) The Closing. The consummation of the purchase and sale of the Shares
-----------
hereunder (the "Closing") shall take place on the earliest possible date on
which the closing conditions set forth herein have been satisfied or waived (the
"Closing Date"). At the Closing, Reid shall deliver to AAC payment of the
specified consideration for the Shares being purchased, and AAC shall deposit
certificates evidencing the Shares registered in the name of Reid with the
Escrow Agent as set forth in Section 4.
(c) Taxes. The parties intend that the difference between the fair market
-----
value for the Shares and the purchase price for such shares shall be deemed
compensation to Reid paid as of the Closing Date and that, subject to any
withholding required of the Company, Reid shall be responsible for any taxes
payable in connection therewith.
2. Vesting of Shares. All the Shares are subject to vesting as set forth
-----------------
below.
(a) Time Vesting. 25% of the Shares vested on December 31, 1994, and 25%
------------
shall vest on December 31 of each of 1995, 1996 and 1997. In addition, upon a
Trigger Date (as defined in Section 2(c), below) a pro rata portion of all
unvested Shares which would have vested, pursuant to this Section 2(a), by
December 31 of the fiscal year in which the Trigger Date occurs (such pro rata
portion being measured by multiplying (x) the number of Shares that would have
become vested for such year by (y) a fraction, the numerator of which is the
number of days in the fiscal year up to the Trigger Date and the denominator of
which is 365) shall become vested at the end of such fiscal year, with the
remaining unvested Shares becoming immediately subject to the Company's Purchase
Option.
2
<PAGE>
(b) Termination Vesting. If, for any reason other than as set forth
-------------------
Section 2(c) below, Reid is not performing substantially the function of a Chief
Executive Officer of AAC, either as an executive officer of AAC or through other
arrangements (an "Acme CEO Position") (the date on which such event occurs being
hereinafter referred to as the "Trigger Date"), all unvested Shares as of the
Trigger Date shall immediately become subject to the Company's Purchase Option
set forth in Section 3 below.
(c) "Change of Control" Vesting. Anything in this Agreement to the
---------------------------
contrary notwithstanding, if there is a Change in Control (as defined in Section
5) of the Company (other than to Holdings or an affiliate thereof), (i) one-half
of the unvested Shares shall become vested immediately upon the consummation of
the event constituting such Change in Control, and (ii) the proceeds of such
consolidation, merger or sale attributable to the remaining one-half of the
unvested Shares shall be deposited with the Escrow Agent (as defined in Section
4) (the "Escrowed Change in Control Proceeds") and will be distributed to Reid
on the first anniversary of the consummation of such event, if, and only if,
either of the following has occurred: (i) on or prior to such anniversary date
Reid has not refused to accept a contract offered to him to act as chief
executive officer of the successor entity at a reasonable and customary salary
in line with historical practices; or (ii) on such anniversary date Reid holds
an Acme CEO Position. Any Escrowed Change in Control Proceeds not so
distributed to Reid shall be paid to the other shareholders or former
shareholders of AAC in accordance with their interests.
3. Company Purchase Option.
-----------------------
(a) The Company shall have the unconditional right and option to purchase
(the "Purchase Option") for cash in the amount of $.01 per share any or all of
the Shares that become subject to such option as provided in Section 2(c) above.
3
<PAGE>
(b) In any case (other than in the event of a Change in Control) where
Shares are subject to the Company's Purchase Option, the Purchase Option, if
exercised, must be exercised, within ninety (90) days after the date on which
the Purchase Option becomes effective with respect to such Shares. Any Shares
which become subject to the Purchase Option as provided herein but with respect
to which the Purchase Option is not exercised in accordance with the terms
hereof shall become fully vested upon expiration of the ninety (90) day period
during which the Purchase Option with respect thereto is effective, and no such
Shares shall at any time thereafter be subject to the Purchase Option.
(c) The Purchase Option shall be exercised by written notice signed by an
officer of the Company and delivered or mailed to Reid as provided in this
Agreement and to the Escrow Agent as provided in paragraph 1 of the Joint Escrow
Instructions (as defined in Section 4 hereof). Amounts due to Reid from the
Company as a result of exercise of the Purchase Option shall be payable in cash.
4. Escrow of Vesting Stock. As security for the faithful performance of
-----------------------
the terms of this Agreement and to ensure the availability for delivery of the
unvested Shares in case of an exercise of the Purchase Option, Reid shall
deliver to and deposit with the escrow agent (the "Escrow Agent") named in the
joint escrow instructions attached hereto as Annex B (the "Joint Escrow
Instructions"), five of each form of stock assignment duly endorsed (with date
and number of shares blank) in the form attached hereto as Annex C, together
with the certificate or certificates evidencing the Shares. Such documents are
to be held by the Escrow Agent and delivered by the Escrow Agent pursuant to the
Joint Escrow Instructions, which instructions shall be executed by the Company
and Reid and delivered to the Escrow Agent concurrently with the execution of
this Agreement. As promptly as practicable after each vesting date in this
Agreement, the Company shall notify Reid and the Escrow Agent in writing of the
vesting of Shares, and the Escrow Agent shall, within thirty (30) days after
receipt of such notice, deliver to Reid certificates representing that number of
shares of
4
<PAGE>
Common Stock that such notice states have become vested (less such shares, the
certificates for which have been previously delivered). From time to time, upon
written request of the Company, the Escrow Agent shall deliver to the Company
certificates representing that number of Shares which the Company shall have
purchased upon exercise of the Purchase Option, unless Reid objects in the
manner provided in the Joint Escrow Instructions. In the case of any conflict or
inconsistency between this Section 4 and the Joint Escrow Instructions, the
Joint Escrow Instructions shall control.
5. Change of Control. A "Change in Control" shall be deemed to have
-----------------
occurred if (i) any "person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent or more of the combined direct or indirect
voting power of the Company's then outstanding equity securities (other than a
"person" who is such an owner as of the date of this Agreement); (ii) the
"persons" (as defined above) who are currently the "beneficial owners" (as
defined above) of one hundred percent of the voting power of the Company's
equity securities cease to own at least fifty percent of the combined direct or
indirect voting power of the Company's then outstanding equity securities; (iii)
any "person" (as defined above) acquires all or substantially all of the
Company's assets; or (iv) any "person" (as defined above) acquires the power,
through ownership of the Company's securities or otherwise, to elect a majority
of the Company's board of directors (other than a "person" who has such power as
of the date of this Agreement). Notwithstanding the foregoing, any combination
of AAC and Holdings, whether through stock purchase, merger or otherwise, shall
not constitute a Change of Control hereunder.
6. Change in Capitalization. If from time to time during the term of this
------------------------
Agreement there is any dividend of cash or property or rights to acquire same,
any stock dividend or liquidating dividend of cash and/or property, stock split
or other change in the character or amount of
5
<PAGE>
any of the outstanding securities of AAC, then in such event any and all new,
substituted or additional securities or other property to which Reid may become
entitled by reason of his ownership of the Shares shall immediately become
subject to this Agreement and shall assume the same status with respect to
vesting as the Shares upon which such dividend was paid or in substitution for
which such additional securities or property were distributed. Any cash or cash
equivalents received pursuant to this Section 6 shall be invested in
conservative, short-term interest bearing securities, and interest earned
thereon shall likewise assume the same status as to vesting. While the total
option price for all Shares subject to the Purchase Option shall remain the same
after each such event, the option price per Share shall be proportionately or
otherwise appropriately adjusted as determined in good faith by the applicable
Board of Directors.
7. Reid's Representations. Reid hereby represents and warrants to AAC as
----------------------
follows:
(a) Authorization. He has full power and authority to execute, deliver and
-------------
perform his obligations under this Agreement. The execution and delivery of
this Agreement has been duly and validly authorized, and all necessary action
has been taken, to make this Agreement his valid and binding obligation,
enforceable in accordance with its terms, except that the enforcement thereof
may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and to general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(b) Receipt of Information. He has received and reviewed this Agreement
----------------------
and all exhibits and schedules hereto; and he has received all such information
as he deems necessary and appropriate to enable him to evaluate the financial
risk inherent in making an investment in the Shares and has received
satisfactory and complete information concerning the business and financial
condition of AAC in response to all inquiries in respect thereof.
6
<PAGE>
(c) Investment Representations; Securities Laws.
-------------------------------------------
(i) He is acquiring the Shares purchased hereunder with his own
funds or property for investment, for his own account, and not as a nominee
or agent for any other person, firm or corporation, and not with a view to
the sale or distribution of all or any part thereof, and he has no present
intention of selling, granting participation in, or otherwise distributing
any of the Shares. He does not have any contract, undertaking, agreement
or arrangement with any person, firm or corporation to sell, transfer or
grant participations to such person, firm or corporation, with respect to
any of the Shares.
(ii) He understands that except as otherwise provided in the
Stock Purchase Agreement referred to in Section 11(a) below, the Shares
will not be registered under the Securities Act of 1933, as amended (the
"Act"), in part based upon an exemption from the registration predicated on
the accuracy and completeness of his representations and warranties
appearing herein. He understands and acknowledges that, as a result, he
will not be permitted to sell, transfer or assign any of the Shares until
they are registered or an exemption from the registration and prospectus
delivery requirements of the Act is available. He acknowledges that there
is no assurance that such an exemption from registration will ever be
available or that the Shares will ever be able to be sold.
(iii) He agrees that in no event will he make a disposition of
any Shares or any interest therein, unless such Shares are registered under
the Act or unless and until (A) he shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement
of the circumstances surrounding the proposed disposition, and (B) he shall
have furnished the Company with an opinion of counsel reasonably
satisfactory in form and content to the Company to the effect that (x) such
disposition will not require registration of such Shares under the Act or
compliance with applicable state securities laws, or (y) that
7
<PAGE>
appropriate action necessary for compliance with the Act and applicable
state securities laws has been taken, or (C) the Company shall have waived,
expressly and in writing, its rights under clauses (A) and (B) of this
subsection.
(iv) He does not require the assistance of an investment advisor
or other purchaser representative to participate in the transactions
contemplated by this Agreement, has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits
and risks of its investment in the Company, has the ability to bear the
economic risks of its investment for an indefinite period of time and has
been furnished with and has had access to such information as would be made
available in the form of a registration statement under the Act together
with such additional information as is necessary to verify the accuracy of
the information supplied and to have all questions answered by the Company.
8. Representations and AAC. AAC hereby represents and warrants to Reid as
-----------------------
follows:
(a) Organization, Authority, etc. It is a corporation duly organized,
----------------------------
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to enter into this
Agreement, to issue the Shares to be issued by it and to perform its obligations
hereunder.
(b) Corporate Acts and Proceedings. The execution and delivery of this
------------------------------
Agreement has been duly and validly authorized, and all necessary corporate
action has been taken to make this Agreement its valid and binding obligation,
enforceable in accordance with its terms, except that the enforcement thereof
may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and to general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
8
<PAGE>
(c) Valid Issuance. When issued and paid for as provided for herein, the
--------------
Shares issued by it will be duly and validly issued, fully paid and non-
assessable.
(d) Capitalization. The authorized capital stock of AAC is as set forth
--------------
on Schedule II hereto. Except as set forth on such Schedule (i) there are no
outstanding subscriptions, warrants, options, calls or commitments of any
character relating to or entitling any person to purchase or otherwise acquire
any stock of AAC from AAC; (ii) there are no obligations or securities issued by
AAC convertible into or exchangeable for shares of their respective stock or any
commitments of any character relating to or entitling any person to purchase or
otherwise acquire any such obligations or securities from AAC; and (iii) there
are no preemptive or similar rights to subscribe for or to purchase any stock of
AAC.
9. Conditions of Parties' Obligations.
----------------------------------
The obligation of AAC to issue and sell, and of Reid to purchase and pay
for, the Shares which Reid has agreed to purchase hereunder is subject to the
fulfillment prior to or concurrently with the Closing of the following
conditions:
(a) Representations and Warranties True. The representations and
-----------------------------------
warranties of each of the other parties to this Agreement shall be true and
correct on and as of the Closing Date.
(b) Governmental Consents. All permits, consents, approvals, orders and
---------------------
authorizations, if any, which AAC is required to obtain from, and all
registrations, qualifications, designations, declarations and filings which the
Company is required to make with, any state or Federal governmental authority of
the United States in connection with the execution, delivery or performance of
this Agreement and the consummation of the transactions contemplated hereby,
except for the filing of any notice pursuant to Regulation D under the Act and
any filings which may be required under the Blue Sky laws of any applicable
states, shall have been duly obtained or made and shall be effective on and as
of the Closing.
9
<PAGE>
(c) Supporting Documents. Reid shall have received copies of such
--------------------
supporting documents as he may reasonably request. AAC shall have received such
supporting documents as it may reasonably request to satisfy itself concerning
the representations of Reid hereunder.
(d) Other Waivers. AAC shall have received all necessary waivers and
-------------
consents to the issuances to Reid described herein.
10. Reporting Requirements Under Exchange Act. When it is first legally
-----------------------------------------
required to do so, the Company will register its Common Stock under Section 12
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and will
keep effective such registration and will timely file such information,
documents and reports as the Securities and Exchange Commission (the
"Commission") may require or prescribe under Section 13 of the Exchange Act.
From and after the effective date of the first registration statement filed by
such Company under the Act, such Company will (whether or not it may then be
required to do so) timely file such information, documents and reports as the
Commission may require or prescribe under Section 13 or 15(d) (whichever is
applicable) of the Exchange Act. Immediately upon becoming subject to the
reporting requirements of either Section 13 or 15(d) of the Exchange Act, the
Company will forthwith upon request furnish Reid (i) a written statement by such
Company that it has complied with such reporting requirements, (ii) a copy of
the most recent annual or quarterly report of such Company, and (iii) such other
reports and documents filed by the Company with the Commission as such Investor
may reasonably request. The Company acknowledges and agrees that the purposes
of the requirements contained in this Section 10 are to enable Reid to comply
with the current public information requirement contained in Rule 144 under the
Act should he ever wish to dispose of any of the Shares acquired by him
hereunder without registration under the Act in reliance upon Rule 144 (or any
other similar exemptive provision). In addition, the Company will take such
other measures and file such other information, documents and reports, as shall
hereafter be required by the Commission as a condition to the availability of
Rule 144 under the Act (or any similar exemptive provision hereafter in effect).
10
<PAGE>
11. Other Agreements, Rights and Obligations.
----------------------------------------
(a) Upon execution of this Agreement and issuance of the shares of AAC
Common Stock hereunder, Reid shall be deemed to have become a party to that
certain Stock Purchase Agreement dated as of June 29, 1993, as amended by
Amendment No. 1 thereto dated as of June 29, 1993 by and among AAC, Acme
Acquisition Corp., Brentwood Acme Partners, L.P. and the other signatories
thereto, solely with respect to Sections 9 through Section 23, inclusive,
thereof. Reid specifically acknowledges that he will not be entitled to any
rights under Sections 1 through 8, inclusive, of said Stock Purchase Agreement,
as amended.
(b) Reid shall have the benefit of the provisions of Article VII of the
bylaws of Holdings and Article VII of the bylaws of AAC, each as in effect on
the date of this Agreement. In furtherance thereof, each of AAC and Holdings
shall, to the maximum extent permitted by law, hold Reid harmless and indemnify
Reid against expenses, judgments, fines, settlements and other amounts incurred
in connection with any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative to which Reid was or is
a party, or was or is threatened to be made a party, by reason of the fact that
Reid is or was a director, officer, employee or agent of AAC or Holdings or is
or was serving at the request of AAC or Holdings as a director, officer,
employee or agent of another corporation or other organization or enterprise.
This obligation to indemnify shall include, without limitation, the obligation
of each of AAC and Holdings to seek, in good faith and to the best of its
ability, the authorization of its board of directors, of its shareholders and of
the court in which such proceeding is or was pending, if such authorization is a
prerequisite to such indemnification. In addition to the foregoing
indemnification, in the event that AAC or Holdings shall purchase and maintain
directors and officers insurance for any of its existing or prior officers or
directors, such insurance shall be made available to Reid on the same terms and
in the same coverages available to any other officer or director.
11
<PAGE>
12. Covenant Regarding 83(b) Election. Reid hereby covenants and agrees
---------------------------------
that he will make an election pursuant to Treasury Regulation 1.83-2 with
respect to the Shares and will furnish the Company with a copy of the form of
election he has filed and evidence that such an election has been filed in a
timely manner.
13. General Provisions.
------------------
(a) Notices. All notices, requests, consents and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given and made and served either by personal delivery to the person
for whom it is intended or if deposited, postage prepaid, registered or
certified mail, return receipt requested, in the United States mail as follows:
(i) if to Reid, addressed to him at his address shown on the
stock register maintained by the Company, or at such other address as he
may specify by written notice to the Company, or
(ii) if to the Company, at 14505 N. Hayden Road, #322,
Scottsdale, Arizona 85260, Attention: Chief Executive Officer, or at such
other address as the Company may specify by written notice to Reid, with a
copy to William M. Barnum, Jr. of Brentwood Associates, 11150 Santa Monica
Boulevard, Suite 1200 Los Angeles, California 90025.
Each such notice, request, consent and other communication shall be deemed to
have been given upon receipt thereof or, if sooner, five (5) days after such has
been deposited as described above. The addresses for the purposes of this
Section 14(a), may be changed by giving written notice of such change in the
manner provided herein for giving notice. Unless and until such written notice
is received, the addresses provided herein shall be deemed to continue in effect
for all purposes hereunder.
(b) Choice of Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws, and not the laws of conflicts of laws, of the
State of Delaware.
12
<PAGE>
(c) Severability. The parties hereto agree that the terms and provisions
------------
in this Agreement are reasonable and shall be binding and enforceable in
accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable or invalid term or provision with an
enforceable and valid arrangement which in its economic effect shall be as close
as possible to the unenforceable or invalid term or provision.
(d) Parties in Interest. All the terms and provisions of this Agreement
-------------------
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto, whether so expressed or
not.
(e) Modification, Amendment and Waiver. No modification, amendment or
----------------------------------
waiver of any provision of this Agreement shall be effective against the Company
or Reid unless approved in writing, and, in the case of the Company, authorized
by its Board of Directors. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of any of the parties thereafter to
enforce each and every provision hereof in accordance with its terms.
(f) Integration. This Agreement, together with the Schedules hereto,
-----------
constitutes the entire agreement of the parties with respect to the subject
matter hereof and thereof.
(g) Headings. The headings of the sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(h) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed
13
<PAGE>
the same document. All such counterparts shall be deemed an original, shall be
construed together and shall constitute one and the same instrument.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ACME ACQUISITION HOLDINGS CORP.
By: /s/ DOUGLAS A. WAUGAMAN
--------------------------
Douglas A. Waugaman
Chief Financial Officer
ACME HOLDINGS INC. (solely to confirm
the provisions of
Section 11)
By: /s/ DOUGLAS A. WAUGAMAN
--------------------------
Douglas A. Waugaman
Chief Financial Officer
/s/ MARTIN R. REID
------------------------------
Martin R. Reid
Address:
10801 East Happy Valley Road, #44
Scottsdale, Arizona 85255
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
No. Shares of Common
Stock to be Purchased Payment
--------------------- -------
<S> <C> <C>
Acme Acquisition Holdings Corp. 4,741 $47.41
</TABLE>
<PAGE>
SCHEDULE II
Acme Acquisition Holdings Corp. Authorized Capital Stock
--------------------------------------------------------
200,000 shares of Common Stock, $.01 par value
350,000 shares of Preferred Stock, $.01 par value
Capital Stock to be Outstanding at Closing Date
- -----------------------------------------------
<TABLE>
<CAPTION>
Shares
-------
<S> <C>
Reid Common Stock 4,741
Other Common Stock 90,106*
Preferred Stock 26,688
</TABLE>
Subscriptions, Warrants, Calls or Commitments to Issue Capital Stock of Acme
- ----------------------------------------------------------------------------
Acquisition Holdings, Inc.
- --------------------------
The Company plans to offer additional shares of Preferred Stock and Common Stock
from time to time.
* - excludes any shares repurchased or to be repurchased from John Jastrem,
but includes 1,210 shares issued or to be issued to Douglas A. Waugaman
<PAGE>
Annex A
-------
JOINT ESCROW INSTRUCTIONS
Dated as of July 25, 1995
Mark Kimura
Brentwood Associates
11150 Santa Monica Boulevard
Los Angeles, California 90025
Joint Escrow Instructions
-------------------------
Dear Mr. Kimura:
As Escrow Agent for Acme Acquisition Holdings Corp. (the "Company")
and the undersigned holder of common stock, par value $.01 per share, of each
Company ("Stockholder"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Stock Purchase
Agreement (the "Agreement") dated as of July 25, 1995, to which a copy of these
Joint Escrow Instructions is attached as Annex A, in accordance with the
following instructions:
1. Promptly after the closing under the Agreement, the Company shall
deliver to you a certificate or certificates representing the shares which are
subject to these Joint Escrow Instructions and all other documents that are
necessary for you to fulfill your duties hereunder. In the event the Company,
or any assignee of the Company (referred to collectively herein as the
"Company"), shall elect to exercise the Purchase Option (as defined and
described in the Agreement), the Company shall give to Stockholder and you a
written notice specifying the number of shares of stock to be purchased, the
purchase price and the time for a closing hereunder at the principal office of
the Company, which time shall not be less than thirty days after the date of
such written notice. Unless you shall have received written notice from
Stockholder at least five (5) days prior to the date specified for the closing
objecting to consummation of the transaction, Stockholder and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice including prompt
delivery of the stock certificate(s) representing the shares purchased. Any
objecting notice from Stockholder shall set forth in reasonable detail the basis
for his objections, but his failure to do so shall not affect your duties
hereunder.
2. At the closing you are directed to (i) date a stock certificate
assignment form or forms necessary for the transfer in question, (ii) fill in
the number of shares being transferred and (iii) deliver same together with the
certificate or certificates evidencing the shares to be transferred to the
Company, against the simultaneous delivery to you of the purchase price for the
number of shares of stock being purchased pursuant to the exercise of the
Purchase Option. Promptly after the closing, the Company shall deliver to you a
certificate or certificates representing the shares which remain subject to
these Joint Escrow Instructions.
3. Stockholder does hereby irrevocably constitute and appoint you as
his attorney-in-fact and agent for the term of this escrow to execute with
respect to such securities all documents necessary or appropriate to make such
securities negotiable and complete any transaction herein contemplated,
including but not limited to any required filings with all other governmental or
regulatory bodies.
B-1
<PAGE>
4. This escrow shall terminate upon termination of all vesting
opportunities for all Shares and the termination of the Purchase Option under
the Agreement. Within ten (10) days after each date of vesting under Section 2
of the Agreement, the Company shall notify you and Stockholder in writing of the
number of shares which have vested on that date. Within twenty (20) days after
your receipt of such notice, you shall deliver to Stockholder a certificate or
certificates evidencing the shares which have so vested. On the later of ninety
(90) days after any exercise of the Purchase Option, you shall deliver to
Stockholder a certificate or certificates representing the number of shares of
stock not theretofore repurchased by the company pursuant to such exercise of
the Purchase Option (less such shares as have been previously delivered).
5. If at the time of termination of this escrow you should have in
your possession any documents, securities or other property belonging to
Stockholder, you shall deliver all of same to Stockholder and shall be
discharged from all further obligations hereunder. The Company hereby
authorizes you at any time and from time to time after the first anniversary of
the Closing Date (as defined in the Agreement) to comply with a written request
from Stockholder, a copy of which you shall deliver to the Company, and unless
the Company shall have given you written notice of its objection to such request
within thirty (30) days following its receipt thereof, to deliver to Stockholder
a certificate for that many shares of stock as have become vested in accordance
with the terms of the Agreement (less such shares as have been previously
delivered).
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in acting
or refraining from acting in reliance upon any instrument reasonably believed by
you to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to
do hereunder as Escrow Agent or as attorney-in-fact for Stockholder while acting
in good faith and in the exercise of your own good judgment, and any act done or
omitted by you pursuant to the advice of your own independent attorneys shall be
conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees or any
court. If you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such obedience or compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside vacated or found to have been entered without
jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall be entitled to employ such independent legal counsel
and other experts as you may deem necessary properly to advise in connection
with your obligations hereunder, may rely upon the advice of such counsel and
may pay such counsel reasonable compensation therefor.
11. Your responsibilities as Escrow Agent hereunder shall terminate
on the thirtieth day following receipt by the parties of your written notice of
resignation. In the event of any such termination, the Company and Stockholder
shall appoint by mutual agreement a successor Escrow
B-2
<PAGE>
Agent. In the absence of such an agreement, you may retain or interplead the
Shares in a court of competent jurisdiction.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail, by registered or certified mail with postage
and fees prepaid, addressed to each of the other parties thereunto entitled at
the following addresses, or at such other addresses as a party may designate by
ten (10) days' advance written notice to each of the other parties hereto.
Company: Acme Acquisition Holdings Corp.
c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attn: William M. Barnum, Jr.
Stockholder: Notices to Stockholder shall be sent to the address set
forth below Stockholder's signature in the Agreement.
Escrow Agent: Mr. Mark Kimura
Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
15. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of these Joint Escrow Instructions; you do not
become a party to the Agreement.
16. All liabilities, losses, costs, fees and disbursements incurred
by you in connection with the performance of your duties hereunder, including
without limitation the compensation paid pursuant to paragraph 10 hereof, shall
be borne by the applicable Company, and each Company, severally and not jointly,
hereby agrees to indemnify and hold you free and harmless in respect of all
claims, actions, demands, liabilities, losses, costs, fees and expenses incurred
by you in the performance of your duties hereunder with respect to such Company;
provided, however, that this indemnity shall not extend to conduct which has
been determined, by a final judgment of a court of competent jurisdiction, to
have been grossly negligent or to have constituted intentional misconduct.
17. This instrument shall be governed by and construed in accordance
with the internal laws, and not the laws of conflict of law, of the State of
Delaware.
B-3
<PAGE>
18. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Very truly yours,
ACME ACQUISITION HOLDINGS CORP.
By: _________________________
Douglas A. Waugaman
Chief Financial Officer
STOCKHOLDER:
________________________
Martin R. Reid
ESCROW AGENT:
_________________________
Mark Kimura
B-4
<PAGE>
Annex B
-------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase
Agreement dated as of July 25, 1995 (the "Agreement"), the undersigned hereby
sells, assigns and transfers unto Mark Kimura as Escrow Agent all rights and
interests in ___________________ shares of Common Stock of Acme Acquisition
Holdings Corp. (the "Company"), a Delaware corporation, represented by Stock
Certificate No. _______________ herewith (the "Certificate"), which Certificate
was deposited by the undersigned with the Escrow Agent pursuant to the Joint
Escrow Instructions (as defined in the Agreement) among the undersigned, the
Company and such Escrow Agent, such Certificate standing in the undersigned's
name on the books of the Company.
The undersigned does hereby irrevocably constitute and appoint the
Escrow Agent attorney to transfer such Common Stock on the books of the Company,
with full power of substitution in the premises.
Dated:___________________
-------------------------
Martin R. Reid
C-1
<PAGE>
EXHIBIT 10.5
STOCK PURCHASE AND SEVERANCE AGREEMENT
This STOCK PURCHASE AND SEVERANCE AGREEMENT (the "Agreement") is entered
into as of July 25, 1995 by and between Acme Acquisition Holdings Corp., a
Delaware corporation ("AAC" or the "Company"), and Douglas A. Waugaman
("Waugaman").
A. AAC desires to issue and sell to Waugaman and Waugaman desires to
purchase from AAC, certain shares of AAC's authorized but unissued Common Stock,
$0.01 par value (the "AAC Common Stock"), upon the terms and conditions
specified herein.
B. The parties hereto desire to impose upon themselves certain
restrictions with respect to the transfer of the shares of AAC Common Stock
acquired hereunder ( the "Shares") and to provide for certain other matters as
more fully set forth herein.
C. AAC desires to have, and Waugaman is also willing to grant to AAC, the
right and option to repurchase certain of the shares he purchases hereunder upon
the terms and conditions contained herein and on Annex A hereto, including the
vesting provisions contained herein and an Annex A hereto.
D. AAC, Acme Holdings Inc. ("Holdings") and Waugaman are parties to a
Separation and Stock Purchase Agreement dated as of February 20, 1995 (the
"February Separation Agreement"), pursuant to which, among other things,
Waugaman agreed to purchase three hundred ninety (390) shares of AAC Common
Stock (the "February AAC Shares").
NOW, THEREFORE, in consideration of the premises and of the covenants and
conditions herein contained, the parties hereto agree as follows:
1. Termination of February Separation Agreement; Purchase and Sale of
------------------------------------------------------------------
Securities.
- ----------
(a) Termination. The February Separation Agreement is hereby
-----------
terminated, and all rights and obligations of any party thereto are
cancelled and extinguished. No shares were
<PAGE>
issued thereunder, and this Agreement is the sole document governing the
issuance to Waugaman of equity securities of AAC or Holdings.
(b) Purchase and Sale. AAC hereby agrees to issue and sell to Waugaman,
-----------------
and Waugaman hereby agrees to purchase from AAC such number of shares of AAC
Common Stock and in exchange for such consideration, as is set forth on Schedule
I hereto. The purchase price is $0.01 for each Share, payable in cash on the
Closing Date. All of the Shares to be purchased hereunder by Waugaman are
subject to vesting as set forth in Section 2. To the extent that, prior to
December 31, 1995, the fully diluted percentage of the AAC Common Stock
represented by the Shares has changed due solely to the issuance to Citibank,
N.A. (or an affiliate thereof) of AAC Common Stock or warrants to acquire AAC
Common Stock (in an amount not in excess of that which would be customary in
issuances of similar amounts of subordinated debt to an institutional investor
in similar circumstances) in connection with the issuance by AAC of subordinated
debt to Citibank (or such affiliate), the number of Shares set forth in Schedule
I shall be deemed to be increased to a number which represents the same
percentage of the fully-diluted common stock of AAC as the percentages set forth
above.
(c) The Closing. The consummation of the purchase and sale of the Shares
-----------
hereunder (the "Closing") shall take place on the earliest possible date on
which the closing conditions set forth herein have been satisfied or waived (the
"Closing Date"). At the Closing, Waugaman shall deliver to AAC payment of the
specified consideration for the Shares being purchased, and AAC shall deposit
certificates evidencing the Shares registered in the name of Waugaman with the
Escrow Agent as set forth in Section 4.
(d) Taxes. The parties intend that the difference between the fair market
-----
value for the Shares and the purchase price for such shares shall be deemed
compensation to Waugaman paid as
2
<PAGE>
of the Closing Date and that, subject to any withholding required by the
Company, Waugaman shall be responsible for any taxes payable in connection
therewith.
2. Vesting of Shares. One-half of the Shares are hereinafter referred to
-----------------
as Eligible Time Accelerated Stock ("ETA Stock") and the remaining one-half of
the of the Shares are hereinafter referred to as Employment Stock ("Employment
Stock"). All the ETA Stock and Employment Stock is subject to vesting as set
forth below. Shares are eligible for accelerated vesting as described in
Sections 2(b) and 2(c).
(a) Employment Stock. 25% of the Employment Stock shall have vested on
----------------
December 31, 1994, 25% shall vest upon the date of this Agreement, and 25% shall
vest on December 31 of each of 1996 and 1997. In addition, upon a Trigger Date
(as defined in Section 2(c), below) a pro rata portion of all unvested Shares of
Employment Stock which would have vested, pursuant to this Section 2(a), by
December 31 of the fiscal year in which the Trigger Date occurs (such pro rata
portion being measured by multiplying (x) the number of shares of Employment
Stock that would have become vested for such year by (y) a fraction, the
numerator of which is the number of days in the fiscal year up to the Trigger
Date and the denominator of which is 365) shall become vested at the end of such
fiscal year, with the remaining unvested Employment Stock becoming immediately
subject to each Company's Purchase Option.
(b) ETA Stock. 25% of the ETA Stock shall have vested on December 31,
---------
1994, 25% shall vest upon the date of this Agreement, and 25% shall vest on
December 31 of each of 1999 and 2000. Provided, however, that the ETA Stock due
to vest in 1999 and 2000 may be accelerated by application of the vesting
provisions and performance criteria ("Performance Targets") set forth in Annex
A, attached hereto and incorporated herein by reference, for each of the periods
hereinafter described. Subject to the application of the Performance Targets
for fiscal 1996, the Shares of each
3
<PAGE>
Company due to vest as of December 31, 1999, shall be accelerated to vest as of
December 31, 1996. Subject to the application of the Performance Targets for
fiscal 1997, the Shares of each Company due to vest as of December 31, 2000,
shall be accelerated to vest as of December 31, 1997. Annex A also includes more
detailed vesting provisions applicable to the ETA Stock, including "Catch Up
Vesting" provisions.
(c) Termination Vesting. If, for any reason other than as set forth
-------------------
Section 2(d) below, Waugaman is not performing substantially the function of a
Chief Financial Officer of AAC, either as an executive officer of AAC or through
other arrangements (an "Acme CFO Position") (the date on which such event occurs
being hereinafter referred to as the "Trigger Date"), all unvested Shares as of
the Trigger Date (after giving effect to accelerated vesting pursuant to this
Section and to Section 2(b)) shall immediately become subject to each Company's
Purchase Option set forth in Section 3 below. At the end of the fiscal year in
which the Trigger Date occurs, it shall be determined whether any ETA Stock
would have become vested for such year based on the Performance Criteria in
Annex A. If so, a pro rata portion of the applicable ETA Stock that would have
become vested at the end of the fiscal year in which the Trigger Date occurs
(such pro rata portion being measured by multiplying (x) the number of shares of
ETA Stock that would have become vested for such year by (y) a fraction, the
numerator of which is the number of days in the fiscal year up to the Trigger
Date and the denominator of which is 365) shall become vested at the end of such
fiscal year, with the remaining unvested ETA Stock becoming immediately subject
to each Company's Purchase Option. Notwithstanding the foregoing, in the event
Waugaman is terminated for "cause" (as defined in Section 13(c)), all unvested
Shares shall not be eligible for any accelerated vesting and shall become
immediately subject to the Company's Purchase Option.
4
<PAGE>
(d) "Change of Control" Vesting. Anything in this Agreement to the
---------------------------
contrary notwithstanding, if there is a Change in Control (as defined in Section
5) of the Company (other than to Holdings or an affiliate thereof), (i) one-half
of the unvested amount of Employment Stock and ETA Stock shall become vested
immediately upon the consummation of the event constituting such Change in
Control, and (ii) the proceeds of such consolidation, merger or sale
attributable to the remaining one-half of the unvested Employment Stock and ETA
Stock shall be deposited with the Escrow Agent (as defined in Section 4)(the
"Escrowed Change in Control Proceeds") and will be distributed to Waugaman on
the first anniversary of the consummation of such event, if, and only if, either
of the following has occurred: (i) on or prior to such anniversary date
Waugaman has not refused to accept a contract offered to him to act as chief
financial officer of the successor entity at a reasonable and customary salary
in line with historical practices; or (ii) on such anniversary date Waugaman
holds an Acme CFO Position. Any Escrowed Change in Control Proceeds not so
distributed to Waugaman shall be paid to the other shareholders or former
shareholders of AAC in accordance with their interests.
3. Company Purchase Option.
-----------------------
(a) The Company shall have the unconditional right and option to purchase
(the "Purchase Option") for cash in the amount of $.01 per share any or all of
the Shares that become subject to such option as provided in Section 2(c) above.
(b) In any case (other than in the event of a Change in Control) where
Shares are subject to the Company's Purchase Option, the Purchase Option, if
exercised, must be exercised, within ninety (90) days after the date on which
the Purchase Option becomes effective with respect to such Shares. Any Shares
which become subject to the Purchase Option as provided herein but with respect
to which the Purchase Option is not exercised in accordance with the terms
hereof shall become fully vested upon expiration of the ninety (90) day period
during which the Purchase Option with
5
<PAGE>
respect thereto is effective, and no such Shares shall at any time thereafter be
subject to the Purchase Option.
(c) The Purchase Option shall be exercised by written notice signed by an
officer of the Company and delivered or mailed to Waugaman as provided in this
Agreement and to the Escrow Agent as provided in paragraph 1 of the Joint Escrow
Instructions (as defined in Section 4 hereof). Amounts due to Waugaman from the
Company as a result of exercise of the Purchase Option shall be payable in cash.
4. Escrow of Vesting Stock. As security for the faithful performance of
-----------------------
the terms of this Agreement and to ensure the availability for delivery of the
unvested Shares in case of an exercise of the Purchase Option, Waugaman shall
deliver to and deposit with the escrow agent (the "Escrow Agent") named in the
joint escrow instructions attached hereto as Annex B (the "Joint Escrow
Instructions"), five of each form of stock assignment duly endorsed (with date
and number of shares blank) in the form attached hereto as Annex C, together
with the certificate or certificates evidencing the Shares. Such documents are
to be held by the Escrow Agent and delivered by the Escrow Agent pursuant to the
Joint Escrow Instructions, which instructions shall be executed by the Company
and Waugaman and delivered to the Escrow Agent concurrently with the execution
of this Agreement. As promptly as practicable after each vesting date in this
Agreement (but, with respect to ETA Stock, only after the Company is able to
determine whether or not the applicable Performance Criteria have been met), the
Company shall notify Waugaman and the Escrow Agent in writing of the vesting of
Shares, and the Escrow Agent shall, within thirty (30) days after receipt of
such notice, deliver to Waugaman certificates representing that number of shares
of Common Stock that such notice states have become vested (less such shares,
the certificates for which have been previously delivered). From time to time,
upon written request of the Company, the Escrow Agent shall deliver to the
Company certificates
6
<PAGE>
representing that number of Shares which the Company shall have purchased upon
exercise of the Purchase Option, unless Waugaman objects in the manner provided
in the Joint Escrow Instructions. In the case of any conflict or inconsistency
between this Section 4 and the Joint Escrow Instructions, the Joint Escrow
Instructions shall control.
5. Change of Control. A "Change in Control" shall be deemed to have
-----------------
occurred if (i) any "person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent or more of the combined direct or indirect
voting power of the Company's then outstanding equity securities (other than a
"person" who is such an owner as of the date of this Agreement); (ii) the
"persons" (as defined above) who are currently the "beneficial owners" (as
defined above) of one hundred percent of the voting power of the Company's
equity securities cease to own at least fifty percent of the combined direct or
indirect voting power of the Company's then outstanding equity securities; (iii)
any "person" (as defined above) acquires all or substantially all of the
Company's assets; or (iv) any "person" (as defined above) acquires the power,
through ownership of the Company's securities or otherwise, to elect a majority
of the Company's board of directors (other than a "person" who has such power as
of the date of this Agreement). Notwithstanding the foregoing, any combination
of AAC and Holdings, whether through stock purchase, merger or otherwise, shall
not constitute a Change of Control hereunder.
6. Change in Capitalization. If from time to time during the term of this
------------------------
Agreement there is any dividend of cash or property or rights to acquire same,
any stock dividend or liquidating dividend of cash and/or property, stock split
or other change in the character or amount of
7
<PAGE>
any of the outstanding securities of AAC, then in such event any and all new,
substituted or additional securities or other property to which Waugaman may
become entitled by reason of his ownership of the Shares shall immediately
become subject to this Agreement and shall assume the same status with respect
to vesting as the Shares upon which such dividend was paid or in substitution
for which such additional securities or property were distributed. Any cash or
cash equivalents received pursuant to this Section 6 shall be invested in
conservative, short-term interest bearing securities, and interest earned
thereon shall likewise assume the same status as to vesting. While the total
option price for all Shares subject to the Purchase Option shall remain the same
after each such event, the option price per Share shall be proportionately or
otherwise appropriately adjusted as determined in good faith by the applicable
Board of Directors.
7. Waugaman's Representations. Waugaman hereby represents and warrants to
--------------------------
AAC as follows:
(a) Authorization. He has full power and authority to execute, deliver and
-------------
perform his obligations under this Agreement. The execution and delivery of
this Agreement has been duly and validly authorized, and all necessary action
has been taken, to make this Agreement his valid and binding obligation,
enforceable in accordance with its terms, except that the enforcement thereof
may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and to general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(b) Receipt of Information. He has received and reviewed this Agreement
----------------------
and all exhibits and schedules hereto; and he has received all such information
as he deems necessary and appropriate to enable him to evaluate the financial
risk inherent in making an investment in the Shares
8
<PAGE>
and has received satisfactory and complete information concerning the business
and financial condition of AAC in response to all inquiries in respect thereof.
(c) Investment Representations; Securities Laws.
-------------------------------------------
(i) He is acquiring the Shares purchased hereunder with his own
funds or property for investment, for his own account, and not as a nominee
or agent for any other person, firm or corporation, and not with a view to
the sale or distribution of all or any part thereof, and he has no present
intention of selling, granting participation in, or otherwise distributing
any of the Shares. He does not have any contract, undertaking, agreement
or arrangement with any person, firm or corporation to sell, transfer or
grant participations to such person, firm or corporation, with respect to
any of the Shares.
(ii) He understands that except as otherwise provided in the
Stock Purchase Agreement referred to in Section 11(a) below, the Shares
will not be registered under the Securities Act of 1933, as amended (the
"Act"), in part based upon an exemption from the registration predicated on
the accuracy and completeness of his representations and warranties
appearing herein. He understands and acknowledges that, as a result, he
will not be permitted to sell, transfer or assign any of the Shares until
they are registered or an exemption from the registration and prospectus
delivery requirements of the Act is available. He acknowledges that there
is no assurance that such an exemption from registration will ever be
available or that the Shares will ever be able to be sold.
(iii) He agrees that in no event will he make a disposition of
any Shares or any interest therein, unless such Shares are registered under
the Act or unless and until (A) he shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement
of the circumstances surrounding the proposed disposition, and (B)
9
<PAGE>
he shall have furnished the Company with an opinion of counsel reasonably
satisfactory in form and content to the Company to the effect that (x) such
disposition will not require registration of such Shares under the Act or
compliance with applicable state securities laws, or (y) that appropriate
action necessary for compliance with the Act and applicable state
securities laws has been taken, or (C) the Company shall have waived,
expressly and in writing, its rights under clauses (A) and (B) of this
subsection.
(iv) He does not require the assistance of an investment advisor
or other purchaser representative to participate in the transactions
contemplated by this Agreement, has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits
and risks of its investment in the Company, has the ability to bear the
economic risks of its investment for an indefinite period of time and has
been furnished with and has had access to such information as would be made
available in the form of a registration statement under the Act together
with such additional information as is necessary to verify the accuracy of
the information supplied and to have all questions answered by the Company.
8. Representations and AAC. AAC hereby represents and warrants to
-----------------------
Waugaman as follows:
(a) Organization, Authority, etc. It is a corporation duly organized,
----------------------------
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to enter into this
Agreement, to issue the Shares to be issued by it and to perform its obligations
hereunder.
(b) Corporate Acts and Proceedings. The execution and delivery of this
------------------------------
Agreement has been duly and validly authorized, and all necessary corporate
action has been taken to make this Agreement its valid and binding obligation,
enforceable in accordance with its terms, except
10
<PAGE>
that the enforcement thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and to general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
(c) Valid Issuance. When issued and paid for as provided for herein, the
--------------
Shares issued by it will be duly and validly issued, fully paid and non-
assessable.
(d) Capitalization. The authorized capital stock of AAC is as set forth
--------------
on Schedule II hereto. Except as set forth on such Schedule (i) there are no
outstanding subscriptions, warrants, options, calls or commitments of any
character relating to or entitling any person to purchase or otherwise acquire
any stock of AAC from AAC; (ii) there are no obligations or securities issued by
AAC convertible into or exchangeable for shares of their respective stock or any
commitments of any character relating to or entitling any person to purchase or
otherwise acquire any such obligations or securities from AAC; and (iii) there
are no preemptive or similar rights to subscribe for or to purchase any stock of
AAC.
9. Conditions of Parties' Obligations.
----------------------------------
The obligation of AAC to issue and sell, and of Waugaman to purchase and
pay for, the Shares which Waugaman has agreed to purchase hereunder is subject
to the fulfillment prior to or concurrently with the Closing of the following
conditions:
(a) Representations and Warranties True. The representations and
-----------------------------------
warranties of each of the other parties to this Agreement shall be true and
correct on and as of the Closing Date.
(b) Governmental Consents. All permits, consents, approvals, orders and
---------------------
authorizations, if any, which AAC is required to obtain from, and all
registrations, qualifications, designations, declarations and filings which the
Company is required to make with, any state or Federal
11
<PAGE>
governmental authority of the United States in connection with the execution,
delivery or performance of this Agreement and the consummation of the
transactions contemplated hereby, except for the filing of any notice pursuant
to Regulation D under the Act and any filings which may be required under the
Blue Sky laws of any applicable states, shall have been duly obtained or made
and shall be effective on and as of the Closing.
(c) Supporting Documents. Waugaman shall have received copies of such
--------------------
supporting documents as he may reasonably request. AAC shall have received such
supporting documents as it may reasonably request to satisfy itself concerning
the representations of Waugaman hereunder.
(d) Other Waivers. AAC shall have received all necessary waivers and
-------------
consents to the issuances to Waugaman described herein.
10. Reporting Requirements Under Exchange Act. When it is first legally
-----------------------------------------
required to do so, the Company will register its Common Stock under Section 12
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and will
keep effective such registration and will timely file such information,
documents and reports as the Securities and Exchange Commission (the
"Commission") may require or prescribe under Section 13 of the Exchange Act.
From and after the effective date of the first registration statement filed by
such Company under the Act, such Company will (whether or not it may then be
required to do so) timely file such information, documents and reports as the
Commission may require or prescribe under Section 13 or 15(d) (whichever is
applicable) of the Exchange Act. Immediately upon becoming subject to the
reporting requirements of either Section 13 or 15(d) of the Exchange Act, the
Company will forthwith upon request furnish Waugaman (i) a written statement by
such Company that it has complied with such reporting requirements, (ii) a copy
of the most recent annual or quarterly report of such Company, and (iii) such
12
<PAGE>
other reports and documents filed by the Company with the Commission as such
Investor may reasonably request. The Company acknowledges and agrees that the
purposes of the requirements contained in this Section 10 are to enable Waugaman
to comply with the current public information requirement contained in Rule 144
under the Act should he ever wish to dispose of any of the Shares acquired by
him hereunder without registration under the Act in reliance upon Rule 144 (or
any other similar exemptive provision). In addition, the Company will take such
other measures and file such other information, documents and reports, as shall
hereafter be required by the Commission as a condition to the availability of
Rule 144 under the Act (or any similar exemptive provision hereafter in effect).
11. Other Agreements, Rights and Obligations.
----------------------------------------
(a) Upon execution of this Agreement and issuance of the shares of AAC
Common Stock hereunder, Waugaman shall be deemed to have become a party to that
certain Stock Purchase Agreement dated as of June 29, 1993, as amended by
Amendment No. 1 thereto dated as of June 29, 1993 by and among AAC, Acme
Acquisition Corp., Brentwood Acme Partners, L.P. and the other signatories
thereto, solely with respect to Sections 9 through Section 23, inclusive,
thereof. Waugaman specifically acknowledges that he will not be entitled to any
rights under Sections 1 through 8, inclusive, of said Stock Purchase Agreement,
as amended.
(b) Waugaman shall have the benefit of the provisions of Article VII of the
bylaws of Holdings and Article VII of the bylaws of AAC, each as in effect on
the date of this Agreement. In furtherance thereof, each of AAC and Holdings
shall, to the maximum extent permitted by law, hold Waugaman harmless and
indemnify Waugaman against expenses, judgments, fines, settlements and other
amounts incurred in connection with any threatened, pending or completed action
or proceeding, whether civil, criminal, administrative or investigative to which
Waugaman was or is a party, or was or
13
<PAGE>
is threatened to be made a party, by reason of the fact that Waugaman is or was
a director, officer, employee or agent of AAC or Holdings or is or was serving
at the request of AAC or Holdings as a director, officer, employee or agent of
another corporation or other organization or enterprise. This obligation to
indemnify shall include, without limitation, the obligation of each of AAC and
Holdings to seek, in good faith and to the best of its ability, the
authorization of its board of directors, of its shareholders and of the court in
which such proceeding is or was pending, if such authorization is a prerequisite
to such indemnification. In addition to the foregoing indemnification, in the
event that AAC or Holdings shall purchase and maintain directors and officers
insurance for any of its existing or prior officers or directors, such insurance
shall be made available to Waugaman on the same terms and in the same coverages
available to any other officer or director.
12. Covenant Regarding 83(b) Election. Waugaman hereby covenants and
---------------------------------
agrees that he will make an election pursuant to Treasury Regulation 1.83-2 with
respect to the Shares and will furnish the Company with a copy of the form of
election he has filed and evidence that such an election has been filed in a
timely manner.
13. Termination of Employment.
-------------------------
(a) In the event (i) Waugaman is no longer performing substantially the
duties of the Acme CFO Position other than for "cause" (as defined in Section
13(c)) or (ii) a Change of Control occurs and Waugaman is not offered a position
substantially the same as an Acme CFO Position of the successor entity at a
reasonable and customary salary in line with historical practices (an
"Employment Change of Control"), Waugaman shall be entitled to receive from AAC
(x) severance pay equal to his then monthly base salary multiplied by nine (9)
months (or, if the event referred to in clause (a)(i) or (a)(ii) occurs before
June 1, 1996, by twelve (12) months) ("Severance Pay"), (y) any accrued vacation
and (z) the continuation of then existing medical, dental and life insurance
benefits for nine month after
14
<PAGE>
the effective date of termination. A termination other than for cause shall
become effective 30 days after notice of such termination is given to Waugaman.
Waugaman may elect to receive his Severance Pay in nine monthly installments or
one lump-sum payment discounted to its present value (at the then existing prime
rate as established by Bank of America, N.A. plus 1.25%). In the event
Waugaman's termination results from an Employment Change of Control, Waugaman
may elect a lump-sum payment without present value discount.
(b) In the event Waugaman is terminated other than for cause and in
consideration for AAC's payment of Severance Pay and continuation of benefits,
Waugaman shall not, for a period of nine months following the effective date of
termination: (i) acquire any interest in, render services to or otherwise
engage in, directly or indirectly, any equipment rental business in the United
States or any other business that competes with AAC or Holdings; (ii) solicit or
encourage the solicitation of, directly or indirectly, the customers or
employees of AAC or Holdings; or (iii) knowingly disclose or reveal any trade
secret or confidential information of AAC or Holdings.
(c) Waugaman's termination shall be for "cause" if it is based upon (i)
Waugaman committing fraud which adversely affects the operations of the Company
(ii) Waugaman having been convicted of a crime which brings the Company into
disrepute or otherwise has an adverse effect on the Company or its affiliated
entities or (iii) Waugaman's material failure to perform or abandonment of his
duties.
14. General Provisions.
------------------
(a) Notices. All notices, requests, consents and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given and made and served either by personal delivery to the person
for whom it is intended or if deposited, postage prepaid, registered or
certified mail, return receipt requested, in the United States mail as follows:
15
<PAGE>
(i) if to Waugaman, addressed to him at his address shown on the
stock register maintained by the Company, or at such other address as he
may specify by written notice to the Company, or
(ii) if to the Company, at 14505 N. Hayden Road, Suite 322,
Scottsdale, Arizona 85260, Attention: Chief Executive Officer, or at such
other address as the Company may specify by written notice to Waugaman,
with a copy to William M. Barnum, Jr. of Brentwood Associates, 11150 Santa
Monica Boulevard, Suite 1200 Los Angeles, California 90025.
Each such notice, request, consent and other communication shall be deemed to
have been given upon receipt thereof or, if sooner, five (5) days after such has
been deposited as described above. The addresses for the purposes of this
Section 14(a), may be changed by giving written notice of such change in the
manner provided herein for giving notice. Unless and until such written notice
is received, the addresses provided herein shall be deemed to continue in effect
for all purposes hereunder.
(b) Choice of Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws, and not the laws of conflicts of laws, of the
State of Delaware.
(c) Severability. The parties hereto agree that the terms and provisions
------------
in this Agreement are reasonable and shall be binding and enforceable in
accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable or invalid term or provision with an
16
<PAGE>
enforceable and valid arrangement which in its economic effect shall be as close
as possible to the unenforceable or invalid term or provision.
(d) Parties in Interest. All the terms and provisions of this Agreement
-------------------
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto, whether so expressed or
not.
(e) Modification, Amendment and Waiver. No modification, amendment or
----------------------------------
waiver of any provision of this Agreement shall be effective against the Company
or Waugaman unless approved in writing, and, in the case of the Company,
authorized by its Board of Directors. The failure at any time to enforce any of
the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of any of the parties thereafter
to enforce each and every provision hereof in accordance with its terms.
(f) Integration. This Agreement, together with the Schedules hereto,
-----------
constitutes the entire agreement of the parties with respect to the subject
matter hereof and thereof.
(g) Headings. The headings of the sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(h) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ACME ACQUISITION HOLDINGS CORP.
By: /s/ MARTIN R. REID
---------------------------
Martin R. Reid
Chief Executive Officer
ACME HOLDINGS INC. (solely to confirm
the termination
referred to in
Section 1(a) and
the provisions of
Sections 11 and
13(b))
By: /s/ MARTIN R. REID
---------------------------
Martin R. Reid
Chief Executive Officer
/s/ DOUGLAS A. WAUGAMAN
-------------------------------
Douglas A. Waugaman
P.O. Box 14948
Scottsdale, Arizona 85267
18
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
No. Shares of Common
Stock to be Purchased Payment
--------------------- -------
<S> <C> <C>
Acme Acquisition Holdings Corp. 1,210 $12.10
</TABLE>
19
<PAGE>
SCHEDULE II
Acme Acquisition Holdings Corp. Authorized Capital Stock
--------------------------------------------------------
200,000 shares of Common Stock, $.01 par value
350,000 shares of Preferred Stock, $.01 par value
Capital Stock to be Outstanding at Closing Date
- -----------------------------------------------
<TABLE>
<CAPTION>
Shares
-------
<S> <C>
Waugaman Common Stock 1,210
Other Common Stock* 88,896
Preferred Stock 26,688
</TABLE>
Subscriptions, Warrants, Calls or Commitments to Issue Capital Stock of Acme
- ----------------------------------------------------------------------------
Acquisition Holdings Corp., Inc.
- --------------------------------
The Company plans to offer additional shares of Preferred Stock and Common Stock
from time to time.
* excludes any repurchases from John Jastrem in connection with or following
his termination of employment
<PAGE>
Annex A
VESTING, REPURCHASE AND OTHER PROVISIONS GOVERNING
WAUGAMAN'S VESTING STOCK
------------------------
This Annex A sets forth the Performance Criteria, detailed vesting
provisions and vesting examples with respect to the accelerated vesting of ETA
Stock to be acquired by Douglas A. Waugaman ("Waugaman" or "Executive") pursuant
to the Stock Purchase and Severance Agreement dated as of July 25, 1995 between
the Company and Waugaman (the "Agreement"). Capitalized terms used herein and
not defined have the meanings ascribed to them in the Agreement.
As stated in Section 2(b) of the Agreement, twenty-five percent (25%)
of the ETA Stock shall become eligible for accelerated vesting at the end of
each of the fiscal years ending December 31, 1996 and 1997 (each installment of
ETA Stock when it becomes eligible for accelerated vesting being referred to as
the "Eligible ETA Stock").
On January 1 of each calendar year of the term of the Agreement
(commencing with calendar year 1996) or as soon as practicable thereafter, the
Board of Directors of the Company (the "Board") shall approve and deliver to
Waugaman, written performance targets that the Board believes realistically
reflect the Company's expectations for the financial performance and/or
corporate achievements of the Company for the coming calendar year ("Performance
Targets").
In addition to, or in place of, earnings targets, the Performance
Targets may include management objectives (e.g. acquisitions, divestitures,
etc.) and percentage growth targets for revenues and earnings. The Board will
attempt in good faith to adopt Performance Targets that are realistic,
achievable and subject to the Executive's influence in light of the Company's
history, prospects, and existing cash flow and creditworthines. In the event of
multiple Performance Targets, the Board shall allocate a portion of the year's
ETA Stock with respect to each, according to its judgment.
After approval by the Board, Performance Targets for any year shall
not be changed absent written agreement by the Executive; provided, however,
that the Board may waive any or all Performance Targets at any time if, in its
judgement, the circumstances and the performance of the Executive so warrant.
The total ETA Stock to vest in any calendar year shall be as set forth
in the table below:
<TABLE>
<CAPTION>
Percentage of Percentage of
Performance Targets ETA Stock to Vest
--------------------- -----------------
<S> <C>
(greater than) 85.00% 0%
88.75% 25%
92.50% 50%
96.25% 75%
(less than) 100.00% 100%
</TABLE>
Vesting between the percentages listed in the table above will be
linearly interpolated.
If the Company fails to achieve the percentage of Performance Targets
required to vest 100% in any one year, but in the immediately following year the
Company achieves a performance level that exceeds that year's Performance
Targets, Waugaman may add the dollar amount by which the Company's performance
exceeds the Performance Targets in such year to the actual performance for the
year immediately prior thereto and vest the additional ETA Stock that would have
vested in that
<PAGE>
prior year with the addition of the amount carried back. Such vesting for the
earlier year is referred to herein as "Catch Up Vesting".
A-2
<PAGE>
Annex B
-------
JOINT ESCROW INSTRUCTIONS
Dated as of July 25, 1995
Mark Kimura
Brentwood Associates
11150 Santa Monica Boulevard
Los Angeles, California 90025
Joint Escrow Instructions
-------------------------
Dear Mr. Kimura:
As Escrow Agent for Acme Acquisition Holdings Corp. (the "Company")
and the undersigned holder of common stock, par value $.01 per share, of each
Company ("Stockholder"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Stock Purchase
and Severance Agreement (the "Agreement") dated as of July 25, 1995, to which a
copy of these Joint Escrow Instructions is attached as Annex B, in accordance
with the following instructions:
1. Promptly after the closing under the Agreement, the Company shall
deliver to you a certificate or certificates representing the shares which are
subject to these Joint Escrow Instructions and all other documents that are
necessary for you to fulfill your duties hereunder. In the event the Company,
or any assignee of the Company (referred to collectively herein as the
"Company"), shall elect to exercise the Purchase Option (as defined and
described in the Agreement), the Company shall give to Stockholder and you a
written notice specifying the number of shares of stock to be purchased, the
purchase price and the time for a closing hereunder at the principal office of
the Company, which time shall not be less than thirty days after the date of
such written notice. Unless you shall have received written notice from
Stockholder at least five (5) days prior to the date specified for the closing
objecting to consummation of the transaction, Stockholder and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice including prompt
delivery of the stock certificate(s) representing the shares purchased. Any
objecting notice from Stockholder shall set forth in reasonable detail the basis
for his objections, but his failure to do so shall not affect your duties
hereunder.
2. At the closing you are directed to (i) date a stock certificate
assignment form or forms necessary for the transfer in question, (ii) fill in
the number of shares being transferred and (iii) deliver same together with the
certificate or certificates evidencing the shares to be transferred to the
Company, against the simultaneous delivery to you of the purchase price for the
number of shares of stock being purchased pursuant to the exercise of the
Purchase Option. Promptly after the closing, the Company shall deliver to you a
certificate or certificates representing the shares which remain subject to
these Joint Escrow Instructions.
3. Stockholder does hereby irrevocably constitute and appoint you as
his attorney-in-fact and agent for the term of this escrow to execute with
respect to such securities all documents necessary or appropriate to make such
securities negotiable and complete any transaction herein contemplated,
including but not limited to any required filings with all other governmental or
regulatory bodies.
B-1
<PAGE>
4. This escrow shall terminate upon termination of all vesting
opportunities for all Shares and the termination of the Purchase Option under
the Agreement. Within ten (10) days after each date of vesting under Section 2
of the Agreement, the Company shall notify you and Stockholder in writing of the
number of shares which have vested on that date. Within twenty (20) days after
your receipt of such notice, you shall deliver to Stockholder a certificate or
certificates evidencing the shares which have so vested. On the later of ninety
(90) days after any exercise of the Purchase Option, you shall deliver to
Stockholder a certificate or certificates representing the number of shares of
stock not theretofore repurchased by the company pursuant to such exercise of
the Purchase Option (less such shares as have been previously delivered).
5. If at the time of termination of this escrow you should have in
your possession any documents, securities or other property belonging to
Stockholder, you shall deliver all of same to Stockholder and shall be
discharged from all further obligations hereunder. The Company hereby
authorizes you at any time and from time to time after the first anniversary of
the Closing Date (as defined in the Agreement) to comply with a written request
from Stockholder, a copy of which you shall deliver to the Company, and unless
the Company shall have given you written notice of its objection to such request
within thirty (30) days following its receipt thereof, to deliver to Stockholder
a certificate for that many shares of stock as have become vested in accordance
with the terms of the Agreement (less such shares as have been previously
delivered).
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in acting
or refraining from acting in reliance upon any instrument reasonably believed by
you to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to
do hereunder as Escrow Agent or as attorney-in-fact for Stockholder while acting
in good faith and in the exercise of your own good judgment, and any act done or
omitted by you pursuant to the advice of your own independent attorneys shall be
conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees or any
court. If you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such obedience or compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside vacated or found to have been entered without
jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall be entitled to employ such independent legal counsel
and other experts as you may deem necessary properly to advise in connection
with your obligations hereunder, may rely upon the advice of such counsel and
may pay such counsel reasonable compensation therefor.
11. Your responsibilities as Escrow Agent hereunder shall terminate
on the thirtieth day following receipt by the parties of your written notice of
resignation. In the event of any such
B-2
<PAGE>
termination, the Company and Stockholder shall appoint by mutual agreement a
successor Escrow Agent. In the absence of such an agreement, you may retain or
interplead the Shares in a court of competent jurisdiction.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail, by registered or certified mail with postage
and fees prepaid, addressed to each of the other parties thereunto entitled at
the following addresses, or at such other addresses as a party may designate by
ten (10) days' advance written notice to each of the other parties hereto.
Company: Acme Acquisition Holdings Corp.
c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attn: William M. Barnum, Jr.
Stockholder: Notices to Stockholder shall be sent to the address set
forth below Stockholder's signature in the Agreement.
Escrow Agent: Mr. Mark Kimura
Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
15. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of these Joint Escrow Instructions; you do not
become a party to the Agreement.
16. All liabilities, losses, costs, fees and disbursements incurred
by you in connection with the performance of your duties hereunder, including
without limitation the compensation paid pursuant to paragraph 10 hereof, shall
be borne by the applicable Company, and each Company, severally and not jointly,
hereby agrees to indemnify and hold you free and harmless in respect of all
claims, actions, demands, liabilities, losses, costs, fees and expenses incurred
by you in the performance of your duties hereunder with respect to such Company;
provided, however, that this indemnity shall not extend to conduct which has
been determined, by a final judgment of a court of competent jurisdiction, to
have been grossly negligent or to have constituted intentional misconduct.
B-3
<PAGE>
17. This instrument shall be governed by and construed in accordance
with the internal laws, and not the laws of conflict of law, of the State of
Delaware.
18. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Very truly yours,
ACME ACQUISITION HOLDINGS, CORP.
By: _________________________
Martin R. Reid
Chief Executive Officer
STOCKHOLDER:
________________________
Douglas A. Waugaman
ESCROW AGENT:
_________________________
Mark Kimura
B-4
<PAGE>
Annex C
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ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase and
Severance Agreement dated as of July 25, 1995 (the "Agreement"), the undersigned
hereby sells, assigns and transfers unto Mark Kimura as Escrow Agent all rights
and interests in ___________________ shares of Common Stock of Acme Acquisition
Holdings Corp. (the "Company"), a Delaware corporation, represented by Stock
Certificate No. _______________ herewith (the "Certificate"), which Certificate
was deposited by the undersigned with the Escrow Agent pursuant to the Joint
Escrow Instructions (as defined in the Agreement) among the undersigned, the
Company and such Escrow Agent, such Certificate standing in the undersigned's
name on the books of the Company.
The undersigned does hereby irrevocably constitute and appoint the
Escrow Agent attorney to transfer such Common Stock on the books of the Company,
with full power of substitution in the premises.
Dated:______________________
------------------------------
Douglas A. Waugaman
C-1
<PAGE>
EXHIBIT 10.6
STOCK PURCHASE AND SEVERANCE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
October 4, 1995 by and between RSC Rental Service Corporation, a Delaware
corporation (herein called "AAC" or the "Company"), and Douglas A. Waugaman
("Waugaman").
A. AAC desires to issue and sell to Waugaman and Waugaman desires to
purchase from AAC, certain shares of AAC's authorized but unissued Common Stock,
$0.01 par value (the "AAC Common Stock"), upon the terms and conditions
specified herein.
B. The parties hereto desire to impose upon themselves certain
restrictions with respect to the transfer of the shares of AAC Common Stock
acquired hereunder ( the "Shares") and to provide for certain other matters as
more fully set forth herein.
C. AAC desires to have, and Waugaman is also willing to grant to AAC, the
right and option to repurchase certain of the shares he purchases hereunder upon
the terms and conditions contained herein and on Annex A hereto, including the
vesting provisions contained herein and an Annex A hereto.
NOW, THEREFORE, in consideration of the premises and of the covenants and
conditions herein contained, the parties hereto agree as follows:
1. Purchase and Sale of Securities.
-------------------------------
(a) Purchase and Sale. AAC hereby agrees to issue and sell to Waugaman,
-----------------
and Waugaman hereby agrees to purchase from AAC such number of shares of AAC
Common Stock and in exchange for such consideration, as is set forth on Schedule
I hereto. The purchase price is $0.01 for each Share, payable in cash on the
Closing Date. All of the Shares to be purchased hereunder by Waugaman are
subject to vesting as set forth in Section 2
(b) The Closing. The consummation of the purchase and sale of the Shares
-----------
hereunder (the "Closing") shall take place on the earliest possible date on
which the closing conditions
<PAGE>
set forth herein have been satisfied or waived (the "Closing Date"). At the
Closing, Waugaman shall deliver to AAC payment of the specified consideration
for the Shares being purchased, and AAC shall deposit certificates evidencing
the Shares registered in the name of Waugaman with the Escrow Agent as set forth
in Section 4.
(c) Taxes. The parties intend that the difference between the fair market
-----
value for the Shares and the purchase price for such shares shall be deemed
compensation to Waugaman paid as of the Closing Date and that, subject to any
withholding required by the Company, Waugaman shall be responsible for any taxes
payable in connection therewith.
2. Vesting of Shares. One-half of the Shares are hereinafter referred to
-----------------
as Eligible Time Accelerated Stock ("ETA Stock") and the remaining one-half of
the of the Shares are hereinafter referred to as Employment Stock ("Employment
Stock"). All the ETA Stock and Employment Stock is subject to vesting as set
forth below. Shares are eligible for accelerated vesting as described in
Sections 2(b) and 2(c).
(a) Employment Stock. Fifty percent (50%) of the Employment Stock shall
----------------
vest on December 31 of each of 1996 and 1997. In addition, upon a Trigger Date
(as defined in Section 2(c), below) a pro rata portion of all unvested Shares of
Employment Stock which would have vested, pursuant to this Section 2(a), by
December 31 of the fiscal year in which the Trigger Date occurs (such pro rata
portion being measured by multiplying (x) the number of shares of Employment
Stock that would have become vested for such year by (y) a fraction, the
numerator of which is the number of days in the fiscal year up to the Trigger
Date and the denominator of which is 365) shall become vested at the end of such
fiscal year, with the remaining unvested Employment Stock becoming immediately
subject to the Company's Purchase Option.
(b) ETA Stock. Fifty percent (50%) of the ETA Stock shall vest on December
---------
31 of each of 1999 and 2000; provided, however, that the vesting of such ETA
Stock may be accelerated
2
<PAGE>
by application of the vesting provisions and performance criteria ("Performance
Targets") set forth in Annex A, attached hereto and incorporated herein by
reference, for each of the periods hereinafter described. Subject to the
application of the Performance Targets for fiscal 1996, the shares of ETA Stock
due to vest as of December 31, 1999, shall be accelerated to vest as of December
31, 1996. Subject to the application of the Performance Targets for fiscal 1997,
the shares of ETA Stock due to vest as of December 31, 2000, shall be
accelerated to vest as of December 31, 1997. Annex A also includes more detailed
vesting provisions applicable to the ETA Stock, including "Catch Up Vesting"
provisions.
(c) Termination Vesting. If, for any reason other than as set forth
-------------------
Section 2(d) below, Waugaman is not performing substantially the function of a
Chief Financial Officer of AAC, either as an executive officer of AAC or through
other arrangements (an "Acme CFO Position") (the date on which such event occurs
being hereinafter referred to as the "Trigger Date"), all unvested Shares as of
the Trigger Date (after giving effect to accelerated vesting pursuant to this
Section and to Section 2(b)) shall immediately become subject to the Company's
Purchase Option set forth in Section 3 below. At the end of the fiscal year in
which the Trigger Date occurs, it shall be determined whether any ETA Stock
would have become vested for such year based on the Performance Criteria in
Annex A. If so, a pro rata portion of the applicable ETA Stock that would have
become vested at the end of the fiscal year in which the Trigger Date occurs
(such pro rata portion being measured by multiplying (x) the number of shares of
ETA Stock that would have become vested for such year by (y) a fraction, the
numerator of which is the number of days in the fiscal year up to the Trigger
Date and the denominator of which is 365) shall become vested at the end of such
fiscal year, with the remaining unvested ETA Stock becoming immediately subject
to the Company's Purchase Option. Notwithstanding the foregoing, in the event
Waugaman is terminated for "cause" (as defined in Section 13(c)), all unvested
3
<PAGE>
Shares shall not be eligible for any accelerated vesting and shall become
immediately subject to the Company's Purchase Option.
(d) "Change of Control" Vesting. Anything in this Agreement to the
---------------------------
contrary notwithstanding, if there is a Change in Control (as defined in Section
5) of the Company, (i) one-half of the unvested amount of Employment Stock and
ETA Stock shall become vested immediately upon the consummation of the event
constituting such Change in Control, and (ii) the proceeds of such
consolidation, merger or sale attributable to the remaining one-half of the
unvested Employment Stock and ETA Stock shall be deposited with the Escrow Agent
(as defined in Section 4)(the "Escrowed Change in Control Proceeds") and will be
distributed to Waugaman on the first anniversary of the consummation of such
event, if, and only if, either of the following has occurred: (i) on or prior
to such anniversary date Waugaman has not refused to accept a contract offered
to him to act as chief financial officer of the successor entity at a reasonable
and customary salary in line with historical practices; or (ii) on such
anniversary date Waugaman holds an Acme CFO Position. Any Escrowed Change in
Control Proceeds not so distributed to Waugaman shall be paid to the other
shareholders or former shareholders of AAC in accordance with their interests.
3. Company Purchase Option.
-----------------------
(a) The Company shall have the unconditional right and option to purchase
(the "Purchase Option") for cash in the amount of $.01 per share any or all of
the Shares that become subject to such option as provided in Section 2(c) above.
(b) In any case (other than in the event of a Change in Control) where
Shares are subject to the Company's Purchase Option, the Purchase Option, if
exercised, must be exercised, within ninety (90) days after the date on which
the Purchase Option becomes effective with respect to such Shares. Any Shares
which become subject to the Purchase Option as provided herein but with
4
<PAGE>
respect to which the Purchase Option is not exercised in accordance with the
terms hereof shall become fully vested upon expiration of the ninety (90) day
period during which the Purchase Option with respect thereto is effective, and
no such Shares shall at any time thereafter be subject to the Purchase Option.
(c) The Purchase Option shall be exercised by written notice signed by an
officer of the Company and delivered or mailed to Waugaman as provided in this
Agreement and to the Escrow Agent as provided in paragraph 1 of the Joint Escrow
Instructions (as defined in Section 4 hereof). Amounts due to Waugaman from the
Company as a result of exercise of the Purchase Option shall be payable in cash.
4. Escrow of Vesting Stock. As security for the faithful performance of
-----------------------
the terms of this Agreement and to ensure the availability for delivery of the
unvested Shares in case of an exercise of the Purchase Option, Waugaman shall
deliver to and deposit with the escrow agent (the "Escrow Agent") named in the
joint escrow instructions attached hereto as Annex B (the "Joint Escrow
Instructions"), five of each form of stock assignment duly endorsed (with date
and number of shares blank) in the form attached hereto as Annex C, together
with the certificate or certificates evidencing the Shares. Such documents are
to be held by the Escrow Agent and delivered by the Escrow Agent pursuant to the
Joint Escrow Instructions, which instructions shall be executed by the Company
and Waugaman and delivered to the Escrow Agent concurrently with the execution
of this Agreement. As promptly as practicable after each vesting date in this
Agreement (but, with respect to ETA Stock, only after the Company is able to
determine whether or not the applicable Performance Criteria have been met), the
Company shall notify Waugaman and the Escrow Agent in writing of the vesting of
Shares, and the Escrow Agent shall, within thirty (30) days after receipt of
such notice, deliver to Waugaman certificates representing that number of shares
of Common Stock that such notice states have become
5
<PAGE>
vested (less such shares, the certificates for which have been previously
delivered). From time to time, upon written request of the Company, the Escrow
Agent shall deliver to the Company certificates representing that number of
Shares which the Company shall have purchased upon exercise of the Purchase
Option, unless Waugaman objects in the manner provided in the Joint Escrow
Instructions. In the case of any conflict or inconsistency between this Section
4 and the Joint Escrow Instructions, the Joint Escrow Instructions shall
control.
5. Change of Control. A "Change in Control" shall be deemed to have
-----------------
occurred if (i) any "person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent or more of the combined direct or indirect
voting power of the Company's then outstanding equity securities (other than a
"person" who is such an owner as of the date of this Agreement); (ii) the
"persons" (as defined above) who are currently the "beneficial owners" (as
defined above) of one hundred percent of the voting power of the Company's
equity securities cease to own at least fifty percent of the combined direct or
indirect voting power of the Company's then outstanding equity securities; (iii)
any "person" (as defined above) acquires all or substantially all of the
Company's assets; or (iv) any "person" (as defined above) acquires the power,
through ownership of the Company's securities or otherwise, to elect a majority
of the Company's board of directors (other than a "person" who has such power as
of the date of this Agreement).
6. Change in Capitalization. If from time to time during the term of this
------------------------
Agreement there is any dividend of cash or property or rights to acquire same,
any stock dividend or liquidating dividend of cash and/or property, stock split
or other change in the character or amount of any of the outstanding securities
of AAC, then in such event any and all new, substituted or additional
6
<PAGE>
securities or other property to which Waugaman may become entitled by reason of
his ownership of the Shares shall immediately become subject to this Agreement
and shall assume the same status with respect to vesting as the Shares upon
which such dividend was paid or in substitution for which such additional
securities or property were distributed. Any cash or cash equivalents received
pursuant to this Section 6 shall be invested in conservative, short-term
interest bearing securities, and interest earned thereon shall likewise assume
the same status as to vesting. While the total option price for all Shares
subject to the Purchase Option shall remain the same after each such event, the
option price per Share shall be proportionately or otherwise appropriately
adjusted as determined in good faith by the applicable Board of Directors.
7. Waugaman's Representations. Waugaman hereby represents and warrants to
--------------------------
AAC as follows:
(a) Authorization. He has full power and authority to execute, deliver and
-------------
perform his obligations under this Agreement. The execution and delivery of
this Agreement has been duly and validly authorized, and all necessary action
has been taken, to make this Agreement his valid and binding obligation,
enforceable in accordance with its terms, except that the enforcement thereof
may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and to general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(b) Receipt of Information. He has received and reviewed this Agreement
----------------------
and all exhibits and schedules hereto; and he has received all such information
as he deems necessary and appropriate to enable him to evaluate the financial
risk inherent in making an investment in the Shares and has received
satisfactory and complete information concerning the business and financial
condition of AAC in response to all inquiries in respect thereof.
7
<PAGE>
(c) Investment Representations; Securities Laws.
-------------------------------------------
(i) He is acquiring the Shares purchased hereunder with his own
funds or property for investment, for his own account, and not as a nominee
or agent for any other person, firm or corporation, and not with a view to
the sale or distribution of all or any part thereof, and he has no present
intention of selling, granting participation in, or otherwise distributing
any of the Shares. He does not have any contract, undertaking, agreement
or arrangement with any person, firm or corporation to sell, transfer or
grant participations to such person, firm or corporation, with respect to
any of the Shares.
(ii) He understands that except as otherwise provided in the
Stock Purchase Agreement referred to in Section 11(a) below, the Shares
will not be registered under the Securities Act of 1933, as amended (the
"Act"), in part based upon an exemption from the registration predicated on
the accuracy and completeness of his representations and warranties
appearing herein. He understands and acknowledges that, as a result, he
will not be permitted to sell, transfer or assign any of the Shares until
they are registered or an exemption from the registration and prospectus
delivery requirements of the Act is available. He acknowledges that there
is no assurance that such an exemption from registration will ever be
available or that the Shares will ever be able to be sold.
(iii) He agrees that in no event will he make a disposition of
any Shares or any interest therein, unless such Shares are registered under
the Act or unless and until (A) he shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement
of the circumstances surrounding the proposed disposition, and (B) he shall
have furnished the Company with an opinion of counsel reasonably
satisfactory in form and content to the Company to the effect that (x) such
disposition will not require registration
8
<PAGE>
of such Shares under the Act or compliance with applicable state securities
laws, or (y) that appropriate action necessary for compliance with the Act
and applicable state securities laws has been taken, or (C) the Company
shall have waived, expressly and in writing, its rights under clauses (A)
and (B) of this subsection.
(iv) He does not require the assistance of an investment advisor
or other purchaser representative to participate in the transactions
contemplated by this Agreement, has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits
and risks of its investment in the Company, has the ability to bear the
economic risks of its investment for an indefinite period of time and has
been furnished with and has had access to such information as would be made
available in the form of a registration statement under the Act together
with such additional information as is necessary to verify the accuracy of
the information supplied and to have all questions answered by the Company.
8. Representations and AAC. AAC hereby represents and warrants to
-----------------------
Waugaman as follows:
(a) Organization, Authority, etc. It is a corporation duly organized,
----------------------------
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to enter into this
Agreement, to issue the Shares to be issued by it and to perform its obligations
hereunder.
(b) Corporate Acts and Proceedings. The execution and delivery of this
------------------------------
Agreement has been duly and validly authorized, and all necessary corporate
action has been taken to make this Agreement its valid and binding obligation,
enforceable in accordance with its terms, except that the enforcement thereof
may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and to general
9
<PAGE>
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(c) Valid Issuance. When issued and paid for as provided for herein, the
--------------
Shares issued by it will be duly and validly issued, fully paid and non-
assessable.
9. Conditions of Parties' Obligations.
----------------------------------
The obligation of AAC to issue and sell, and of Waugaman to purchase and
pay for, the Shares which Waugaman has agreed to purchase hereunder is subject
to the fulfillment prior to or concurrently with the Closing of the following
conditions:
(a) Representations and Warranties True. The representations and
-----------------------------------
warranties of each of the other parties to this Agreement shall be true and
correct on and as of the Closing Date.
(b) Governmental Consents. All permits, consents, approvals, orders and
---------------------
authorizations, if any, which AAC is required to obtain from, and all
registrations, qualifications, designations, declarations and filings which the
Company is required to make with, any state or Federal governmental authority of
the United States in connection with the execution, delivery or performance of
this Agreement and the consummation of the transactions contemplated hereby,
except for the filing of any notice pursuant to Regulation D under the Act and
any filings which may be required under the Blue Sky laws of any applicable
states, shall have been duly obtained or made and shall be effective on and as
of the Closing.
(c) Supporting Documents. Waugaman shall have received copies of such
--------------------
supporting documents as he may reasonably request. AAC shall have received such
supporting documents as it may reasonably request to satisfy itself concerning
the representations of Waugaman hereunder.
10
<PAGE>
(d) Other Waivers. AAC shall have received all necessary waivers and
-------------
consents to the issuances to Waugaman described herein.
10. Reporting Requirements Under Exchange Act. When it is first legally
-----------------------------------------
required to do so, the Company will register its Common Stock under Section 12
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and will
keep effective such registration and will timely file such information,
documents and reports as the Securities and Exchange Commission (the
"Commission") may require or prescribe under Section 13 of the Exchange Act.
From and after the effective date of the first registration statement filed by
such Company under the Act, such Company will (whether or not it may then be
required to do so) timely file such information, documents and reports as the
Commission may require or prescribe under Section 13 or 15(d) (whichever is
applicable) of the Exchange Act. Immediately upon becoming subject to the
reporting requirements of either Section 13 or 15(d) of the Exchange Act, the
Company will forthwith upon request furnish Waugaman (i) a written statement by
such Company that it has complied with such reporting requirements, (ii) a copy
of the most recent annual or quarterly report of such Company, and (iii) such
other reports and documents filed by the Company with the Commission as such
Investor may reasonably request. The Company acknowledges and agrees that the
purposes of the requirements contained in this Section 10 are to enable Waugaman
to comply with the current public information requirement contained in Rule 144
under the Act should he ever wish to dispose of any of the Shares acquired by
him hereunder without registration under the Act in reliance upon Rule 144 (or
any other similar exemptive provision). In addition, the Company will take such
other measures and file such other information, documents and reports, as shall
hereafter be required by the Commission as a condition to the availability of
Rule 144 under the Act (or any similar exemptive provision hereafter in effect).
11
<PAGE>
11. Other Agreements, Rights and Obligations.
----------------------------------------
(a) Upon execution of this Agreement and issuance of the shares of AAC
Common Stock hereunder, Waugaman shall be deemed to have become a party to that
certain Stock Purchase Agreement dated as of June 29, 1993, as amended by
Amendment No. 1 thereto dated as of June 29, 1993 and by Amendment No. 2 thereto
dated as of September 12, 1995, by and among AAC, Acme Acquisition Corp.,
Brentwood Acme Partners, L.P. and the other signatories thereto, solely with
respect to Sections 9 through Section 23, inclusive, thereof. Waugaman
specifically acknowledges that he will not be entitled to any rights under
Sections 1 through 8, inclusive, of said Stock Purchase Agreement, as amended.
(b) Waugaman shall have the benefit of the provisions of Article VII of the
bylaws of Article VII of the bylaws of AAC, as in effect on the date of this
Agreement. In furtherance thereof, AAC shall, to the maximum extent permitted
by law, hold Waugaman harmless and indemnify Waugaman against expenses,
judgments, fines, settlements and other amounts incurred in connection with any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative to which Waugaman was or is a party, or was or
is threatened to be made a party, by reason of the fact that Waugaman is or was
a director, officer, employee or agent of AAC or is or was serving at the
request of AAC as a director, officer, employee or agent of another corporation
or other organization or enterprise. This obligation to indemnify shall
include, without limitation, the obligation of AAC to seek, in good faith and to
the best of its ability, the authorization of its board of directors, of its
shareholders and of the court in which such proceeding is or was pending, if
such authorization is a prerequisite to such indemnification. In addition to
the foregoing indemnification, in the event that AAC shall purchase and maintain
directors and officers insurance for any of its existing or prior officers or
directors, such insurance shall be made available to Waugaman on the same terms
and in the same coverages available to any other officer or director.
12
<PAGE>
12. Covenant Regarding 83(b) Election. Waugaman hereby covenants and
---------------------------------
agrees that he will make an election pursuant to Treasury Regulation 1.83-2 with
respect to the Shares and will furnish the Company with a copy of the form of
election he has filed and evidence that such an election has been filed in a
timely manner.
13. [intentionally left blank]
14. General Provisions.
------------------
(a) Notices. All notices, requests, consents and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given and made and served either by personal delivery to the person
for whom it is intended or if deposited, postage prepaid, registered or
certified mail, return receipt requested, in the United States mail as follows:
(i) if to Waugaman, addressed to him at his address shown on the
stock register maintained by the Company, or at such other address as he
may specify by written notice to the Company, or
(ii) if to the Company, at 14505 N. Hayden Road, Suite 322,
Scottsdale, Arizona 85260, Attention: Chief Executive Officer, or at such
other address as the Company may specify by written notice to Waugaman,
with a copy to William M. Barnum, Jr. of Brentwood Associates, 11150 Santa
Monica Boulevard, Suite 1200 Los Angeles, California 90025.
Each such notice, request, consent and other communication shall be deemed to
have been given upon receipt thereof or, if sooner, five (5) days after such has
been deposited as described above. The addresses for the purposes of this
Section 14(a), may be changed by giving written notice of such change in the
manner provided herein for giving notice. Unless and until such written notice
is
13
<PAGE>
received, the addresses provided herein shall be deemed to continue in effect
for all purposes hereunder.
(b) Choice of Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws, and not the laws of conflicts of laws, of the
State of Delaware.
(c) Severability. The parties hereto agree that the terms and provisions
------------
in this Agreement are reasonable and shall be binding and enforceable in
accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable or invalid term or provision with an
enforceable and valid arrangement which in its economic effect shall be as close
as possible to the unenforceable or invalid term or provision.
(d) Parties in Interest. All the terms and provisions of this Agreement
-------------------
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto, whether so expressed or
not.
(e) Modification, Amendment and Waiver. No modification, amendment or
----------------------------------
waiver of any provision of this Agreement shall be effective against the Company
or Waugaman unless approved in writing, and, in the case of the Company,
authorized by its Board of Directors. The failure at any time to enforce any of
the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of any of the parties thereafter
to enforce each and every provision hereof in accordance with its terms.
14
<PAGE>
(f) Integration. This Agreement, together with the Schedules hereto,
-----------
constitutes the entire agreement of the parties with respect to the subject
matter hereof and thereof.
(g) Headings. The headings of the sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(h) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
RSC RENTAL SERVICE CORPORATION
(formerly ACME ACQUISITION HOLDINGS CORP.)
By: /s/ MARTIN R. REID
--------------------------
Martin R. Reid
Chief Executive Officer
/s/ DOUGLAS A. WAUGAMAN
------------------------------
Douglas A. Waugaman
P.O. Box 14948
Scottsdale, Arizona 85267
16
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
No. Shares of Common
Stock to be Purchased Payment
--------------------- -------
<S> <C> <C>
RSC Rental Service Corporation 242 $2.42
</TABLE>
<PAGE>
Annex A
VESTING, REPURCHASE AND OTHER PROVISIONS GOVERNING
WAUGAMAN'S VESTING STOCK
------------------------
This Annex A sets forth the Performance Criteria, detailed vesting
provisions and vesting examples with respect to the accelerated vesting of ETA
Stock to be acquired by Douglas A. Waugaman ("Waugaman" or "Executive") pursuant
to the Stock Purchase Agreement dated as of October 4, 1995 between the Company
and Waugaman (the "Agreement"). Capitalized terms used herein and not defined
have the meanings ascribed to them in the Agreement.
As stated in Section 2(b) of the Agreement, fifty percent (50%) of the
ETA Stock shall become eligible for accelerated vesting at the end of each of
the fiscal years ending December 31, 1996 and 1997 (each installment of ETA
Stock when it becomes eligible for accelerated vesting being referred to as the
"Eligible ETA Stock").
On January 1 of each calendar year of the term of the Agreement
(commencing with calendar year 1996) or as soon as practicable thereafter, the
Board of Directors of the Company (the "Board") shall approve and deliver to
Waugaman, written performance targets that the Board believes realistically
reflect the Company's expectations for the financial performance and/or
corporate achievements of the Company for the coming calendar year ("Performance
Targets").
In addition to, or in place of, earnings targets, the Performance
Targets may include management objectives (e.g. acquisitions, divestitures,
etc.) and percentage growth targets for revenues and earnings. The Board will
attempt in good faith to adopt Performance Targets that are realistic,
achievable and subject to the Executive's influence in light of the Company's
history, prospects, and existing cash flow and creditworthines. In the event of
multiple Performance Targets, the Board shall allocate a portion of the year's
ETA Stock with respect to each, according to its judgment.
After approval by the Board, Performance Targets for any year shall
not be changed absent written agreement by the Executive; provided, however,
that the Board may waive any or all Performance Targets at any time if, in its
judgement, the circumstances and the performance of the Executive so warrant.
The total ETA Stock to vest in any calendar year shall be as set forth
in the table below:
<TABLE>
<CAPTION>
Percentage of Percentage of
Performance Targets ETA Stock to Vest
--------------------- -----------------
<S> <C>
(greater than) 85.00% 0%
88.75% 25%
92.50% 50%
96.25% 75%
(less than) 100.00% 100%
</TABLE>
Vesting between the percentages listed in the table above will be
linearly interpolated.
If the Company fails to achieve the percentage of Performance Targets
required to vest 100% in any one year, but in the immediately following year the
Company achieves a performance level that exceeds that year's Performance
Targets, Waugaman may add the dollar amount by which the Company's performance
exceeds the Performance Targets in such year to the actual performance for the
year immediately prior thereto and vest the additional ETA Stock that would have
vested in that
<PAGE>
prior year with the addition of the amount carried back. Such vesting for the
earlier year is referred to herein as "Catch Up Vesting".
A-2
<PAGE>
Annex B
-------
JOINT ESCROW INSTRUCTIONS
Dated as of October 4, 1995
Mark Kimura
Brentwood Associates
11150 Santa Monica Boulevard
Los Angeles, California 90025
Joint Escrow Instructions
-------------------------
Dear Mr. Kimura:
As Escrow Agent for RSC Rental Service Corporation(the "Company") and
the undersigned holder of common stock, par value $.01 per share, of the Company
("Stockholder"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Stock Purchase Agreement
(the "Agreement") dated as of October 4, 1995, to which a copy of these Joint
Escrow Instructions is attached as Annex B, in accordance with the following
instructions:
1. Promptly after the closing under the Agreement, the Company shall
deliver to you a certificate or certificates representing the shares which are
subject to these Joint Escrow Instructions and all other documents that are
necessary for you to fulfill your duties hereunder. In the event the Company,
or any assignee of the Company (referred to collectively herein as the
"Company"), shall elect to exercise the Purchase Option (as defined and
described in the Agreement), the Company shall give to Stockholder and you a
written notice specifying the number of shares of stock to be purchased, the
purchase price and the time for a closing hereunder at the principal office of
the Company, which time shall not be less than thirty days after the date of
such written notice. Unless you shall have received written notice from
Stockholder at least five (5) days prior to the date specified for the closing
objecting to consummation of the transaction, Stockholder and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice including prompt
delivery of the stock certificate(s) representing the shares purchased. Any
objecting notice from Stockholder shall set forth in reasonable detail the basis
for his objections, but his failure to do so shall not affect your duties
hereunder.
2. At the closing you are directed to (i) date a stock certificate
assignment form or forms necessary for the transfer in question, (ii) fill in
the number of shares being transferred and (iii) deliver same together with the
certificate or certificates evidencing the shares to be transferred to the
Company, against the simultaneous delivery to you of the purchase price for the
number of shares of stock being purchased pursuant to the exercise of the
Purchase Option. Promptly after the closing, the Company shall deliver to you a
certificate or certificates representing the shares which remain subject to
these Joint Escrow Instructions.
3. Stockholder does hereby irrevocably constitute and appoint you as
his attorney-in-fact and agent for the term of this escrow to execute with
respect to such securities all documents necessary or appropriate to make such
securities negotiable and complete any transaction herein contemplated,
including but not limited to any required filings with all other governmental or
regulatory bodies.
B-1
<PAGE>
4. This escrow shall terminate upon termination of all vesting
opportunities for all Shares and the termination of the Purchase Option under
the Agreement. Within ten (10) days after the date of vesting under Section 2
of the Agreement, the Company shall notify you and Stockholder in writing of the
number of shares which have vested on that date. Within twenty (20) days after
your receipt of such notice, you shall deliver to Stockholder a certificate or
certificates evidencing the shares which have so vested. On the later of ninety
(90) days after any exercise of the Purchase Option, you shall deliver to
Stockholder a certificate or certificates representing the number of shares of
stock not theretofore repurchased by the company pursuant to such exercise of
the Purchase Option (less such shares as have been previously delivered).
5. If at the time of termination of this escrow you should have in
your possession any documents, securities or other property belonging to
Stockholder, you shall deliver all of same to Stockholder and shall be
discharged from all further obligations hereunder. The Company hereby
authorizes you at any time and from time to time after the first anniversary of
the Closing Date (as defined in the Agreement) to comply with a written request
from Stockholder, a copy of which you shall deliver to the Company, and unless
the Company shall have given you written notice of its objection to such request
within thirty (30) days following its receipt thereof, to deliver to Stockholder
a certificate for that many shares of stock as have become vested in accordance
with the terms of the Agreement (less such shares as have been previously
delivered).
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in acting
or refraining from acting in reliance upon any instrument reasonably believed by
you to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to
do hereunder as Escrow Agent or as attorney-in-fact for Stockholder while acting
in good faith and in the exercise of your own good judgment, and any act done or
omitted by you pursuant to the advice of your own independent attorneys shall be
conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees or any
court. If you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such obedience or compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside vacated or found to have been entered without
jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall be entitled to employ such independent legal counsel
and other experts as you may deem necessary properly to advise in connection
with your obligations hereunder, may rely upon the advice of such counsel and
may pay such counsel reasonable compensation therefor.
11. Your responsibilities as Escrow Agent hereunder shall terminate
on the thirtieth day following receipt by the parties of your written notice of
resignation. In the event of any such termination, the Company and Stockholder
shall appoint by mutual agreement a successor Escrow
B-2
<PAGE>
Agent. In the absence of such an agreement, you may retain or interplead the
Shares in a court of competent jurisdiction.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail, by registered or certified mail with postage
and fees prepaid, addressed to each of the other parties thereunto entitled at
the following addresses, or at such other addresses as a party may designate by
ten (10) days' advance written notice to each of the other parties hereto.
Company: RSC Rental Service Corporation
c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attn: William M. Barnum, Jr.
Stockholder: Notices to Stockholder shall be sent to the address set
forth below Stockholder's signature in the Agreement.
Escrow Agent: Mr. Mark Kimura
Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
15. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of these Joint Escrow Instructions; you do not
become a party to the Agreement.
16. All liabilities, losses, costs, fees and disbursements incurred
by you in connection with the performance of your duties hereunder, including
without limitation the compensation paid pursuant to paragraph 10 hereof, shall
be borne by the applicable Company, and the Company, severally and not jointly,
hereby agrees to indemnify and hold you free and harmless in respect of all
claims, actions, demands, liabilities, losses, costs, fees and expenses incurred
by you in the performance of your duties hereunder with respect to such Company;
provided, however, that this indemnity shall not extend to conduct which has
been determined, by a final judgment of a court of competent jurisdiction, to
have been grossly negligent or to have constituted intentional misconduct.
17. This instrument shall be governed by and construed in accordance
with the internal laws, and not the laws of conflict of law, of the State of
Delaware.
B-3
<PAGE>
18. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Very truly yours,
RSC RENTAL SERVICE CORPORATION
By: _________________________
Martin R. Reid
Chief Executive Officer
STOCKHOLDER:
________________________
Douglas A. Waugaman
ESCROW AGENT:
_________________________
Mark Kimura
B-4
<PAGE>
Annex C
-------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase
Agreement dated as of October 4, 1995 (the "Agreement"), the undersigned hereby
sells, assigns and transfers unto Mark Kimura as Escrow Agent all rights and
interests in ___________________ shares of Common Stock of RSC Rental Service
Corporation. (the "Company"), a Delaware corporation, represented by Stock
Certificate No. _______________ herewith (the "Certificate"), which Certificate
was deposited by the undersigned with the Escrow Agent pursuant to the Joint
Escrow Instructions (as defined in the Agreement) among the undersigned, the
Company and such Escrow Agent, such Certificate standing in the undersigned's
name on the books of the Company.
The undersigned does hereby irrevocably constitute and appoint the
Escrow Agent attorney to transfer such Common Stock on the books of the Company,
with full power of substitution in the premises.
Dated: _______________________
--------------------------
Douglas A. Waugaman
C-1
<PAGE>
EXHIBIT 10.7
CORPORATE DEVELOPMENT AND ADMINISTRATIVE SERVICES AGREEMENT
This Corporate Development and Administrative Services Agreement,
dated as of July 17, 1992, between Brentwood Buyout Partners, L.P., a Delaware
limited partnership ("BBP") and Acme Acquisition Corp., a Delaware corporation
("AAC"), evidences that, for and in consideration of the covenants and
agreements contained herein, the parties hereto hereby agree as follows:
1. Services and Resources.
----------------------
(a) BBP will assist materially in the corporate development activities
of AAC and contribute to the administration of the business growth efforts of
AAC by providing the following services to AAC:
(i) assistance in analyzing, structuring and negotiating the
terms of investments and acquisitions;
(ii) researching, identifying, contacting, meeting and
negotiating with prospective sources of debt and equity financing;
(iii) preparing, coordinating and conducting presentations
to prospective sources of debt and equity financing;
(iv) assistance in structuring and establishing the terms of
debt and equity financing; and
(v) assistance and advice in connection with the preparation
of AAC's financial and operating plans.
(b) In rendering the services described above, BBP may do, or cause
others to do, all things that in the good faith judgment of BBP are necessary,
proper or desirable to discharge the aforementioned duties and responsibilities,
including, without limitation, employing the services of any other person or
persons (including administrative and support services personnel of other
entities associated with BBP) and paying to any such other person or persons
such amounts as BBP may deem reasonable and appropriate in the circumstances and
as may be approved by AAC from time to time.
2. Reimbursement and Compensation.
------------------------------
2.1 Reimbursement. As partial consideration for the services to
-------------
be provided pursuant to Section 1 hereof, AAC agrees that it shall pay to BBP or
another party designated by BBP, in reimbursement of fees and expenses incurred
or advanced by or on behalf of BBP or any persons or entities associated with
BBP (collectively, the "Brentwood Entities"), the following:
(i) all travel (generally at coach fare) and reasonable fees
and expenses incurred from time to time in performing the services
described in Section 1 hereof;
<PAGE>
(ii) all reasonable fees and costs of legal counsel and
accountants and all reasonable out-of-pocket expenses incurred in
connection with the Brentwood Entities' investment in AAC, including,
without limitation, all reasonable fees and expenses incurred with
respect to (A) the formation, organization and initial capitalization
of Brentwood Acme Partners, L.P., a Delaware limited partnership, and
AAC and (B) the negotiation, documentation and consummation of those
matters described in clause (A) of this paragraph (ii), including the
negotiation and preparation of this Agreement;
(iii) all reasonable fees and expenses (recurring and
nonrecurring) incurred hereinafter in connection with all investments
of the Brentwood Entities in AAC, including, without limitation, all
reasonable fees and expenses incurred with respect to (A) requested
waivers of any rights of any Brentwood Entity or Brentwood Entities'
investors (collectively, the "Investors") relating to, or the consent
of any Investor to, contemplated acts of AAC (whether or not granted
or obtained), (B) preparation and distribution to Investors of
financial statements, tax returns and other information or reports
relating to such Investor's interests in AAC (including the reasonable
fees and costs of accountants and other experts incurred in connection
therewith) and (C) customary maintenance and monitoring activities
associated with the Investor's interests in AAC; and
(iv) all reasonable fees and expenses (recurring and
nonrecurring) incurred hereafter in connection with (A) any direct or
indirect contribution of capital to, investment in or financing of AAC
by any Investor, (B) any sale, distribution or other transfer of, or
any alteration of, any direct or indirect AAC interest of any
Investor, including, without limitation, the sale of all or a part of
the business or assets of AAC or the merger, consolidation or
recapitalization of AAC, and (C) compliance with all applicable
Federal, state and local laws, rules and regulations with respect to
the matters described in paragraphs (i) through (iii) above and in
this paragraph (iv).
AAC shall reimburse to BBP all amounts pursuant to this Section 2.1 in cash
promptly upon receipt of a written statement setting forth in reasonable detail
the fees and expenses for which BBP is seeking reimbursement.
2.2 Compensation.
------------
As a partial consideration for the services to be provided pursuant to
Section 1 hereof, AAC shall pay to BBP, or another party designated by BBP, a
monitoring fee (the "Monitoring Fee") from November 1, 1993 through the last day
of the term of this Agreement. The amount of the Monitoring Fee shall be an
amount equal to one percent (1%) per annum of the aggregate amount of debt and
equity investment of or by Investors in AAC. The monitoring Fee shall be
payable semiannually in advance (i) on or before November 10 of each year with
respect to the half year beginning on November 1 of such
2
<PAGE>
year and (ii) on or before May 10 of each year with respect to the half year
beginning on May 1 of such year. The Monitoring Fee for any partial period
shall be prorated on the basis of the ratio that the total number of days in the
half year during which the obligation to pay the Monitoring Fee is effective
under this Agreement bears to 182. To the extent that any portion of the
Monitoring Fee for the final half year has been prepaid but has not been earned,
BBP shall cause the unearned portion (determined by the method set forth in the
immediately preceding sentence) of such payment to be refunded to AAC. Subject
only to the immediately preceding sentence, all amounts paid under this Section
2.2 shall be nonrefundable. The initial semiannual Monitoring Fee to be paid
pursuant to this Section 2.2 shall be calculated based upon the aggregate amount
of debt and equity investment of or by Investors outstanding on November 1, 1993
and thereafter such semiannual payments shall be calculated based on the average
of the aggregate amounts of such debt and equity outstanding during each of the
six months of the immediately preceding half year payment period.
3. General. This Agreement (i) constitutes the entire agreement and
-------
supersedes all other prior and contemporaneous agreements and undertakings both
written and oral, among the parties hereto with regard to the specific subject
matter hereof; (ii) is not intended to confer upon any person any rights or
remedies hereunder or with respect to the subject matter hereof except as
specifically provided in this Agreement; (iii) shall not be assigned by
operation of law or otherwise; (iv) shall be governed by, and construed in
accordance with, the internal substantive laws (but not the law governing choice
of law) of the State of Delaware; (v) may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute a single agreement; and (vi) may be
amended only by a written instrument executed by or on behalf of the parties
hereto.
4. Construction. All Section and paragraph titles or captions
------------
contained in this Agreement are for convenience of reference only and shall not
affect the meaning or interpretation of any provision of this Agreement. All
terms used in this Agreement include, where appropriate, the singular as well as
the plural and the masculine, feminine and neuter genders. The words "herein",
"hereof" and "hereunder", and other words of similar import, refer to this
Agreement as a whole and not to any particular Section, paragraph or other
subdivision; and all Section, paragraph and other subdivision references
contained herein refer to Sections, paragraphs and other subdivisions hereof
unless another agreement or instrument is specifically referenced. Use herein
of the term "or" is not intended to be exclusive, unless the context clearly
requires. All provisions hereof apply to successive events and transactions.
Time is of the essence for each and every term and condition of this Agreement
in which time is a factor.
5. Severability. If any term or provision of this Agreement or the
------------
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or enforceable.
3
<PAGE>
6. Term. This Agreement shall terminate upon the first to occur of
----
(i) the date of termination of this Agreement set forth in a written instrument
executed by the parties hereto expressly terminating this Agreement and (ii) the
first to occur of (A) the closing of an acquisition of AAC through an asset
purchase, merger or sale of 50% (in value) or more of the outstanding equity
securities of AAC in which the consideration is all cash or (B) the final
distribution in liquidation of AAC following the dissolution of AAC.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement with the intent to be legally bound, all as of the date first above
set forth.
ACME ACQUISITION CORP.
By: /s/ IRA MENDELSOHN
------------------
Ira Mendelsohn
President
BRENTWOOD BUYOUT PARTNERS, L.P.
By: /s/ WILLIAM M. BARNUM, JR.
--------------------------
William M. Barnum, Jr.
a General Partner
5
<PAGE>
EXHIBIT 10.8
AMENDMENT TO
CORPORATE DEVELOPMENT AND ADMINISTRATIVE SERVICES AGREEMENT
The undersigned, Brentwood Buyout Partners, L.P., a Delaware limited partnership
("BBP") and Acme Acquisition Corp., a Delaware corporation ("AAC"), hereby agree
to amend the Corporate Development and Administrative Services Agreement, dated
as of July 27, 1992, effective October 31, 1993, as follows:
Section 2.2 Compensation shall be amended to read in its entirety as follows:
------------
As partial consideration for the services to be provided pursuant to
Section 1 hereof, AAC shall pay to Brentwood Associates Buyout Fund, L.P.
("BABF") a monitoring fee (the "Monitoring Fee") from November 1, 1993 through
the last day of the term of this Agreement. The amount of the Monitoring Fee
shall be an amount equal to one percent (1%) per annum of the aggregate amount
of debt and equity investment of or by Investors in AAC. The Monitoring Fee for
the two month period November 1, 1993 through December 31, 1993 shall be payable
in advance on November 1, 1993. Thereafter the Monitoring Fee shall be payable
semiannually in advance (i) on or before January 10 of each year with respect to
the half year beginning on January 1 of such year and (ii) on or before July 10
of each year with respect to the half year beginning on July 1 of such year.
The Monitoring Fee for any partial period shall be prorated on the basis of the
ratio that the total number of days in the half year during which the obligation
to pay the Monitoring Fee is effective under this Agreement bears to 182. To
the extent that any portion of the Monitoring Fee for the final half year has
been prepaid but has not been earned, BABF shall cause the unearned portion
(determined by the method set forth in the immediately preceding sentence) of
such payment to be refunded to AAC. Subject only to the immediately preceding
sentence, all amounts paid under this Section 2.2 shall be nonrefundable. The
initial Monitoring Fee to be paid pursuant to this Section 2.2 shall be
calculated based upon the aggregate amount of debt and equity investment of or
by Investors outstanding on November 1, 1993 and thereafter such semiannual
payments shall be calculated based upon the average of the aggregate amounts of
such debt and equity outstanding during each of the six months of the
immediately preceding half year payment period.
Except as herein expressly provided, the Corporate Development and
Administrative Services Agreement referred to above shall remain in full force
and effect in accordance with its terms.
<PAGE>
In witness whereof, each of the parties hereto has executed this Amendment
with the intent to be legally bound, all as of the date set forth above .
ACME ACQUISITION CORP.
By: /s/ IRA MENDELSOHN
----------------------------------
Ira Mendelsohn, President
BRENTWOOD BUYOUT PARTNERS, L.P.
By: /s/ WILLIAM M. BARNUM
-----------------------------------
William M. Barnum, Gen. Partner
2
<PAGE>
EXHIBIT 10.9
PREFERRED STOCK AND COMMON STOCK PURCHASE AGREEMENT
by and between
RENTAL SERVICE CORPORATION
as the "Company"
and
NASSAU CAPITAL PARTNERS L.P. AND
NAS PARTNERS I L.L.C.
as "Buyer"
Dated: January 4, 1996
<PAGE>
PREFERRED STOCK AND COMMON STOCK PURCHASE AGREEMENT
---------------------------------------------------
This Preferred Stock and Common Stock Purchase Agreement (this
"Agreement"), dated as of January 4, 1996, is by and between Nassau Capital
Partners L.P., a Delaware limited partnership ("Nassau Capital""), and NAS
Partners I L.L.C., a Delaware limited liability company ("Nassau Partners" and
together with Nassau Capital, the "Buyer") and Rental Service Corporation, a
Delaware corporation (the "Company").
RECITALS
--------
A. The Company desires to issue and sell to Nassau Capital and Nassau
Partners (i) 49,730 shares and 270 shares, respectively (collectively the
"Preferred Shares") of the Company's authorized but unissued Series A Preferred
Stock, par value $0.01 per share (the "Preferred Stock") and (ii) 15,716 shares
and 85 shares, respectively (collectively the "Common Shares" and together with
the Preferred Shares, the "Purchased Shares") of the Company's authorized but
unissued Common Stock, par value $0.01 per share (the "Common Stock").
B. Buyer desires to purchase the Preferred Shares and the Common
Shares from the Company, and the Company desires to issue the Preferred Shares
and the Common Shares to Buyer, subject to the terms and conditions of this
Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Defined Terms. As used herein, the terms below shall have the
-------------
following meanings:
"Balance Sheet" shall mean the consolidated Balance Sheet of the
-------------
Company as of October 31, 1995.
"Business" shall mean the business conducted by the Company and its
--------
Subsidiaries as of the date of this Agreement.
"Balance Sheet Date" shall mean October 31, 1995.
------------------
"Closing Date" shall mean January 4, 1996, or such other date as may
------------
be mutually agreed upon in writing by the Company and Buyer.
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended from
----
time to time.
"Contracts" shall mean any of the agreements, contracts, commitments
---------
or other documents described in Section 4.5(a) through (h).
"Credit Agreement" shall mean the Credit Agreement dated as of
----------------
September 12, 1995, among Company, BT Commercial Corporation, as Agent, the
financial institutions signatory thereto and six Subsidiaries of the Company, as
amended.
"Disclosure Schedule" means a schedule executed and delivered by the
-------------------
Company to Buyer prior to the date hereof which sets forth exceptions to the
representations and warranties contained in Article 4 hereof and certain other
information called for by Article 4 hereof and other provisions of this
Agreement, which schedule clearly identifies the specific representations and
warranties and other provisions of the Agreement to which each exception set
forth on the schedule refers.
"Encumbrances" shall mean any claim, lien, pledge, option, charge,
------------
easement, security interest, right-of-way, encumbrance or other rights of third
parties.
"Financial Statements" shall mean (x) the Consolidated Balance Sheet,
--------------------
Consolidated Statement of Operations and Consolidated Statement of Cash Flows
and related notes thereto for each of Acme Holdings Inc. and the Company as of
or for the years ended December 31, 1993 and December 31, 1994 and (y) the
Consolidated Balance Sheet, Consolidated Statement of Operations and
Consolidated Statement of Cash Flows for the Company as of or for the ten-month
period ended October 31, 1995.
"Representative" shall mean any officer, director, principal,
--------------
attorney, agent, employee or other representative.
"Stockholders' Agreement" shall mean that certain stockholders'
-----------------------
agreement, to be dated as of the Closing Date, by and between the Company and
the parties listed on Schedule 1 thereto, in the form attached as Exhibit C
hereto.
"Subsidiary" shall mean (a) any corporation in an unbroken chain of
----------
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain, (b) any partnership in which the Company is a
general partner, or (c) any partnership in which the Company possesses a 50% or
greater interest in the total capital or total income of such partnership.
2
<PAGE>
"U-Rent-M Acquisition" shall mean that certain acquisition of assets
--------------------
of a target company located in Central Texas by the Company, scheduled to close
on January 4, 1996.
1.2 Other Defined Terms. The following terms shall have the meanings
-------------------
defined for such terms in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Act 5.5(c)
Action 4.9
Assets 4.4
Closing 3.1
GAAP 8.1(a)
Material Adverse Effect 4.1
Tax 4.12
</TABLE>
ARTICLE 2
PURCHASE AND SALE OF STOCK; PLACEMENT FEE
-----------------------------------------
2.1 Issuance of Preferred Shares and Common Shares. Upon the terms
----------------------------------------------
and subject to the conditions contained herein, on the Closing Date, the Company
will issue the Preferred Shares and the Common Shares to Buyer, and Buyer will
acquire the Preferred Shares and the Common Shares from the Company.
2.2 Consideration. Upon the terms and subject to the conditions
-------------
contained herein, (i) as consideration for the purchase of the Preferred Shares,
Nassau Capital and Nassau Partners shall pay a total purchase price of
$4,973,000 and $27,000, respectively, consisting of one hundred dollars ($100)
for each share of Preferred Stock and (ii) as consideration for the purchase of
the Common Shares, Nassau Capital and Nassau Partners shall pay a total purchase
price of $4,973,000 and $27,000, respectively, consisting of Three Hundred
Sixteen and 44/100 dollars ($316.44) for each share of Common Stock, payable by
the delivery to the Company of wire transfer of immediately available funds.
2.3 Placement Fee. Upon the terms and subject to the conditions
-------------
contained herein, on the Closing Date, the Company will pay to Nassau Capital
L.L.C. (an Affiliate of Buyer), by wire transfer, a placement fee equal to 3/4%
of the aggregate purchase price of the Preferred Shares and Common Shares being
purchased by such Buyer.
ARTICLE 3
CLOSING
-------
3.1 Closing. The closing of the transactions contemplated herein
-------
(the "Closing") shall be held at 10:00 a.m. local time on the Closing Date at
the offices of
3
<PAGE>
Latham & Watkins, 633 West Fifth Street, Los Angeles, California 90071, unless
the parties hereto otherwise agree.
3.2 Deliveries at Closing. To effect the issuance referred to in
---------------------
Section 2.1 and the delivery of the consideration described in Section 2.2
hereof, the Company and Buyer shall, on the Closing Date, deliver the following:
(a) The Company shall deliver to Buyer certificates evidencing
the Preferred Shares.
(b) The Company shall deliver to Buyer certificates evidencing
the Common Shares.
(c) The Company and Buyer shall each deliver all documents
required to be delivered pursuant to Articles 7 and 8.
(d) Buyer shall deliver immediately available funds as provided
in Section 2.2; and the Company shall deliver funds as provided in Section
2.3.
(e) All instruments and documents executed and delivered to Buyer
pursuant to Article 7 shall be in form and substance reasonably
satisfactory to Buyer. All instruments and documents executed and
delivered to the Company pursuant to Article 8 shall be in form and
substance reasonably satisfactory to the Company.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
Except as otherwise set forth in the Disclosure Schedule, the Company
hereby represents and warrants to Buyer as follows:
4.1 Organization of the Company. The Company is duly organized,
---------------------------
validly existing and in good standing under the laws of the State of Delaware,
has corporate power and authority to conduct its business as it is presently
being conducted and to own and lease its properties and assets. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which such qualification is necessary, except where the
failure to be so qualified would not have a material adverse effect on the
business, results of operations or financial condition of the Company and its
Subsidiaries, taken as a whole (a "Material Adverse Effect"). The Company's
authorized capital consists of 250,000 shares of Common Stock, par value $.01
per share, 94,393.72 shares of which are (and will be) issued and outstanding
immediately prior to the Closing, and 350,000 shares of Series A Preferred
Stock, par value $.01 per share, 244,805 shares of which are (and will be)
issued and outstanding immediately prior to the Closing. All of the Company's
outstanding shares of Common Stock and Series A Preferred Stock have been, and
the Preferred Shares and Common Shares (upon issuance therefore in accordance
with this Agreement) will be, duly authorized and validly issued and are fully
paid and non-
4
<PAGE>
assessable. There are no outstanding options, warrants, rights to subscribe to
(including any preemptive rights), calls or commitments of any character
whatsoever to which the Company is a party or may be bound, requiring the
issuance or sale of, shares of any capital stock or other equity securities of
the Company or securities or rights convertible into or exchangeable for such
shares or other equity securities.
4.2 Corporate Acts and Proceedings; Enforceability of Agreements.
------------------------------------------------------------
(a) The Company has all requisite corporate power and authority
to enter into this Agreement, the Stockholders' Agreement and such documents as
are necessary or advisable to consummate the U-Rent-M Acquisition (the "U-Rent-M
Acquisition Documents") and to perform its obligations contemplated hereunder
and thereunder.
(b) All corporate action on the part of the Company and its
Subsidiaries, officers, directors and stockholders necessary for the
authorization, execution and delivery by the Company of this Agreement, the
Stockholders' Agreement and the U-Rent-M Acquisition Documents and the
performance of all obligations of the Company hereunder and thereunder
(including the authorization, issuance, sale and delivery of the Purchased
Shares to be issued hereunder), has been taken.
(c) This Agreement has been, and the Stockholders' Agreement and
the U-Rent-M Acquisition Documents when executed and delivered by the parties
thereto will be, duly executed and delivered by authorized officers of the
Company and constitutes, or when executed and delivered by the parties thereto
will constitute, a valid and binding obligation of the Company and is, or when
executed and delivered by the parties thereto will be, enforceable against the
Company in accordance with their respective terms.
4.3 Subsidiaries. The Disclosure Schedule sets forth a complete and
------------
accurate list of all of the Subsidiaries, all of which are, except as noted on
the Disclosure Schedule, directly or indirectly wholly-owned by the Company.
The Disclosure Schedule also contains the jurisdiction of incorporation or
organization of each of the Subsidiaries. Each of the Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
jurisdiction of its incorporation and has corporate power to conduct its
business as it is presently being conducted and to own and lease its properties
and assets. Each of the Subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which such
qualification is necessary, except where the failure to be so qualified would
not have a Material Adverse Effect. The outstanding shares of the Subsidiaries
have been duly and validly authorized and issued, are fully paid and non-
assessable, and are owned by the Company free and clear of any Encumbrances.
There are no outstanding options, warrants, rights to subscribe to (including
any preemptive rights), calls or commitments of any character whatsoever to
which the Company or any of its Subsidiaries is a party or may be bound,
requiring the issuance or sale of, shares of any capital stock or other equity
securities of any of the Subsidiaries or securities or rights convertible into
or exchangeable for such shares or other equity securities.
5
<PAGE>
4.4 Title to Assets, Etc. The Company and its Subsidiaries have good
---------------------
and marketable title to or leasehold interests in the assets reflected on the
Balance Sheet or acquired since the Balance Sheet Date (the "Assets"). Such
Assets include all assets and property necessary to conduct the business and
operations of the Company as now conducted. Except as reflected in the
Financial Statements, none of the Assets is subject to any Encumbrances, except
for minor liens which in the aggregate are not substantial in amount and do not
materially detract from the value of the property or assets subject thereto or
interfere with the present use thereof.
4.5 Contracts and Commitments. Neither the Company nor any
-------------------------
Subsidiary is a party to any written or oral:
(a) promissory note, loan, evidence of indebtedness, or letter of
credit involving any obligation or liability for money borrowed in a
principal amount in excess of $200,000;
(b) lease of real property with annual required rental payments
in excess of $200,000;
(c) lease of personal property not incurred in the ordinary
course of business, with annual required rental payments in excess of
$500,000 and not cancelable (without penalty) within 30 days;
(d) contracts and commitments not referred to in Sections 4.5 (a)
through (c) above involving annual expenditures by the Company or a
Subsidiary in excess of $1,000,000 or otherwise materially affecting the
Business;
(e) material governmental or regulatory licenses or permits
required to conduct the Business as presently conducted;
(f) contracts or agreements containing covenants limiting its
freedom to engage in any line of business or compete with any person; or
(g) employment contracts, including without limitation, contracts
to employ executive officers and other contracts with officers or directors
of the Company.
(h) contracts for the provision of services in excess of $100,000
per year.
Neither the Company nor any Subsidiary is (and, to the best knowledge
of the Company, no other party is) in breach or violation of or default under
any of the Contracts or other instruments, obligations, evidences of
indebtedness or commitments described in (a) through (h) above, except where
such breaches and violations in the aggregate would not have a Material Adverse
Effect.
6
<PAGE>
4.6 No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement, the Stockholders' Agreement and the U-Rent-M Acquisition
Documents nor the consummation of the transactions contemplated hereby or
thereby will result in (a) a violation of or a conflict with any provision of
the Certificate of Incorporation or Bylaws of the Company, (b) a breach of,
conflict with or a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, any term or provision of any Contract,
agreement, indebtedness, lease, Encumbrance, commitment, license, franchise,
permit, authorization or concession to which the Company or any Subsidiary is a
party or by which the Assets are bound, which breach or default would have a
Material Adverse Effect (c) a violation by the Company or any Subsidiary of any
statute, rule, regulation, ordinance, code, order, judgment, writ, injunction,
decree or award, which violation would have a Material Adverse Effect or (d) an
imposition of any Encumbrance, restriction or charge on the Business or on any
of the Assets.
4.7 Consents and Approvals. No consent, approval or authorization
----------------------
of, or declaration, filing or registration with, any governmental or regulatory
authority, or any other person or entity, is required to be made or obtained by
the Company in connection with the execution, delivery and performance of this
Agreement the Stockholders' Agreement and the U-Rent-M Acquisition Documents and
the consummation of the transactions contemplated hereby or thereby.
4.8 Financial Statements. The Company has heretofore delivered to
--------------------
Buyer the Financial Statements. Except as otherwise set forth therein, the
Financial Statements are in accordance with the books and records of the Company
and fairly present the financial condition and results of operations indicated
thereby. Such Financial Statements were prepared in accordance with GAAP,
except (with respect to the financial statements as of and for the ten-month
period ending October 31, 1995) for (i) the absence of notes thereto and (ii)
customary year-end adjustments)(the "Unaudited Exceptions").
4.9 Litigation. There is no action, order, writ, injunction,
----------
judgment or decree outstanding or claim, suit, litigation, proceeding, labor
dispute (other than routine grievance procedures or routine, uncontested claims
for benefits under any benefit plans for any of the Company's officers,
employees or agents), arbitral action or investigation (collectively, "Actions")
pending or, to the knowledge of the Company, threatened (orally or in writing),
relating to or affecting or seeking damages in connection with (i) the Company
or any Subsidiary which individually or in the aggregate with other Actions
could reasonably be expected to have a Material Adverse Effect or (ii) the
validity or legality of this Agreement or the U-Rent-M Acquisition Documents or
the transactions contemplated hereby and thereby. Neither the Company nor any
Subsidiary is in default with respect to any judgment, order, writ, injunction
or decree of any court or governmental agency, and there are no unsatisfied
judgments against the Company or any Subsidiary.
4.10 Compliance with Law. The conduct of the Business is in
-------------------
compliance with all applicable laws, statutes, ordinances and regulations,
whether federal, state or local, except where the failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect. The Company
has not received any written notice to the effect that
7
<PAGE>
the Business is not in compliance with any laws regarding environmental
protection or clean-up or the use or storage of hazardous substances, and the
Company has no reason to anticipate that any presently existing circumstances
are likely to result in violations of any such laws which would, in any one case
or in the aggregate, have a Material Adverse Effect.
4.11 Transactions with Certain Persons. Neither any officer,
---------------------------------
director or employee of the Company or any Subsidiary nor any member of any such
person's immediate family nor any entity described in clause (iii) is presently
a party to any material transaction with the Company or any Subsidiary relating
to the Business, including without limitation, any contract, agreement or other
arrangement (i) providing for the furnishing of material services by, (ii)
providing for the rental of material real or personal property from, or (iii)
otherwise requiring material payments to (other than for services as officers,
directors or employees) any such person or corporation, partnership, trust or
other entity in which any such person has a substantial interest as a
shareholder, officer, director, trustee or partner.
4.12 Tax Matters. The Company has timely filed all material tax
-----------
reports and returns required to be filed by it, including all federal, state,
local and foreign tax returns and reports. The Company has paid in full all
material taxes required to be paid by it.
There are no pending or threatened audits or investigations known to
the Company relating to the Company's income tax returns, and there are no
claims which have been or may be asserted relating to any of the Company's tax
returns filed for any year which if determined adversely would result in the
assertion by any governmental agency of any deficiency. There have been no
waivers of statutes of limitations by the Company.
For the purpose of this Agreement, any federal, state, local or
foreign income, sales, use, transfer, payroll, personal property, occupancy or
other tax, levy, impost, fee, imposition, assessment or similar charge, together
with any related addition to tax, interest or penalty thereon, is referred to as
a "tax."
4.13 Environmental Matters. The Company complies and has complied
---------------------
with all applicable Environmental Laws, and possesses and complies with and has
possessed and complied with all Environmental Permits required under such laws,
except where the failure to comply or possess would have a Material Adverse
Effect. There are no past, present, or anticipated future events, conditions,
circumstances, practices, plans, or legal requirements that could be expected to
prevent, or materially increase the burden on the Company of complying with
applicable Environmental Laws or of obtaining, renewing, or complying with all
Environmental Permits required under such laws. There are and have been no
Materials of Environmental Concern or other conditions at any property owned,
operated, or otherwise used by the Company now or in the past, or at any other
location, that could give rise to liability of the Company under any
Environmental Law, which liability could reasonably be expected to have a
Material Adverse Effect.
The following definitions shall apply for purposes of this Agreement:
"Environmental Report" shall mean any report, study, assessment, audit, or other
similar document that addresses any issue of actual or potential noncompliance
with, or actual or
8
<PAGE>
potential liability under, any Environmental Law that may reasonably be expected
to have a Material Adverse Effect; "Environmental Laws" shall mean any and all
laws, rules, orders, regulations, statutes, ordinances, guidelines, codes,
decrees, or other legally enforceable requirement (including, without
limitation, common law) of any foreign government, the United States, or any
state, local, municipal or other governmental authority, regulating, relating to
or imposing liability or standards of conduct concerning protection of the
environment or of human health, or employee health and safety, as has been or is
now in effect; "Environmental Permits" shall mean any and all permits, licenses,
registrations, notifications, exemptions and any other authorization required
under any Environmental Law; and "Materials of Environmental Concern" shall mean
any gasoline or petroleum (including crude oil or any fraction thereof) or
petroleum products, polychlorinated byphenyls, ureaformaldehyde insulation,
asbestos or asbestos-containing materials, pollutants, contaminants,
radioactivity, and any other forces, including but not limited to
electromagnetic fields, materials or substances of any kind, whether or not any
such substance is defined as hazardous or toxic under any Environmental Law,
that is regulated pursuant to or could give rise to liability under any
Environmental Law.
4.14 Absence of Undisclosed Liabilities. Except for (a) liabilities
----------------------------------
reflected or reserved against in full in the Financial Statements or incurred
after the date thereof in the ordinary course of business in an amount not
exceeding $100,000 in the aggregate, (b) liabilities not yet due and payable or
obligations to be performed or satisfied after the date hereof under the
Contracts, and (c) liabilities incurred in the ordinary course of business and
not required to be reflected in the Financial Statements, neither the Company
nor any of its Subsidiaries has, or will have upon consummation of the U-Rent-M
Acquisition, any material liability or obligation of any nature, whether
accrued, absolute or contingent.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Each of Nassau Partners and Nassau Capital hereby represents and
warrants to the Company as follows:
5.1 Organization of Buyer. Each of Nassau Partners and Nassau
---------------------
Capital is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its formation and has requisite corporate or other power
and authority to conduct its business and to enter into this Agreement and
consummate the transactions contemplated hereby.
5.2 Authorization. Each of Nassau Partners and Nassau Capital has
-------------
taken all necessary action to enter into this Agreement, to consummate the
transactions contemplated hereby and to perform its obligations hereunder. This
Agreement has been duly executed and delivered by each of Nassau Partners and
Nassau Capital and is a valid and binding obligation of each of Nassau Partners
and Nassau Capital enforceable against it in accordance with its terms.
9
<PAGE>
5.3 Consents and Approvals. No consent, approval or authorization
----------------------
of, or declaration, filing or registration with, any United States federal or
state governmental or regulatory authority is required to be made or obtained by
each of Nassau Partners and Nassau Capital in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby.
5.4 No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the applicable
organizational documents of each of Nassau Partners and Nassau Capital, (b) a
breach of, conflict with or a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, any term or provision of any
Contract, agreement, indebtedness, lease, commitment, license, franchise,
permit, authorization or concession to which each of Nassau Partners and Nassau
Capital is a party which breach or default would have a material adverse effect
on the transactions contemplated hereby or (c) a violation by each of Nassau
Partners and Nassau Capital of any statute, rule, regulation, ordinance, code,
order, judgment, writ, injunction, decree or award, which violation would have a
material adverse effect on the transactions contemplated hereby.
5.5 Securities Laws
---------------
(a) Each of Nassau Partners and Nassau Capital has received and
reviewed this Agreement and the Stockholders' Agreement and all schedules and
exhibits attached thereto, and has received all such business, financial and
other information as it deems necessary and appropriate to enable it to evaluate
the financial risk inherent in making an investment in the Preferred Shares and
the Common Shares.
(b) Each of Nassau Partners and Nassau Capital is acquiring the
Preferred Shares and Common Shares purchased hereunder with its own funds or
property for investment, for its own account, and not as a nominee or agent for
any other person, firm or corporation, and not with a view to the sale or
distribution of all or any part thereof, and each of Nassau Partners and Nassau
Capital has no present intention of selling, granting participation in, or
otherwise distributing any of the Preferred Shares or the Common Shares. each
of Nassau Partners and Nassau Capital does not have any contract, undertaking,
agreement or arrangement with any person, firm or corporation to sell, transfer
or grant participation to such person, firm or corporation, with respect to any
of the Preferred Shares or the Common Shares.
(c) Each of Nassau Partners and Nassau Capital understands and
agrees that (i) neither the Preferred Shares nor the Common Shares will be
registered under the Securities Act of 1933, as amended (the "Act"), in part
based upon an exemption from registration predicated on the accuracy and
completeness of its representations and warranties appearing herein and (ii)
each of Nassau Partners and Nassau Capital will not be permitted to sell,
transfer or assign any of the Preferred Shares or the Common Shares until they
are registered under the Act or an exemption from the registration and
prospectus delivery requirements of the Act is available, and (iii) there is no
assurance that such an exemption
10
<PAGE>
from registration will ever be available or that the Preferred Shares or the
Common Shares will ever be able to be sold.
(d) Each of Nassau Partners and Nassau Capital agrees that in no
event will it make a disposition of any Shares or any interest therein, unless
such Preferred Shares or Common Shares, as the case may be, are registered under
the Act or unless and until (i) each of Nassau Partners and Nassau Capital shall
have notified the Company of the proposed disposition and shall have furnished
the Company with a statement of the circumstances surrounding the proposed
disposition, and (ii) each of Nassau Partners and Nassau Capital shall have
furnished the Company with an opinion of counsel reasonably satisfactory in form
and content to the Company to the effect that (A) such disposition will not
require registration of such Preferred Shares or Common Shares, as the case may
be, under the Act or compliance with applicable state securities laws, or (B)
that appropriate action necessary for compliance with the Act and applicable
state securities laws has been taken, or (iii) the Company shall have waived,
expressly and in writing, its rights under clauses (i) and (ii) of this
subsection.
(e) Each of Nassau Partners and Nassau Capital does not require
the assistance of an investment advisor or other purchaser representative to
participate in the transactions contemplated by this Agreement, has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Company and has the
ability to bear the economic risks of its investment for an indefinite period of
time.
(f) Each of Nassau Partners and Nassau Capital is an "accredited
investor" (as defined in Regulation D promulgated under the Act). Each of
Nassau Partners and Nassau Capital has been in existence for at least one year
and was not formed for the specific purpose of acquiring the stock issued
pursuant to this Agreement. Each of Nassau Partners and Nassau Capital's
purchase is directed by a sophisticated person as described in Regulation D
promulgated under the Act.
ARTICLE 6
CONDITIONS TO THE COMPANY'S OBLIGATIONS
---------------------------------------
The obligations of the Company to issue the Preferred Shares and the
Common Shares to Buyer on the Closing Date are subject, in the discretion of the
Company, to the satisfaction or waiver, on or prior to the Closing Date, of each
of the following conditions:
6.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of Buyer contained in this Agreement shall be true and correct in
all material respects at and as of the Closing Date as if such representations
and warranties were made at and as of the Closing Date, and Buyer shall have
performed in all material respects all agreements and covenants required hereby
to be performed by it prior to or at the Closing Date.
11
<PAGE>
6.2 Consents. All consents, approvals and waivers from governmental
--------
authorities and other parties necessary to permit the Company to issue the
Preferred Shares and the Common Shares to Buyer as contemplated hereby shall
have been obtained.
6.3 Stockholders' Agreement. Buyer shall have become a party to and
-----------------------
agreed to be bound by the Stockholders' Agreement, which Stockholders' Agreement
is hereby incorporated herein as if set forth in full in this Agreement.
ARTICLE 7
CONDITIONS TO BUYER'S OBLIGATIONS
---------------------------------
The obligations of Buyer to purchase the Preferred Shares and the
Common Shares as provided hereby are subject, in the discretion of Buyer, to the
satisfaction or waiver, on or prior to the Closing Date, of each of the
following conditions:
7.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of the Company contained in this Agreement shall be true and
correct in all material respects at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date, and the
Company shall have performed in all material respects all agreements and
covenants required hereby to be performed by it prior to or at the Closing Date.
There shall be delivered to Buyer a certificate (signed by the chief executive
officer or secretary of the Company) to the foregoing effect.
7.2 Consents. All consents, approvals and waivers from governmental
--------
authorities and other parties necessary to permit the Company to issue the
Preferred Shares and the Common Shares to Buyer as contemplated hereby shall
have been obtained.
7.3 Certificates. The Company shall furnish Buyer with such
------------
certificates of the officers of the Company and others to evidence compliance
with the conditions set forth in this Article 7 as may be reasonably requested
by Buyer.
7.4 Corporate Documents. Buyer shall have received from the Company
-------------------
resolutions adopted by the board of directors of the Company approving this
Agreement and the transactions contemplated hereby, certified by the secretary
of the Company. Buyer shall have also received true and correct copies of the
Company's Certificate of Incorporation, as amended to date, the Company's
bylaws, as amended to date, and the Stockholders' Agreement.
7.5 U-Rent-M Acquisition. Consummation of the U-Rent-M Acquisition
--------------------
shall occur on or before the Closing Date, and Buyer shall have received copies
of the U-Rent-M Acquisition Documents, certified by the Secretary or Assistant
Secretary of the Company as true and complete copies thereof, together with
evidence of authorization by the Company of each U-Rent-M Acquisition Document,
and the transactions contemplated therein.
12
<PAGE>
7.6 Stockholders' Agreement. The Company shall have entered into the
-----------------------
Stockholders' Agreement with Buyer.
7.7 Legal Opinion. The Buyer shall have received from Latham &
-------------
Watkins, counsel for the Company, an opinion addressed to the Buyer covering
such matters as the Buyer may reasonably request.
7.8 Revolving Credit Facility. The Company and Bankers Trust Company
-------------------------
shall have entered into an amendment to the Credit Agreement to increase the
Revolving Credit Facility thereunder to $95,000,000.
7.9 Material Adverse Change. There shall not have occurred or been
-----------------------
threatened any event or action which could have a Material Adverse Effect on the
Company or any of its subsidiaries.
ARTICLE 8
ACTIONS BY THE COMPANY AND BUYER AFTER THE CLOSING
--------------------------------------------------
8.1 Reports. Prior to the Company's initial public offering, the
-------
Company shall deliver to the Buyer the following:
(a) within 60 days after the end of each quarterly fiscal period
of the Company (other than the last quarterly fiscal period of each such year),
a consolidated balance sheet of the Company as of the end of such quarter and
consolidated statements of income and cash flows of the Company for such quarter
and (in the case of the second and third quarters) for the portion of the fiscal
year ending with such quarter, all in reasonable detail, prepared in accordance
with generally accepted accounting principles ("GAAP") applicable to quarterly
financial statements generally, subject to the Unaudited Exceptions, and
(b) within 120 days after the end of each fiscal year of the
Company, a consolidated balance sheet of the Company at the end of such year,
and consolidated statements of income and cash flows of the Company for such
year, and related notes thereto, prepared in accordance with GAAP and
accompanied by an opinion thereon of independent certified public accountants of
recognized national standing.
8.2 Board Member; Attendance at Board Meetings.
------------------------------------------
(a) For so long as the Buyer holds at least 65% of the Common
Shares purchased pursuant to this Agreement, the Company will cause one person
designated by the Buyer (the "Designee") to be included in any list of persons
nominated by management of the Company for election as members of the Board of
Directors of the Company (the "Board") and will take all actions reasonably
within its power to cause the Designee to be elected a member of the Board. Upon
a public offering of securities by the Company, the Buyer agrees to discuss with
the Company in good faith the optimal
13
<PAGE>
constitution of the Board following the closing of such offering, taking into
account any stock exchange requirements regarding independent directors and
disclosure issues occasioned by agreements to grant seats on the Board.
(b) The Company will reimburse such director for all costs and
expenses (including travel expenses) incurred in connection with such director's
attendance at meetings of the Board or any committee of the Board upon which
such director serves. The Company will pay such director annual fees and fees
for attending Board or committee meetings, if any such fees are paid to
directors.
8.3 Demand Registration.
-------------------
(a) Stockholders owning more than 50% of the aggregate
Registrable Common Shares and Other Registrable Common Shares shall have the
right, exercisable on two occasions after January 4, 2001, by written request (a
"Request") to the Company, to require the Company to register under the Act up
to 100% of their Registrable Common Shares. Within ten (10) days after receiving
a Request, the Company will give written notice thereof to all other holders of
shares of Common Stock purchased pursuant to Preferred Stock and Common Stock
Purchase Agreements of even date herewith between the Company and the investors
named therein which are, at the relevant time, Restricted Securities (the "Other
Registrable Common Shares"), which holders of shares shall have 20 days after
receipt of notice from the Company to notify the Company of the number of shares
of Common Stock held by them to be included in such registration. All Requests
made pursuant to this Section 8.3 will specify the number of Registrable Common
Shares to be registered and the intended methods of disposition thereof.
(b) The Company will prepare and file with the Securities and
Exchange Commission as soon as practicable, but in any event not later than
within one hundred twenty (120) days after receiving a Request, a registration
statement on the appropriate form for the sale of the Registrable Common Shares
and Other Registrable Common Shares. The Company and the holders of Registrable
Common Shares and Other Registrable Common Shares will also comply with the
provisions of Sections 2(B), 3, 5, 6 and 7 of the Registration Rights set forth
as Exhibit A to the Stockholders' Agreement dated the date of this Agreement
among the Company, the Buyer and certain other stockholders of the Company;
provided, however, that notwithstanding Section 5 of said Exhibit A, the
- -------- -------
Company will pay the reasonable fees and disbursements of one counsel for all
holders of Registrable Common Shares or Other Registrable Common Shares included
in any such registration statement.
(c) The Company shall not be required to maintain the
effectiveness of any registration statement for longer than ninety (90) days in
any event; provided, however, that the Company may suspend the effectiveness of
-------- -------
any registration statement filed pursuant to Section 8.3(a) if the Company
determines that it would be imprudent or illegal for it to then maintain such
effectiveness, so long as the number of days of each such suspension is not
included in calculating the 90 days referred to above.
14
<PAGE>
(d) The demand registration rights set forth herein shall
terminate with respect to any Registrable Common Shares or Other Registrable
Common Shares when such shares have been disposed of for cash or marketable
securities.
(e) "Registrable Common Shares" means all shares of Common Stock
purchased pursuant to this Agreement (including any shares purchased pursuant to
Section 8.4 hereto) by Buyer which are, at the relevant time, Restricted
Securities.
(f) "Restricted Securities" means shares of Common Stock until,
in the case of each such shares, (i) it is effectively registered and disposed
of in accordance with an effective registration statement; (ii) it is
distributed to the public pursuant to Rule 144 or Rule 144A under the Act; or
(iii) the Company has delivered to the holder thereof a written opinion of
experienced securities counsel, reasonably satisfactory in form and substance to
such holder, to the effect that the proposed disposition for which registration
was requested does not require registration under the Act.
(g) A registration requested pursuant to Section 8.3(a) will not
be deemed to have been effected unless it has become effective; provided, that
if, within 180 days after it has become effective, the offering of Registrable
Common Shares and Other Registrable Common Shares pursuant to such registration
is interfered with by any stop order, injunction or other order or requirement
of the Securities and Exchange Commission or other governmental agency or court
or is otherwise not consummated, such registration will be deemed not to have
been effected and will not constitute a Request.
8.4 Subsequent Securities. If the Company determines to raise
---------------------
additional equity capital for cash through the sale of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock, the
Company will, to the extent consistent with the board's fiduciary duties and
taking into consideration timing and the price and other terms obtainable from
other investors, provide Buyer with reasonable advance notice of any such
proposed issuance and offer the opportunity to participate in any such proposed
issuance (on the same terms as other proposed investors) to the extent necessary
to allow Buyer to maintain its proportionate fully-diluted interest in the
Common Stock. However, the foregoing would not apply to (i) issuances as a
smaller portion of the sale of other securities, such as debt securities or non-
convertible preferred stock, (ii) securities sold in a public offering and (iii)
securities issued primarily as part of an incentive or compensatory arrangement
with officers, directors, employees and/or independent contractors, including
without limitation, securities issued in reliance upon the exemption from
registration provided by Rule 701 promulgated under the Securities Act of 1933,
as amended.
ARTICLE 9
LEGENDS
-------
9.1 Legends. Each certificate representing the Preferred Shares and
-------
the Common Shares sold pursuant to the provisions hereof, if and for so long as
deemed
15
<PAGE>
advisable by the Company or until registered and sold under the Act, shall bear
the following legends:
(a) "The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"). These
securities have been acquired for investment and not with a view to
distribution or resale, and may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration statement for such
shares under the Act or an opinion of counsel satisfactory in form and
content to the issuer that such registration is not required under such
Act."
(b) "The shares represented by this certificate are subject to a
right of first refusal option, drag-along rights and certain other rights,
all as set forth in a stockholders agreement between the Company and the
registered holder, or its predecessor in interest, a copy of which is on
file at the principal office of the Company and will be furnished upon
request to the holder of record of the shares represented by this
certificate."
ARTICLE 10
MISCELLANEOUS
-------------
10.1 Termination. The Company may elect to extend the Closing Date
-----------
for up to thirty (30) days upon written notice to Buyer. This Agreement shall
terminate automatically if the Closing Date has not occurred on or prior to
February 4, 1996.
10.2 Assignment. Neither Company nor Buyer shall transfer, assign or
----------
encumber any of its rights, privileges, duties or obligations under this
Agreement without the prior written consent of the other party, and any attempt
to so transfer, assign or encumber shall be void; provided that nothing in this
Section 10.2 shall restrict the Company or its stockholders from consummating
any merger, stock sale, asset sale or business combination. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors and assigns, and no
other person shall have any right, benefit or obligation hereunder.
10.3 Notices; Transfer of Funds. Unless otherwise provided herein,
--------------------------
any notice, request, instruction or other document to be given hereunder by any
party to the others shall be in writing and delivered in person or by courier,
telegraphed, telexed or by facsimile transmission or mailed by certified mail,
postage prepaid, return receipt requested (such mailed notice to be effective on
the date such receipt is acknowledged), as follows:
16
<PAGE>
(a) If to the Company, addressed to:
Rental Service Corporation
14505 N. Hayden Road
Suite 322
Scottsdale, AZ 85260
Attention: Chief Executive Officer
With a copy to:
Brentwood Associates
11150 Santa Monica Boulevard, Suite 1200
Los Angeles, California 90025
Attention: Christopher A. Laurence
(b) If to Buyer, addressed to Buyer at the address shown on the
signature page hereof.
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
10.4 Choice of Law. This Agreement shall be construed, interpreted
-------------
and the rights of the parties determined in accordance with the internal laws of
the State of Delaware, without reference to the choice of law provisions of
Delaware law.
10.5 Entire Agreement; Amendments and Waivers. Except as set forth
----------------------------------------
in Section 10.11, this Agreement, together with all exhibits and schedules
hereto and the Stockholders' Agreement, constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing, and, in the case of the
Company, authorized by its Board of Directors. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
10.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.7 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
17
<PAGE>
10.8 Headings. The headings of the Articles and Sections herein are
--------
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
10.9 Publicity. Neither party shall issue any press release or make
---------
any public statement regarding the transactions contemplated hereby, without the
prior approval of the other party.
10.10 Confidential Information. The parties acknowledge that the
------------------------
transaction described herein is of a confidential nature and shall not be
disclosed except to consultants, advisors and affiliates, or as required by law,
or as provided herein. In connection with the negotiation of this Agreement and
the preparation for the consummation of the transactions contemplated hereby,
the Buyer acknowledges that it will have access to confidential information
("Confidential Information") relating to the Company. The Confidentiality
Agreement dated November 10, 1995, between the Company and the Buyer shall
survive and not be affected by this Agreement.
10.11 Cost and Expenses; Transfer Taxes. Whether or not the
---------------------------------
transactions contemplated by this Agreement are consummated, (a) the Company
shall pay all fees and expenses incurred by, or on behalf of, it and (b) the
Company shall promptly reimburse the Buyer for its out-of-pocket expenses
incurred in connection with this Agreement and the transactions contemplated
hereby, including without limitation, the fees and expenses (up to a maximum of
$15,000 in the aggregate) of legal counsel, accountant and advisor for all
purchasers of Preferred Stock and Common Stock simultaneously herewith. The
Company shall pay all transfer taxes and charges attributable to the transfer of
the Purchased Shares to the Buyer.
10.12 Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made herein shall survive the Closing (i) with
respect to the representations and warranties of the Company set forth in
Sections 4.1, 4.2(b) and 4.2(c) hereof, for an indefinite period, (ii) with
respect to the representations and warranties of the Company set forth in
Section 4.12, until three months after the expiration of the applicable statute
of limitations with respect to the subject matter thereof, and (iii) with
respect to all other representations and warranties of any party hereunder, for
a period of two (2) years after the Closing Date. No party hereto shall be
entitled to any recovery or other remedy for any claim based upon the breach of
any representation or warranty hereunder unless such claim shall have been
asserted in writing to the other party prior to the expiration of the applicable
survival period set forth above.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
RENTAL SERVICE CORPORATION
"Company"
By: /s/ DOUGLAS A. WAUGAMAN
---------------------------
Name: Douglas A. Waugaman
---------------------
Title: V.P., Secretary
--------------------
NASSAU CAPITAL PARTNERS, L.P.
By: NASSAU CAPITAL L.L.C.,
General Partner
By: /s/ JOHN G. QUIGLEY
---------------------------
Name: John G. Quigley
---------------------
Title: Member
--------------------
Address: 22 Chambers Street
Princeton, New Jersey 08542
Telecopy: 609-942-8887
NASSAU PARTNERS I L.L.C.
By: /s/ JOHN G. QUIGLEY
---------------------------
Name: John G. Quigley
---------------------
Title: Member
--------------------
Address: 22 Chambers Street
Princeton, New Jersey 08542
Telecopy: 609-924-8887
19
<PAGE>
EXHIBIT 10.10
June 7, 1996
Rental Service Corporation
14505 North Hayden Road
Scottsdale, Arizona 85260
Ladies and Gentlemen:
This letter will confirm that, pursuant to Section 8.2 of the Preferred
Stock and Common Stock Purchase Agreement (the "Agreement") dated January 4,
1996, among the undersigned entities and Rental Service Corporation (the
"Company"), effective upon the closing of the Company's initial public offering
of common stock, the undersigned hereby irrevocably and perpetually waive their
right contained in Section 8.2 of the Agreement to designate a person for
nomination to and election as a member of the Company's board of directors. The
undersigned also waive any obligation of any stockholder of the Company to vote
for election of any Designee (as defined in the Agreement) to the Company's
board of directors. This letter constitutes an amendment to the Agreement to the
extent necessary to give effect to the waiver contained herein.
Very truly yours,
NASSAU CAPITAL PARTNERS, L.P.
By: Nassau Capital L.L.C.,
General Partner
By: /s/ JOHN G. QUIGLEY
--------------------------
John G. Quigley
NASSAU PARTNERS I, L.L.C.
By: /s/ JOHN G. QUIGLEY
--------------------------
John G. Quigley
Accepted and agreed:
RENTAL SERVICE CORPORATION
By: /s/ DOUGLAS A. WAUGAMAN
------------------------
Douglas A. Waugaman
<PAGE>
EXHIBIT 10.11
STOCKHOLDERS' AGREEMENT
-----------------------
This Stockholders' Agreement (this "Agreement"), dated as of January 4,
1996 is made and entered into by and among the parties listed on the signature
page hereto (the "Stockholders") and Rental Service Corporation, a Delaware
corporation ("the Company").
RECITALS
--------
WHEREAS, the parties hereto, consisting of certain stockholders of the
Company ("Stockholders") owning either or both of shares of common stock of the
Company ("Company Common Stock") or preferred stock of the Company ("Company
Preferred Stock" and, together with the Company Common Stock, the "Company
Stock") desire to enter into this Agreement for the purpose of regulating
certain aspects of their relationship on and after the date hereof;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, the receipt and adequacy of which
is hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
Section I. Authorization.
-------------
Each Stockholder hereby represents and warrants to the Company and to each
other that it has full power and authority to execute, deliver and perform its
obligations under this Agreement. The execution and delivery of this Agreement
has been duly and validly authorized, and all necessary action has been taken,
to make this Agreement a valid and binding obligation of such Stockholder,
enforceable in accordance with its terms, except that the enforcement thereof
may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and to general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
Section II. Certain Covenants of the Company.
--------------------------------
When it is first legally required to do so, the Company will register the
Company Common Stock under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and will keep effective such registration and will
timely file such information, documents and reports as the Securities and
Exchange Commission (the "Commission") may require or prescribe under Section 13
of the Exchange Act. From and after the effective date of any registration
statement filed by the Company under the Securities Act of 1933, as amended (the
"Act"), the Company will (whether or not it may then be required to do so)
timely file such information, documents and reports as the Commission may
require or present under Section 13 or 15(d) (whichever is applicable) of
<PAGE>
the Exchange Act. Immediately upon becoming subject to the reporting
requirements of either Section 13 or 15(d) of the Exchange Act, the Company will
forthwith upon request furnish any Stockholder (i) a written statement by the
Company that it has complied with such reporting requirements, (ii) a copy of
the most recent annual or quarterly report of the Company, and (iii) such other
reports and documents filed by the Company with the Commission as such
Stockholder may reasonably request. The Company acknowledges and agrees that the
purposes of the requirements contained in this Section II are to enable any such
Stockholder to comply with the current public information requirements contained
in Rule 144 and Rule 144A under the Act should such Stockholder ever wish to
dispose of any of the Shares acquired by it hereunder without registration under
the Act in reliance upon Rule 144 or Rule 144A (or any other similar exemptive
provision). In addition, the Company will take such other measures and file such
other information, documents and reports, as shall hereafter be required by the
Commission as a condition to the availability of Rule 144 and Rule 144A under
the Act (or any similar exemptive provision hereafter in effect).
Section III. Rights of First Refusal.
-----------------------
A. Before any shares of Company Stock, or any beneficial interest therein,
may be sold, transferred or assigned (including transfer by operation of law) or
pledged, hypothecated or encumbered by any of the Stockholders (a "Selling
Stockholder") (except to a bank or other lending institution to secure loans
extended by such bank or other lending institution for any purpose, which bank
or other lending institution, prior to such pledge, hypothecation or
encumbrance, agrees in writing to be bound by the provisions of this Agreement
and delivers written notice of such agreement to the Company) such shares shall
first be offered to the Company and other Stockholders owning the same class of
Company Stock (the "Applicable Class Stockholders") as set forth below.
B. The Selling Stockholder shall deliver a notice (the "Notice") to the
Company stating (i) his bona fide intention to sell or transfer such shares,
(ii) the number of shares proposed to be sold or transferred (the "Noticed
Shares"), (iii) the price for which it is proposed to sell or transfer the
Noticed Shares (in the case of a transfer not involving a sale such price shall
be deemed to be fair market value of the Noticed Shares as determined pursuant
to Section III.D hereof) and the terms of payment of that price and other terms
and conditions of sale, and (iv) the name and address of the proposed purchaser
or transferee. A Selling Stockholder shall not effect, or attempt to effect,
any sale or other transfer for value of the Company Stock other than for money
or an obligation to pay money.
C. For a period of thirty (30) days after receipt of the Notice, the
Company (or its assignee or assignees other than Brentwood Acme Partners, L.P.
(the "Partnership") or an Affiliate (as defined in Section IV.E) thereof (any
such assignee being called a "Permitted Assignee")) shall have the right to
purchase all of the Noticed Shares. The price per share of the Noticed Shares
purchased by the Company pursuant to this Section III.C shall be, in
2
<PAGE>
the case of a sale, the price per share as set forth in the Notice and, in the
case of a transfer not involving a sale, the fair market value of such shares
determined pursuant to Section III.D hereof, and the purchase shall be on the
same terms and subject to the same conditions as those set forth in the Notice.
If the Company (including its Permitted Assignee or Permitted Assignees) elects
not to purchase all the Noticed Shares, it shall give written notice within the
thirty (30) day period following receipt of the Notice, and, for a period of
twenty (20) days after receipt of the aforementioned notice from the Company,
the other Applicable Class Stockholders have the right to purchase pro rata all
of the Noticed Shares not purchased by the Company (the "Remaining Shares") (pro
rata on the basis of those Applicable Class Stockholders that elect to purchase
such Remaining Shares) on the same terms and conditions as set forth in the
Notice. The price per share shall be, in the case of a transfer not involving a
sale, the fair market value of such shares determined pursuant to Section III.D.
hereof, and the purchase shall be on the same terms and subject to the same
conditions as those set forth in the Notice.
D. In the case of a transfer of shares of Company Stock not involving a
sale, the fair market value of the shares shall be determined in good faith by
the Company's Board of Directors. This determination will be final and binding
upon all parties and persons claiming under or through them. Anything in this
Section III.D to the contrary notwithstanding, if a Selling Stockholder is not
satisfied with the determination of fair market value, such Stockholder may
elect not to proceed with the proposed transfer of shares of Company Stock not
involving a sale and retain such shares under this Agreement.
E. If the Company (including its Permitted Assignee or Permitted
Assignees) or the other Applicable Class Stockholders, as applicable, does not
elect to purchase all of the shares of Company Stock to which the Notice refers
as provided in Section III.B hereof, then none of the shares shall be purchased
(unless the Selling Stockholder elects otherwise), and the Selling Stockholder
may sell or transfer all (but not less than all) of such shares to any purchaser
or transferee named in the Notice at, in the case of a sale, the price specified
in the Notice or at a higher price, provided that such sale or transfer is
consummated within five (5) months of the date of the Notice to the Company.
F. Notwithstanding subsections A through E of this Section III, the
Company and the other Investors shall not have any rights under this Section
III: (i) at any time subsequent to the closing of an underwritten public
offering of the equity securities of the Company pursuant to a registration
statement declared effective under the Act; (ii) at any time after any
equity securities of the Company have been registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended; or (iii) as a result of or at any
time after any transfer of equity securities of the Company in connection with a
sale of the Company, whether such sale is effected by merger, consolidation,
sale of assets or sale or exchange of stock representing at least fifty percent
(50%) of the voting power of the stock of the Company (in terms of number of
votes for the election of directors).
3
<PAGE>
Section IV. Tag-Along Rights.
----------------
A. If the Partnership or any of its respective Affiliates (as
hereinafter defined) (collectively, the "Selling Group"), at any time or from
time to time, enters into an agreement (whether oral or written) to transfer,
sell or otherwise dispose of, directly or indirectly (a "Tag-Along Sale"), any
shares of the Company Preferred Stock or the Company Common Stock or any
interest therein, then each other Stockholder shall have the right, but not the
obligation, to participate in such Tag-Along Sale (and to displace the Selling
Group to the extent of such participation) by selling up to its pro rata
--- ----
interest (based on the shares outstanding of the applicable class) of the number
of shares of Company Preferred Stock or Company Common Stock (the "Stockholders'
Allotment") equal to the product of (i) the total number of shares of Company
Preferred Stock or Company Common Stock proposed to be sold or otherwise
disposed of by the Selling Group in the Tag-Along Sale multiplied by (ii) a
fraction, the numerator of which shall equal the aggregate number of shares of
Company Preferred Stock or Company Common Stock owned by Stockholders who have
elected to participate in such Tag-Along Sale immediately prior to the Tag-Along
Sale and the denominator of which shall equal the sum of: (A) the aggregate
number of shares of Company Preferred Stock or Company Common Stock owned by
members of the Selling Group who have elected to participate in such Tag-Along
Sale immediately prior to Tag-Along Sale; and (B) the aggregate number of shares
of such class of Company Preferred Stock or Company Common Stock owned by
Stockholders who have elected to participate in such Tag-Along Sale immediately
prior to the Tag-Along Sale.
Any such sale by any Stockholder shall be on the same terms and conditions
as the proposed Tag-Along Sale by the Selling Group; provided, however, that all
-------- -------
selling Stockholders shall share pro rata, based upon the number of shares being
--- ----
sold by each (i) in any indemnity liabilities to the proposed transferee or
purchaser in the Tag-Along Sale (other than representations as to unencumbered
ownership of and ability to transfer the shares being sold of any other seller
in the Tag-Along Sale, which shall be the sole responsibility of such other
seller) and (ii) in any escrow for the purpose of satisfying any such indemnity
liabilities; provided, further that each Stockholder's sharing obligation
-------- -------
hereunder with respect to such indemnity or other liabilities shall be limited
to the shares of Common Stock and Preferred Stock being sold by such Stockholder
and the proceeds thereof, including without limitation the cash and non-cash
consideration received by such Stockholder with respect to such shares of Common
Stock and Preferred Stock. In no circumstance whatsoever hereunder shall any
recourse be had to such Stockholder, whether by levy or execution, or under any
law, or by the enforcement of any assessment or penalty or otherwise, it being
understood that the sole recourse for enforcing such Stockholder's obligation
shall be to such shares of Common Stock and/or Preferred Stock being sold
thereby and the proceeds thereo.
B. The foregoing notwithstanding, Section IV.A shall not apply to (i) any
transfer, sale or other disposition of shares of Company Preferred Stock or
Company Common Stock solely among the Partnership and its Affiliates for a price
not in excess of the
4
<PAGE>
original purchase price of such shares, (ii) any distribution by the Partnership
to its partners and (iii) any merger or consolidation of the Company with or
into another corporation or a sale of all or substantially all of the assets of
the Company followed by its dissolution, provided that all shares of Company
Stock subject to this Agreement are treated the same in any such transaction.
C. The Selling Group members participating in a Tag-Along Sale or a
representative of the Selling Group (the "Selling Group Representative," which
shall be the general partner of the Partnership until the other Stockholders are
notified of the name and address of a successor representative) shall promptly
provide each Stockholder with written notice (the "Tag-Along Sale Notice") not
more than 60 nor less than 30 days prior to the proposed date of the Tag-Along
Sale (the "Tag-Along Sale Date"). In order to facilitate the prompt delivery of
the Tag-Along Sale Notices, the Company hereby covenants to provide the Selling
Group members participating in a Tag-Along Sale or the Selling Group
Representative, as the case may be, access to stock record books of the Company.
Each Tag-Along Sale Notice shall set forth: (i) the name and address of each
proposed transferee or purchaser of shares of Company Preferred Stock or Company
Common Stock in the Tag-Along Sale; (ii) the name and address of each Selling
Group member participating in the Tag-Along Sale and the number of shares of
Company Preferred Stock or Company Common Stock proposed to be transferred or
sold by each such Selling Group member; (iii) the proposed amount and form of
consideration to be paid for such shares and the terms and conditions of payment
offered by each proposed transferee or purchaser, (iv) the aggregate number of
shares of Company Preferred Stock or Company Common Stock held of record as of
the close of business on the date of the Tag-Along Sale Notice (the "Tag-Along
Notice Date") by the Stockholder to whom the notice is sent and the aggregate
number of such Stockholder's shares of Company Preferred Stock or Company Common
Stock outstanding on the Tag-Along Notice Date; (v) the aggregate number of
shares of Company Preferred Stock or Company Common Stock held of record as of
the Tag-Along Notice Date by the Selling Group; (vi) the maximum number of
shares of Company Preferred Stock or Company Common Stock (the "Stockholder's
Allotment") that the Stockholder to whom the notice is sent is entitled to
include in the Tag-Along Sale assuming each Stockholder elected to participate
in the Tag-Along Sale and elected to sell the maximum number of shares owned by
such Stockholder; (vii) the number of shares of each class of Company Preferred
Stock or Company Common Stock constituting the Stockholders' Allotment; (viii)
confirmation that the proposed purchaser or transferee has been informed of the
"Tag-Along Rights" provided for herein and has agreed to purchase shares of
Company Stock in accordance with the terms hereof; (ix) the Tag-Along Sale Date
and (x) confirmation that, with respect to the shares of Company Preferred Stock
or Company Common Stock to be received by the proposed transferee or purchaser,
the proposed transferee or purchaser agrees in writing to be bound by, and
covenants that each transferee of all such shares shall be bound by, the
provisions of this Agreement as if it were a member of the Selling Group.
5
<PAGE>
Each Stockholder shall provide written notice (or oral notice confirmed in
writing) (the "Tag-Along Notice") to the member(s) of the Selling Group
participating in the Tag-Along Sale, or, at such Stockholder's option, to the
Selling Group Representative, no less than 15 days prior to the Tag-Along Sale
Date. The Tag-Along Notice shall set forth the number of shares of Company
Preferred Stock or Company Common Stock, if any, that such Stockholder desires
to include in the Tag-Along Sale (which shall not exceed such Stockholder's
Allotment). The Tag-Along Notice shall also specify the aggregate number of
additional shares of Company Preferred Stock or Company Common Stock owned of
record as of the Tag-Along Notice Date by such Stockholder, if any, which such
Stockholder desires also to include in the Tag-Along Sale ("Additional Shares")
in the event there is an aggregate undersubscription for the entire
Stockholders' Allotment. In the event there is an aggregate undersubscription
by the Stockholders for the entire Stockholders' Allotment, the Selling Group
member(s) participating in the Tag-Along Sale shall apportion the unsubscribed
shares of Company Preferred Stock or Company Common Stock to Stockholders whose
Tag-Along Notices specified an amount of Additional Shares, which apportionment
shall be on a pro rata basis among such Stockholders in accordance with the
number of Additional Shares specified by all such Stockholders in their Tag-
Along Notices.
The participating members of the Selling Group shall determine the
aggregate number of shares of Company Preferred Stock or Company Common Stock to
be sold by each participating Stockholder in any given Tag-Along Sale in
accordance with the terms hereof, and the Tag-Along Notices given by the
Stockholders shall constitute their binding respective agreements to sell such
shares on the terms and conditions applicable to such sale (including the
requirements of this Section IV). If the proposed transferee or purchaser does
not purchase all of such shares on the same terms and conditions applicable to
the members of the Selling Group (except as otherwise provided herein)
then none shall be purchased.
If a Tag-Along Notice from a Stockholder is not received by the members of
the Selling Group participating in the Tag-Along Sale or by the Selling Group
Representative, as the case may be, within the 15-day period specified above,
the Selling Group members shall have the right to sell or otherwise transfer the
number of shares of Company Preferred Stock or Company Common Stock specified in
the Tag-Along Sale Notice to the proposed purchaser or transferee without any
participation by such Stockholder, but only on the terms and conditions stated
in such Tag-Along Sale Notice and only if such sale occurs on a date within five
business days of the Tag-Along Sale Date.
D. The provisions of this Section IV shall apply regardless of the form of
consideration received in the Tag-Along Sale.
E. "Affiliate" of a specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person and, in the case of a person who is an
individual, shall include (i) members of such specified person's immediate
family (as defined in instruction 2 of Item 404(a) of Regulation
6
<PAGE>
S-K promulgated by the Securities and Exchange Commission) and (ii) trusts whose
trustee and beneficiaries include only such specified person or members of such
person's immediate family as determined in accordance with the foregoing clause
(i). For the purposes of this definition, "control," when used with respect to
any person, means the power to direct the management and policies of such
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
F. The provisions of this Section IV shall terminate on the earlier to
occur of (i) the closing of an underwritten public offering of the Common Stock
pursuant to a registration statement declared effective under the Act, or (ii)
after any equity securities of the Company have been registered under Section
12(g) of the Exchange Act.
Section V. Drag-Along Rights.
-----------------
A. In the event the Selling Group determines to accept an offer from any
person (other than a member of the Selling Group or any Affiliate thereof) to
acquire 100% of the outstanding shares of Company Common Stock, then, subject to
paragraph C below, at the option of the Selling Group, each of the other
Stockholders shall sell, and shall cause any Affiliate of it to sell, all shares
of Company Stock held by it or such Affiliate pursuant to such offer to purchase
(the "Drag-Along Sale"). All holders of Company Stock in such Drag-Along Sale
(i) shall receive the same consideration per share of each class of Company
Stock, shall be subject to the same terms and conditions of sale and shall
otherwise be treated equally or, where appropriate, pro rata based upon the
number of shares of Company Stock held by each Stockholder and (ii) shall
execute such documents and take such actions as may be reasonably required by
the Selling Group Representative.
Any such sale by any Stockholder shall be on the same terms and conditions
as the proposed Drag-Along Sale by the Selling Group; provided, however, that
-------- -------
all selling Stockholders shall share pro rata, based upon the number of shares
of each class of Company Stock being sold by each, (i) in any indemnity
liabilities to the purchaser in the Drag-Along Sale (other than representations
as to unencumbered ownership of and ability to transfer the shares being sold of
any other seller in the Drag-Along Sale, which shall be the sole responsibility
of such other seller) and (ii) in any escrow for the purpose of satisfying any
such indemnity liabilities; provided, further that each Stockholder's sharing
-------- -------
obligation hereunder with respect to such indemnity or other liabilities shall
be limited to the shares of Common Stock and Preferred Stock being sold by such
Stockholder and the proceeds thereof, including without limitation the cash and
non-cash consideration received by such Stockholder with respect to such shares
of Common Stock and Preferred Stock. In no circumstance whatsoever hereunder
shall any recourse be had to such Stockholder, whether by levy or execution, or
under any law, or by the enforcement of any assessment or penalty or otherwise,
it being understood that the sole recourse for enforcing such Stockholder's
7
<PAGE>
obligation shall be to such shares of Common Stock and/or Preferred Stock being
sold thereby and the proceeds thereof.
B. The Selling Group members participating in a Drag-Along Sale or the
Selling Group Representative shall promptly provide each Stockholder with
written notice (the "Sale Notice") not more than 60 nor less than 30 days prior
to the date of the Drag-Along Sale (the "Drag-Along Sale Date"). Each Sale
Notice shall set forth: (i) the name and address of each proposed transferee or
purchaser of shares of Company Stock in the Drag-Along Sale; (ii) the proposed
amount and form of consideration to be paid for such shares and the terms and
conditions of payment offered by each proposed transferee or purchaser, (iii)
confirmation that the proposed purchaser or transferee has been informed of the
"Drag-Along Rights" provided for herein and has agreed to purchase shares of
Company Stock in accordance with the terms hereof; and (iv) the Drag-Along Sale
Date.
C. The provisions of this Section V shall apply regardless of the form of
consideration received in the Drag-Along Sale, and if any non-cash consideration
is proposed in the Drag-Along Sale to each member of the Selling Group, each
Stockholder shall accept its pro rata share of such non-cash consideration for
--- ----
Company Stock based upon its proportional ownership of shares of each class of
Company Stock. The provisions of this Section V shall also apply to any
exchange of Company Preferred Stock for, or reclassification of Company
Preferred Stock into, Company Common Stock, as if such transaction were a sale
subject to this Section V.
E. The provisions of this Section V shall terminate on the earlier to
occur of (i) the closing of an underwritten public offering of Company Common
Stock pursuant to a registration statement declared effective under the Act, or
(ii) the first time at which any equity securities of the Company have been
registered under Section 12(g) of the Exchange Act.
Section VI. Registration Rights.
-------------------
Each of the Stockholders shall have the registration rights ("Registration
Rights") set forth in Exhibit A hereto, which Exhibit A is hereby incorporated
herein as if set forth in full in this Agreement.
Section VII. Exempt Transfers.
----------------
The provisions of Section III shall not apply to a transfer by a
Stockholder, either during his lifetime or on death by will or intestacy, to (i)
the Company or any subsidiary thereof (ii) his ancestors, descendants, spouse,
brothers, sisters, nephews or nieces, (iii) any custodian or trustee for the
account or benefit of such Stockholder or such Stockholder's ancestors,
descendants, spouse, brothers, sisters, nephews or nieces, (iv) in the case of a
Stockholder which is a corporation, an entity directly or indirectly controlled
by or
8
<PAGE>
under common control with such Stockholder or (v) in the case of (i) Nassau
Capital Partners L.P., (ii) NAS Partners I L.L.C., (iii) Henry L. Hillman, Elsie
Hilliard Hillman and C.G. Grefenstette, Trustees of the Henry L. Hillman Trust,
U/A dated 11/18/85, (iv) Venhill Limited Partnership, (v) C.G. Grefenstette, and
Thomas G. Bigley, Trustees U/A/T dated 11/16/64 for: Juliet Lea Hillman, (vi) C.
G. Grefenstette, and Thomas G. Bigley, Trustees U/A/T dated 11/16/64 for: Audrey
Hilliard Hillman, (vii) C. G. Grefenstette, and Thomas G. Bigley, Trustees U/A/T
dated 11/16/64 for: Henry Lea Hillman, Jr., (viii) C. G. Grefenstette, and
Thomas G. Bigley, Trustees U/A/T dated 11/16/64 for: William Talbott Hillmand
and (ix) Wilmington Interstate Corporation, to any of their respective
Affiliates, including distributions to limited or general partners ; provided,
--------
however, that the transferee pursuant to clause (ii), (iii), (iv) or (v) shall
- -------
receive and hold such Shares subject to the provisions of this Agreement and
there shall be no further transfer of such Shares except in accordance herewith;
and provided further, that the transferee shall acknowledge and agree, in a
----------------
writing satisfactory to the Company, to be bound by the terms of this Agreement
and shall execute and deliver to the Company a letter to such effect.
Section VIII. Restriction on Public Sale.
--------------------------
Anything to the contrary herein notwithstanding, in the event that the
Company files a registration statement with respect to an underwritten public
offering under the Act in which any class of the Company's equity securities is
offered, no Stockholder shall effect any public sale or distribution (except
pursuant to said registration statement) of any of the shares of Company Stock
(which shares, for the purposes of this Section VI, shall include any and all
voting securities received by such Stockholder as a stock dividend, stock split
or other recapitalization or similar distribution on or in respect of the shares
of Company Stock) or any of the Company's other equity securities, or of any
securities convertible into or exchangeable for such securities, during the
period beginning ten (10) days before the filing of such registration statement
with the Securities and Exchange Commission and ending ninety (90) days after
such registration statement has become effective or ten (10) days after it has
been withdrawn. After the later of five (5) years from the date of this
Agreement or the completion of two (2) underwritten public offerings of the
Company' equity securities, this Section VIII shall cease to apply.
Section IX. Conflicting Agreements.
----------------------
The parties hereto hereby acknowledge and agree that from time to time
prior to executing this Agreement, some of them have entered into stock purchase
agreements and related documents concerning their ownership of capital stock of
the Company or Acme Holdings Inc. The parties hereto hereby agree that the
provisions of this Agreement supersede such prior agreements to the extent such
provisions conflict with the terms of this Agreement. Notwithstanding the
foregoing, to the extent such prior agreements are not in conflict with the
provisions of this agreement, the parties hereto shall continue to be bound by
the terms of such prior agreements, and that provisions relating to vesting and
repurchase
9
<PAGE>
of shares owned by employees, directors and contractors are not in conflict with
this Agreement.
Section X. Register of Securities; Removal of Restrictions on Transfer;
------------------------------------------------------------
Legends; Board of Directors.
---------------------------
A. Register of Securities. The Company or its duly appointed agent shall
----------------------
maintain separate registers for the shares of Series A Preferred Stock and the
shares of Common Stock, in which it shall register the issue and sale of all
such respective shares. The Company may issue stop transfer instructions to
such agent and make similar notations in such register to ensure that all
transfers of such securities are made in accordance with this Agreement. All
transfers of such securities shall be recorded on the register maintained by the
Company or its agent, and the Company shall be entitled to regard the registered
holder of such securities as the actual holder thereof until the Company or its
agent is required to record a transfer of such securities on its register.
Subject to Sections III and VIII hereof, the Company or its agent shall be
required to record any such transfer when it receives the security to be
transferred duly and properly endorsed by the registered holder thereof or by
its attorney duly authorized in writing.
B. Removal of Transfer Restrictions. Any legend endorsed on a certificate
--------------------------------
evidencing Shares and the stop transfer instructions and record notations with
respect to such Shares shall be removed and the Company shall issue a
certificate without such legend to the holder of such Shares (i) if such Shares
are registered under the Act, or (ii) if a notification under Regulation A under
the Act is in effect with respect thereto, or (iii) if such Shares have been
sold under Rule 144 or Rule 144A under the Act.
C. Legends. All certificates evidencing the shares of Company Stock
-------
subject to this Agreement shall bear substantially the following legends:
(i) "The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"). These
securities have been acquired for investment and not with a view to
distribution or resale, and may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration statement for such
shares under the Act or an opinion of counsel satisfactory in form and
content to the issuer that such registration is not required under such
Act."
(ii) "The securities represented by this certificate are subject
to a right of first refusal option in favor of certain stockholders, drag-
along rights and certain other rights in favor of certain stockholders, all
as set forth in a Stockholder's Agreement between the issuer corporation
and the registered holder, or its predecessor in interest, a copy of which
is on file at the principal
10
<PAGE>
office of the issuer corporation and will be furnished upon request to the
holder of record of the shares represented by this certificate."
(iii) Any legend required to be placed thereon by any applicable
state securities law.
D. Board of Directors. So long as Nassau Capital Partners, L.P.
------------------
("Nassau") and its Affiliates own at least 65% of the shares of Common Stock
purchased by Nassau and its Affiliate on the date hereof pursuant to a Preferred
Stock and Common Stock Purchase Agreement entered into with the Company, each
Stockholder agrees, if requested by the Company and Nassau, to vote in favor of
(or execute a consent in lieu thereof) a designee of Nassau Capital Partners,
L.P. in any election of directors (other than to fill a vacancy, unless the
vacancy is caused by the death or resignation of such a designee) so that at all
times one such designee is serving or has the opportunity to serve on the Board
of Directors.
Section XI. Enforcement.
-----------
The parties acknowledge that the remedy at law for any breach or
violation of the provisions of Section X hereof shall be inadequate and that, in
the event of any such breach or violation, the Company and/or the Stockholders
shall be entitled to injunctive relief in addition to any other remedy, at law
or in equity, to which it may be entitled.
Section XII. Violation of Transfer Provisions.
--------------------------------
The Company shall not be required (i) to transfer on its books any
shares of Company Stock which shall have been sold, transferred, assigned or
pledged in violation of any of the provisions set forth in this Agreement, or
(ii) to treat as owner of such shares of Company Stock or to accord the right to
vote as such owner or to pay dividends to any transferee to whom such shares
shall have been so transferred.
Section XIII. General Provisions.
------------------
A. After-Acquired Shares. All of the provisions of this Agreement shall
---------------------
apply to (i) all of the shares of Company Stock now owned or which may be
transferred hereafter to, or owned by, any Stockholder and (ii) all securities
and instruments (A) received by a Stockholder as a dividend on or other payment
made to holders of Company Stock, or (B) issued in connection with a split of
Company Stock or as a result of any exchange for or reclassification of Company
Stock or a reorganization, recapitalization, consolidation or merger. In
addition, any person or entity who does not presently own but subsequently
acquires newly-issued shares of Company Stock or securities convertible into or
exercisable or exchangeable for Company Stock may become a party to and bound by
this Agreement to such extent as the Company and such person or entity may
agree.
11
<PAGE>
B. Rights and Obligations of Transferees. If a Stockholder transfers any
-------------------------------------
or all of its shares of Company Stock to any person, such person and each
subsequent transferee shall have the same rights hereunder as are given to the
Stockholder, and shall be subject to the same obligations as are imposed upon
the Stockholder by the terms hereof (and all references herein to a Stockholder
shall include such transferee), unless otherwise provided herein. The Company
will not record any transfer of Company Stock that was made in violation of any
provision of this Agreement.
C. Owner of Stockholder Shares. The person in whose name shares of
---------------------------
Company Stock are registered in the stock books of the Company may be treated as
the owner thereof for all purposes, including without limitation, for the giving
of notices under this Agreement.
D. Notices. All notices, requests, consents and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given and made and served either by personal delivery to the person
for whom it is intended or if deposited, postage prepaid, registered or
certified mail, return receipt requested, in the United States mail:
(1) if to any Stockholder, addressed to such Stockholder at its
address shown on the stock register maintained by the Company, or at such
other address as such Stockholder may specify by written notice to the
Company, or
(2) if to the Company, to Rental Service Corporation, 14505 N. Hayden
Road, Suite 322, Scottsdale, AZ 85260, Attention: Chief Executive
Officer, or to such other address as the Company may specify by written
notice to the Stockholders, with a copy to Brentwood Associates, 11150
Santa Monica Boulevard, Suite 1200, Los Angeles, CA 90025, Attention:
Christopher Laurence.
Each such notice, request, consent or other communication shall be deemed to
have been given upon receipt thereof or, if sooner, five (5) days after such has
been deposited as described above. The addresses for the purposes of this
Section XIII D., may be changed by giving written notice of such change in the
manner provided herein for giving notice. Unless and until such written notice
is received, the address provided herein shall be deemed to continue in effect
for all purposes hereunder.
E. Choice of Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws, and not the laws of conflicts of laws, of the
State of Delaware.
F. Severability. The parties hereto agree that the terms and provisions
------------
in this Agreement are reasonable and shall be binding and enforceable in
accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this
12
<PAGE>
Agreement shall for any reason be adjudged to be unenforceable or invalid, then
such unenforceable or invalid term or provision shall not affect the
enforceability or validity of the remaining terms and provisions of this
Agreement, and the parties hereto hereby agree to replace such unenforceable or
invalid term or provision with an enforceable and valid arrangement which in its
economic effect shall be as close as possible to the unenforceable or invalid
term or provision.
G. Parties in Interest. All the terms and provisions of this Agreement
-------------------
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto, whether so expressed or
not.
H. Modification, Amendment and Waiver. No modification, amendment or
----------------------------------
waiver of any provision of this Agreement shall be effective against the Company
or any Stockholder unless approved in writing by (i) the Partnership and (ii)
other Stockholders owning a majority of the shares of Company Stock subject to
this Agreement, and, in the case of the Company, authorized by its Board of
Directors; provided, that no modification, amendment or waiver shall be
--------
effective against a particular Stockholder without such Stockholder's consent if
such modification, amendment or waiver would adversely affect such Stockholder's
rights under this Agreement in a manner disproportionate (in relation to
proportional stock ownership) to the effect of such modification, amendment or
waiver on other Stockholders. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of any of the parties thereafter to
enforce each and every provision hereof in accordance with its terms.
I. Integration. This Agreement, together with Exhibits A and B hereto,
-----------
constitutes the entire agreement of the parties with respect to the subject
matter hereof and thereof and, except as set forth in Section IX, supersedes all
prior agreements and negotiations with respect thereto.
J. Headings. The headings of the sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
K. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
L. Heller Financial. Heller Financial, Inc. shall have the rights set
----------------
forth on Exhibit B hereto.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
RENTAL SERVICE CORPORATION
By: /s/ MARTIN R. REID
------------------
Name: Martin R. Reid
Its: Chief Executive Officer
BRENTWOOD ACME PARTNERS, L.P.
By: Brentwood Buyout Partners, L.P.
General Partner
By: /s/ WILLIAM M. BARNUM
---------------------
Name: William M. Barnum
-----------------
Its: General Partner
---------------
NORTH AMERICAN TRUST COMPANY,
Trustee for the benefit of Thomas R. Lamia
By: /s/ KATHRYN SCHNETZ
-------------------
Name: Kathryn Schnetz
---------------
Its: Trustee of 401(k) PSP
---------------------
/s/ THOMAS R. LAMIA
-------------------
THOMAS R. LAMIA
14
<PAGE>
HELLER FINANCIAL INC.
By: /s/ JOHN A. FINNERTY
--------------------
Name: John A. Finnerty
----------------
Its: Senior Vice President
---------------------
/s/ MARTIN R. REID
------------------
MARTIN R. REID
/s/ DOUGLAS WAUGAMAN
--------------------
DOUGLAS WAUGAMAN
15
<PAGE>
NASSAU CAPITAL PARTNERS, L.P.
By: NASSAU CAPITAL L.L.C.,
General Partner
By: /s/ JOHN G. QUIGLEY
-------------------
Name: John G. Quigley
---------------
Its: Member
------
NASSAU PARTNERS I, L.L.C.
By: /s/ JOHN G. QUIGLEY
-------------------
Name: John G. Quigley
---------------
Its: Member
------
UST PRIVATE EQUITY INVESTORS FUND, INC.
By: /s/ DAVID I. FANN
-----------------
Name: David I. Fann
-------------
Its: President and CEO
-----------------
[HILLMAN]
By: ____________________________________
Name: _______________________________
Its: _______________________________
16
<PAGE>
HENRY L. HILLMAN, ELSIE HILLIARD HILLMAN AND C.G.
GREFENSTETTE, TRUSTEES OF THE HENRY L. HILLMAN
TRUST U/A DATED NOVEMBER 18, 1985
By: /s/ C.G. GREFENSTETTE
---------------------
Name: C.G. Grefenstette
-----------------
Title: Trustee
-------
C.G. GREFENSTETTE AND THOMAS G. BIGLEY, TRUSTEES
U/A/T DATED 11/16/64 FOR: JULIET LEA HILLMAN
By: /s/ C.G. GREFENSTETTE
---------------------
Name: C.G. Grefenstette
-----------------
Title: Trustee
-------
By: /s/ THOMAS G. BIGLEY
---------------------
Name: Thomas G. Bigley
-----------------
Title: Trustee
-------
17
<PAGE>
C.G. GREFENSTETTE AND THOMAS G. BIGLEY, TRUSTEES
U/A/T DATED NOVEMBER 11/16/64 FOR: AUDREY HILLIARD
HILLMAN
By: /s/ C.G. GREFENSTETTE
---------------------
Name: C.G. Grefenstette
-----------------
Title: Trustee
-------
By: /s/ THOMAS G. BIGLEY
---------------------
Name: Thomas G. Bigley
-----------------
Title: Trustee
-------
C.G. GREFENSTETTE AND THOMAS G. BIGLEY, TRUSTEES
U/A/T DATED NOVEMBER 11/16/64 FOR: HENRY LEA
HILLMAN, JR.
By: /s/ C.G. GREFENSTETTE
---------------------
Name: C.G. Grefenstette
-----------------
Title: Trustee
-------
By: /s/ THOMAS G. BIGLEY
---------------------
Name: Thomas G. Bigley
-----------------
Title: Trustee
-------
18
<PAGE>
C.G. GREFENSTETTE AND THOMAS G. BIGLEY, TRUSTEES
U/A/T DATED NOVEMBER 11/16/64 FOR: WILLIAM TALBOTT
HILLMAN
By: /s/ C.G. GREFENSTETTE
---------------------
Name: C.G. Grefenstette
-----------------
Title: Trustee
-------
By: /s/ THOMAS G. BIGLEY
---------------------
Name: Thomas G. Bigley
-----------------
Title: Trustee
-------
VENHILL LIMITED PARTNERSHIP
/s/ HOWARD B. HILLMAN
-----------------------------------
Name: Howard B. Hillman
Title: General Partner
WILMINGTON INTERSTATE CORPORATION
By: /s/ DARLENE CLARKE
----------------------------
Name: Darlene Clarke
---------------
Title: Vice President
--------------
19
<PAGE>
Exhibit A
REGISTRATION RIGHTS
Section 1. Definitions. Terms defined in the foregoing Stockholders'
-----------
Agreement (the "Agreement") are used as therein defined unless otherwise defined
in this Exhibit A. In addition, the following terms shall have the meanings
indicated:
"Commission" means the Securities and Exchange Commission, or any
other federal agency then administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
Section 2. Rights of Stockholder. If at any time the Company proposes to
---------------------
register (other than a registration (1) on Form S-8 or any successor form
thereto; (2) of debt securities of the Company; (3) of Preferred Stock of the
Company; or (4) of securities for the purpose of consummating any acquisition by
the Company including a registration on Form S-4 (or any successor form
thereto)) any public offering of shares of its capital stock under the
Securities Act, the Company will give written notice to Stockholder of its
intention so to do at least twenty (20) days prior to the filing of the
registration statement.
A. In the event of an underwritten public offering:
(1) If the representative of the underwriters participating in the
sale and distribution of the Company's securities covered by said registration
statement agrees that a number of shares of outstanding Company Common Stock in
addition to those shares to be registered on behalf of the Company (the
"Permissible Secondary Shares") may be included in the offering covered by the
registration statement, the Company's notice shall afford Stockholder an
opportunity to elect to include in such filing all or any part of the shares of
the Company Common Stock then owned by Stockholder. Stockholder shall have
fifteen (15) days after receipt of the Company' notice to notify the Company in
writing of the number of shares of the Company Common Stock (the "Elected
Shares") which Stockholder elects to include in the offering. The Elected
Shares shall be included in the offering to the extent permitted by the
representative. If the aggregate number of Elected Shares that Stockholder and
any other holders of securities of the Company possessing registration rights
desire to include in such filing exceeds the number of Permissible Secondary
Shares, then Stockholder shall, subject to any priority available to other
holders of securities, be entitled to include that number of shares of Company
Common Stock that bears the same ratio to the number of Permissible Secondary
Shares as the number of Elected Shares of the Company Common Stock that
Stockholder desires to include bears to the number of Elected Shares that all
eligible holders of securities desire to include. Such representative may
increase or decrease the number of Permissible Secondary Shares at any time
until all shares of the
20
<PAGE>
Company Common Stock included in such registration shall have been sold by such
underwriters.
(2) The inclusion in such filing of shares of Company Common Stock
shall be upon the condition that Stockholder sell his shares of Company Common
Stock to the underwriters on the same terms and conditions as the Company and
other selling holders.
(3) the Company shall afford Stockholder the right to participate in
each underwritten registration.
B. In the event of a public offering which is not underwritten:
(1) Stockholder shall have fifteen (15) days after receipt of the
Company's notice to notify the Company in writing of the number of shares of
Company Common Stock that are owned by him which Stockholder elects to include
in the offering.
(2) the Company will use its best efforts to prepare and file with the
Commission a registration statement with respect to such shares of Company
Common Stock and shall cause such registration statement to become effective, to
prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective until the earlier of the
sale of all shares of Company Common Stock covered thereby and the expiration of
a period of 9 months after its effective date and to comply with the provisions
of the Securities Act with respect to the disposition of all shares of Company
Common Stock covered by such registration statement. In the event that any
shares of the Company Common Stock included in a registration statement subject
to, or required by, this Exhibit A remain unsold at the end of such period,
Company may file a post-effective amendment to the registration statement for
the purpose of deregistering such shares.
(3) the Company will furnish to Stockholder so many copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as Stockholder may
reasonably request.
(4) the Company will use its best efforts to register or qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions (not exceeding ten (10) in number) as
Stockholder shall request, and do any and all other acts and things that may be
reasonably necessary or advisable to enable Stockholder to consummate the
disposition in such jurisdictions of the shares of Company Common Stock covered
by the registration statement; provided, however, that the Company shall not be
-------- -------
obligated, by reason thereof, to qualify as a foreign corporation or file any
21
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general consent to service of process under the laws of any such jurisdiction or
subject itself to taxation as doing business in any such jurisdiction.
(5) the Company shall notify Stockholder when the registration
statement covering the offering of the shares of Company Common Stock to be
registered has been filed with the Commission under the Securities Act and when
it has been made effective by order of the Commission.
Section 3. Obligations of Stockholder. To include any shares of Company
--------------------------
Common Stock in any registration, Stockholder shall:
(1) cooperate with the Company in preparing each such registration and
execute all such agreements as any representative of the underwriters may deem
reasonably necessary in favor of the underwriters;
(2) promptly supply the Company with all information, documents,
representations and agreements as the underwriters or the Company may deem
reasonably necessary in connection with such registration; and
(3) agree in writing not to sell or transfer any shares of the capital
stock of the Company not included in such registration during the period
beginning ten (10) days prior to the filing and ending ninety (90) days after
the effective date of such registration without the underwriters' or the
Company's consent.
Section 4. Completion of Offering Not Required. Anything herein to the
-----------------------------------
contrary notwithstanding, the Company shall have no obligation to Stockholder if
the Board of Directors of the Company determines, for any reason, not to
complete any proposed public offering of its securities.
Section 5. Registration Expenses. The costs and expenses (other than
---------------------
underwriting discount or commission and other than fees and disbursements of
counsel for any Stockholder) of all registrations and qualifications under the
Securities Act, and of all other actions that the Company is required to take or
effect pursuant to this Exhibit A, shall be paid by the Company (including,
without limitation, all registration and filing fees, printing expenses, costs
of special audits incident to or required by any such registration, fees and
disbursements of counsel for the Company).
Section 6. Indemnification by the Company. In the event of any
------------------------------
registration under the Securities Act of any offering including shares of
Company Common Stock, the Company hereby agrees to indemnify and hold harmless
Stockholder and each other person, if any, who controls Stockholder within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which Stockholder or such controlling person
may become subject under the Securities Act or otherwise, insofar as such
losses,
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claims, damages or liabilities (or proceedings in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which shares of
Company Common Stock were registered under the Securities Act, in any
preliminary prospectus or final prospectus contained therein or any amendment or
supplement thereto, (ii) 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 or (iii) any failure or alleged failure of the Company to
comply with any applicable statute, rule or regulation in connection with the
registration statement or the offering, and will reimburse Stockholder for any
legal or other expenses reasonably incurred by Stockholder in connection with
investigating or defending any such loss, claim, damage, liability or
proceeding; provided, that the Company will not be liable in any such case to
--------
the extent that 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 such registration statement, said preliminary or final
prospectus or said amendment or supplement in reliance upon and in conforming
with written information furnished by Stockholder in his capacity as such
specifically for use in the preparation thereof.
Section 7. Indemnification by Stockholder. In the event of any
------------------------------
registration under the Securities Act of any offering including shares of
Company Common Stock, Stockholder hereby agrees to indemnify and hold harmless
the Company, and each other person, if any, who controls the Company within the
meaning of the Securities Act and each other person (including each underwriter,
and each other person, if any, who controls such underwriter) who participates
in the offering of such Company Common Stock against any losses, claims, damages
or liabilities, joint or several, to which the Company, such controlling person
or participating person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which an offering of such Company Common Stock was
registered under the Securities Act, in any preliminary prospectus or final
prospectus contained therein, or in 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 the Company and each such
controlling person or participating person for any legal or other expenses
reasonably incurred by the Company or such controlling person or participating
person in connection with investigating or defending any such loss, claim,
damage, liability or proceeding; provided that Stockholder will be liable in any
--------
such case to the extent, and only to the extent, that 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 such
registration statement, said preliminary or final prospectus or said amendment
or supplement in reliance upon and in conformity with written information
furnished by Stockholder in his capacity as such specifically for use in the
preparation thereof.
23
<PAGE>
EXHIBIT B
The following provision is for the benefit of Heller Financial
Inc.("Heller"). Capitalized terms used in this Exhibit B without definition
have the meanings assigned in the foregoing Stockholders' Agreement
("Agreement").
The Company and each Stockholder acknowledge and understand that Heller is
subject to federal law and regulations which limit the number of shares of
Common Stock and Preferred Stock which Heller or its affiliates may own. If at
any time performance by the Company or any Stockholder of any of the provisions
of this Agreement would cause Heller to own or control more shares of the total
voting stock of the Company than Heller is permitted by any statute, law,
regulation or governmental authority to own or control, the Company agrees to
use its reasonable best efforts, subject to federal and state securities laws
and the General Corporation Law of Delaware, to take such action as is
reasonably acceptable to Heller to assist Heller in its efforts to comply with
such statutes, laws, regulations or governmental authorities, including without
limitation, to assist Heller in disposing of its shares in a prompt and orderly
manner (subject to the Company's and Stockholders' rights under this Agreement,)
to provided (and hereby authorizes Heller to provide) financial and other
information concerning the Company on a confidential basis to any prospective
purchaser of the shares of Common Stock or Preferred Stock to be transferred by
Heller (subject to the Company's and the Stockholders' rights under this
Agreement), and/or to authorize a class of non-voting stock and to issue such
number of shares of non-voting stock in exchange for shares of voting stock held
by Heller or its affiliate(s).
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<PAGE>
EXHIBIT 10.12
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
August 24, 1990, is made by and between Ira N. Mendelsohn ("Lessor") and Acme
Holdings Inc., a Delaware corporation ("Lessee"), (collectively, the "Parties,"
or individually a "Party").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 17871 Mitchell Drive, Irvine located in the
County of Orange, State of California and generally described as (describe
briefly the nature of the property) commercial office building ("Premises").
(See Paragraph 2 for further provisions.)
1.3 TERM: five (5) years and -0- months ("Original Term") commencing
October 1, 1990 ("Commencement Date") and ending September 30, 1995 ("Expiration
Date"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: N/A ("Early Possession Date"). (See Paragraphs
3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $ See Addendum per month ("Base Rent"), payable on
------------------
the first day of each month commencing October 1, 1990 (See Paragraph 4 for
further provisions.)
/X/ If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted upon exercise of option only.
1.6 BASE RENT PAID UPON EXECUTION: $-0- as Base Rent for the period.
1.7 SECURITY DEPOSIT: $ amount of first month's rent ("Security
----------------------------------
Deposit"). (See Paragraph 5 for further provisions.)
1.8 PERMITTED USE: commercial office space. (See Paragraph 6 for further
provisions.)
1.9 INSURING PARTY: Lessor is the "Insuring Party" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: PARAGRAPH DELETED
1.11 GUARANTOR: PARAGRAPH DELETED
<PAGE>
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 50 all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within thirty (30)
days after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)), made or
to be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within six
(6) months following the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matter other than as set forth in this Lease.
2
<PAGE>
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason, Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of
the Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when
the term actually commences, if possession is not tendered to Lessee when
required by this Lease and Lessee does not terminate this Lease, as aforesaid,
the period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Lessee would otherwise have enjoyed under
the terms hereof, but minus any days of delay caused by the facts, changes or
omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base
3
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Rent and other charges shall be made to Lessor at its address stated herein or
to such other persons or at such other addresses as Lessor may from time to time
designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor,
no part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 HAZARDOUS SUBSTANCES.
(A) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (iii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous
4
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Substances without the express prior written consent of Lessor and compliance in
a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as
defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority.
Reportable Use shall also include Lessee's being responsible for the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Law requires that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but in compliance with all Applicable Law,
use any ordinary and customary materials reasonably required to be used by
Lessee in the normal course of Lessee's business permitted on the Premises, so
long as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefrom or therefor,
including, but not limited to, the installation (and removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(B) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give written
notice of such fact to Lessor, Lessee shall also immediately give Lessor a copy
of any statement, report, notice, registration, application, permit, business
plan, license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(C) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include,
but not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement
5
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entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks, unless
specifically so agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and in
a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee
shall, within five (5) days after receipt of Lessor's written request, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in
6
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good order, condition and repair, structural and non-structural (whether or not
such portion of the Premises requiring repair, or the means of repairing the
same, are reasonably or readily accessible to Lessee, and whether or not the
need for such repairs occurs as a result of Lessee's use, any prior use, the
elements the age of such portion of the Premises), including without limiting
the generality of the foregoing, all equipment or facilities serving the
Premises, such as plumbing, heating, air conditioning, ventilating, electrical
lighting facilities, boilers, fired or unfired pressure vessels, fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing system,
including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), foundations, ceilings, roofs,
floors, windows, doors, plate glass, skylights, landscaping, driveways, parking
lots, fences, retaining walls, signs, sidewalks and parkways located in, on,
about, or adjacent to the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage tank brought
onto the Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair. If Lessee occupies the Premises for seven (7) years or more, Lessor may
require Lessee to repaint the exterior of the buildings on the Premises as
reasonably required, but not more frequently than once every seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non-structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms
of this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of
any statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to
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make repairs at the expense of Lessor or to terminate this Lease by reason of,
any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(A) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(B) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(s) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities, (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon, and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and in compliance
with all Applicable Law. Lessee shall promptly upon completion thereof furnish
Lessor with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(C) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim
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or demand, then Lessee shall, at its sole expense defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien, claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so. Lessor may require Lessee to pay Lessor's attorney's fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(A) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations or Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations or Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(B) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(C) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility Installations. The obligation of Lessee shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
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8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
(A) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's Indemnity obligations
under this Lease. The limits of said insurance required by this Lease or as
carried by Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance to be carried by Lessee shall
be primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(B) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(A) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure
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against all risks of direct physical loss or damage (except the perils of flood
and/or earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered cause of loss. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, the deductible amount shall not
exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an Insured Loss, as defined in Paragraph 9.1(c).
(B) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be
liable for any deductible amount in the event of such loss.
(C) ADJACENT PREMISES. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(D) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of
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personal property or the restoration of Lessee Owned Alterations and Utility
Installations. Lessee shall be the Insuring Party with respect to the insurance
required by this Paragraph 8.4 and shall provide Lessor with written evidence
that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide," Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. If Lessee is
the Insuring Party, Lessee shall cause to be delivered to Lessor certified
copies of policies of such insurance or certificates evidencing the existence
and amounts of such insurance with the insureds and loss payable clauses as
required by this Lease. No such policy shall be cancellable or subject to
modification except after thirty (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing
renewal thereof, or Lessor may order such insurance and charge the cost thereof
to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If
the Insuring Party shall fail to procure and maintain the insurance required to
be carried by the Insuring Party under this Paragraph 8, the other Party may,
but shall not be required to, procure and maintain the same, but at Lessee's
expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought
against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
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8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage--Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not
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Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations)
as soon as reasonably possible and this Lease shall continue in full force and
effect; provided, however, that Lessee shall, at Lessor's election, make the
repair of any damage or destruction the total cost to repair of which is $10,000
or less, and, in such event, Lessor shall make the insurance proceeds available
to Lessee on a reasonable basis for that purpose. Notwithstanding the
foregoing, if the required insurance was not in force or the insurance proceeds
are not sufficient to effect such repair, the Insuring Party shall promptly
contribute the shortage in proceeds (except as to the deductible which is
Lessee's responsibility) as and when required to complete said repairs. In the
event, however, the shortage in proceeds was due to the fact that, by reason of
the unique nature of the improvements, full replacement cost insurance coverages
was not commercially reasonable and available, Lessor shall have no obligation
to pay for the shortage in insurance proceeds or to fully restore the unique
aspects of the Premises unless Lessee provides Lessor with the funds to cover
same, or adequate assurance thereof, within ten (10) days following receipt of
written notice of such shortage and request therefor. If Lessor receives said
funds or adequate assurance thereof within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as reasonably
possible and this Lease shall remain in full force and effect. If Lessor does
not receive such funds or assurance within said period, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect. If in such case Lessor does not so elect, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor (or any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to floor or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, not withstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
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9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction by any authorized
public authority), this Lease shall terminate sixty (60) days following the date
of such Premises Total Destruction, whether or not the damage or destruction is
an Insured Loss or was caused by a negligent or willful act of Lessee. In the
event, however, that the damage or destruction was caused by Lessee, Lessor
shall have the right to recover Lessor's damages from Lessee except as released
and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("EXERCISED PERIOD"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option
during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insured proceeds, Lessor shall, at
Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other changes, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, given written notice to
Lessor and to any Lenders of which Lessee has actual notice of
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Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to Lessor
and such Lenders and such repair or restoration is not commenced within thirty
(30) days after receipt of such notice, this Lease shall terminate as of the
date specified in said notice. If Lessor or a Lender commences the repair or
restoration of the Premises within thirty (30) days after receipt of such
notice, this Lease shall continue in full force and effect. "Commence" as used
in this Paragraph shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Law and this Lease shall continue in full force and effect, but
subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option
either (i) investigate and remediate such Hazardous Substance Condition, if
required, as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) if the estimated
cost to investigate and remediate such condition exceeds twelve (12) times the
then monthly Base Rent or $100,000, whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the giving of such notice.
In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the investigation and remediation of such Hazardous Substance
Condition totally at Lessee's expense and without reimbursement from Lessor
except to the extent of an amount equal to twelve (12) times the then monthly
Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with
the funds required of Lessee or satisfactory assurance thereof within thirty
(30) days following Lessee's said commitment. In such event this Lease shall
continue in full force and effect, and Lessor shall proceed to make such
investigation and remediation as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the
required funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination. If
a Hazardous Substance Condition occurs for which Lessee is not legally
responsible, there shall be abatement of Lessee's obligations under this Lease
to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed
twelve months.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor,
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of the Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
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10. REAL PROPERTY TAXES.
10.1(A) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period
of time prior to or after the expiration or earlier termination of the term
hereof, Lessee's share of such taxes shall be equitably prorated to cover only
the period of time within the tax fiscal year this Lease is in effect, and
Lessor shall reimburse Lessee for any overpayment after such proration. If
Lessee shall fail to pay any Real Property Taxes required by this Lease to be
paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall
reimburse Lessor therefor upon demand.
(B) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase
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therein, imposed by reason of events occurring, or changes in applicable law
taking effect, during the term of this Lease, including but not limited to a
change in the ownership of the Premises or in the improvements thereon, the
execution of this Lease, or any modification, amendment or transfer thereof, and
whether or not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any
of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent
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(25%) of such Net Worth of Lessee as it was represented to Lessor at the time of
the execution by Lessor of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this lease by Lessee to which Lessor may reasonably withhold its consent. "Net
Worth of Lessee" for purposes of this Lease shall be the Net Worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee
or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee
of any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its
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remedies for the Default or Breach by Lessee of any of the terms, covenants or
conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to confirm and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
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12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary, Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other changes so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its options and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
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13. DEFAULT; BREACH; REMEDIES
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as
a failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" is defined as the occurrence of any one or more of the following
Defaults, and, where a grace period for cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as otherwise expressly provided in this Lease, the failure
of Lessee to make any payment of Lease Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease or the failure of
Lessee to fulfill any obligations under this Lease which endangers or threatens
life or property, where such failure continues for a period of three (3) days
following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
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(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S) 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in the Lease, where possession
is not restored to Lessee within thirty 30 days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been
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reasonably avoided; (iii) the worth at the time of award of the amount by which
the unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that the Lessee proves could be reasonably avoided;
and (iv) any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the costs of recovering possession of
the Premises, expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and that portion of the
leasing commission paid by Lessor applicable to the unexpired term of this
Lease. The worth at the time of award of the amount referred to in provision
(iii) of the prior sentence shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's
Default or Breach of this Lease shall not waive Lessor's right to recover
damages under this Paragraph. If termination of this Lease is obtained through
the provisional remedy of unlawful detainer, Lessor shall have the right to
recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under subparagraphs 13.1(b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases for
unlawful detainer shall also constitute the applicable notice for grace period
purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the
applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two such grace periods, shall constitute both an unlawful detainer and a Breach
of this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment or a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws of judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for
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Lessee's entering into this Lease, all of which concessions are hereinafter
referred to as "Inducement Provisions," shall be deemed conditioned upon
Lessee's full and faithful performance of all of the terms, covenants and
conditions of this Lease to be performed or observed by Lessee during the term
hereof as the same may be extended. Upon the occurrence of a Breach of this
Lease by Lessee, as defined in Paragraph 13.1, any such Inducement Provision
shall automatically be deemed deleted from this Lease and of no further force or
effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated given or paid by Lessor under such an Inducement Provision
shall be immediately due and payable by Lessee to Lessor, and recoverable by
Lessor as additional rent due under this Lease, notwithstanding any subsequent
cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of
the Breach which initiated the operation of this Paragraph shall not be deemed a
waiver by Lessor of the provisions of this Paragraph unless specifically so
stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more
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than ten percent (10%) of the floor area of the Premises, or more than twenty-
five percent (25%) of the land area not occupied by any building, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing within
ten (10) days after Lessor shall have given Lessee written notice of such taking
(or in the absence of such notice, within ten (10) days after the condemning
authority shall have taken possession) terminate this Lease as of the date the
condemning authority takes such possession. If Lessee does not terminate this
Lease in accordance with the foregoing, this Lease shall remain in full force
and effect as to the portion of the Premises remaining, except that the Base
Rent shall be reduced in the same proportion as the rentable floor area of the
Premises taken bears to the total rentable floor area of the building located on
the Premises. No reduction of Base Rent shall occur if the only portion of the
Premises taken is land on which there is no building. Any award for the taking
of all or any part of the Premises under the power of eminent domain or any
payment made under threat of the exercise of such power shall be the property of
Lessor, whether such award shall be made as compensation for diminution in value
of the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Lessee shall be entitled to any compensation separately
awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages received,
over and above the legal and other expenses incurred by Lessor in the
condemnation matter, repair any damage to the Premises caused by such
condemnation, except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
15. BROKERS' FEE. PARAGRAPH DELETED
16. TENANCY STATEMENT.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in
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the Premises or in this Lease, Lessor shall deliver to the transferee or
assignee (in cash or by credit) any unused Security Deposit held by Lessor at
the time of such transfer or assignment. Except as provided in Paragraph 15,
upon such transfer or assignment and delivery of the Security Deposit, as
aforesaid, the prior Lessor shall be relieved of all liability with respect to
the obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in this
Lease to be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but no
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 24.
The addresses noted adjacent to a Party's signature on this Lease shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to
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Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by written
notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received
on a Sunday or legal holiday, it shall be deemed received on the next business
day.
24. WAIVERS.
No waiver by Lessor of the Default or Breach of any term, covenant or
condition hereof by Lessee, shall be deemed a waiver of any other term, covenant
or condition hereof, or of any subsequent Default or Breach by Lessee of the
same or of any other term, covenant or condition hereof. Lessor's consent to,
or approval of, any act shall not be deemed to render unnecessary the obtaining
of Lessor's consent to, or approval of, any subsequent or similar act by Lessee,
or be construed as the basis of an estoppel to enforce the provision or
provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
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29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorneys to the record owner of the Premises.
30.4 SELF EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
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31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorneys' fees. Such fees may be awarded in
the same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorneys' fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred. Lessor shall be entitled to attorneys'
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any
time place on or about the Premises or building any ordinary "For Sale" signs
and Lessor may at any time during the last one hundred twenty (120) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser
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interest, shall constitute Lessor's election to have such event constitute the
termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects'; attorneys'; engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting
of the Premises by Lessee shall not constitute an acknowledgment that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR. PARAGRAPH DELETED
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other
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property of Lessor, or the right of first refusal to purchase other property of
Lessor, or the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee; or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1 whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise Option because
of the provisions of Paragraph 39 4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessees due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee, or (iii) Lessor gives to
Lessee three or more notices of Default under Paragraph 13.1 during any twelve
month period, whether or not the Defaults are cured or (iv) if Lessee commits a
Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
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41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures and that Lessor shall have no obligation whatsoever to provide same.
Lessor assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum if it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payables under this Lease. As long as they do not
materially change Lessee's obligations hereunder. Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
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48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES: THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
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The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Anaheim, California Executed at Anaheim, California
---------------------- ------------------------------
on September 25, 1990 on September 25, 1990
------------------------------- ---------------------------------------
by LESSOR: by LESSEE:
Ira N. Mendelsohn Acme Holdings, Inc. a Delaware corporation
- ---------------------------------- ------------------------------------------
- ---------------------------------- ------------------------------------------
By /s/ IRA N. MENDELSOHN By /s/ KENNETH A. BLAKE
------------------------------- ---------------------------------------
Name Printed: Name Printed: Kenneth A. Blake
-------------------- ----------------------------
Address: Title: Secretary
------------------------- -----------------------------------
By By
------------------------------- ---------------------------------------
Name Printed: Name Printed:
-------------------- ----------------------------
Title: Title:
--------------------------- -----------------------------------
Address: Address:
------------------------- ---------------------------------
- ---------------------------------- ------------------------------------------
Tel. No. Fax No. Tel. No. Fax No.
--------- --------- ---------- -----------------
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ADDENDUM
--------
49. Base Rent. The Base Rent for the original five (5) year term of the
---------
Lease shall be $9,361.00 per month, plus up to an additional $1,337.00 per month
to be determined by Lessor and Lessee upon completion of certain improvements to
the Premises. Upon such determination, the amount of the Base Rent shall be
indicated below and the parties shall affix their signatures hereto.
Base Rent: $______________________
LESSOR:
/s/ IRA MENDELSOHN
---------------------
Ira N. Mendelsohn
LESSEE:
Acme Holdings Inc., a Delaware corporation
By: /s/ KENNETH A. BLAKE
-----------------------
Title: Secretary
------------
50. Option to Extend Term. Provided that Lessee is not in default under
---------------------
any of the terms, conditions, covenants or provisions of the Lease, either at
the time of exercise or at the time the extended term would otherwise commence,
Lessee shall have the option (the "Option") to extend the original five (5) year
term of the Lease for an additional five (5) years upon all the same terms and
conditions contained in the Lease, except: (i) there shall be no further option
to extend the term; and (ii) the Base Rent shall be adjusted as set forth in
this Paragraph 50 (the "Option Period Base Rent"). Lessee may exercise such
Option by delivering to Lessor a written notice (the "Exercise Notice") to such
effect on or before the date which is exactly six (6) months prior to the
expiration of the original five (5) year term of the Lease.
Within thirty (30) days of receipt by Lessor of the Exercise Notice,
Lessor and Lessee shall attempt to agree upon an Option Period Base Rent based
upon the fair market rental on the date of the Exercise Notice. In the event
Lessor and Lessee are unable to agree on such Option Period Base Rent, Lessor
shall appoint an appraiser (the "Appraiser") within forty (40) days after
receipt of the Exercise Notice. The Appraiser shall: (i) be certified as a
Member of the Institute of Appraisers; (ii) have a minimum of five years'
experience appraising; and (iii) have experience appraising comparable sites in
the Orange County area. The Appraiser shall, within thirty (30) days from his
appointment, determine the fair market rental of the Premises as of the date of
the Exercise Notice. In no event shall the Option Period Base Rent be less than
the Base Rent for the Premises for the original five (5) year terms of the
Lease. Lessor and Lessee shall execute an amendment to the Lease containing
<PAGE>
the Option Period Base Rent. The Appraiser's determination of the Option Period
Base Rent shall be binding upon Lessor and Lessee. The cost of the appraisal
shall be borne one-half by Lessor and one-half by Lessee.
The Option Period Base Rent shall be adjusted effective as of the thirtieth
(30th) month of the additional five (5) year term (the "Adjusted Option Period
Base Rent"). Such adjustment shall reflect the percentage increase, if any, in
the cost of living as shown in the Consumer Price Index for Urban Wage Earners
and Clerical Workers, Los Angeles -- Long Beach -- Anaheim, California, all
items (1982 - 84 = 100), as published by the U.S. Department of Labor, Bureau of
Labor Statistics, from the month containing the date of the Exercise Notice (the
"Base Index Month") to the twenty-ninth (29th) month of the additional five (5)
year lease term (the "Adjustment Month"). In no event shall the Adjusted Option
Period Base Rent be less than the Option Period Base Rent. By way of example
only, if the Consumer Price Index for the Base Index Month is 110 and the
Consumer Price Index for the Adjustment Month is 132, there would be a 20%
increase in the cost of living and the Adjusted Option Period Base Rent would be
20% higher than the Option Period Rent. If the Consumer Price Index referred to
above is changed such that the base year (e.g., 1982 -1984 = 100) differs from
that used as of the Base Index Month, the Consumer Price Index shall be
converted in accordance with the conversion factor published by the U.S.
Department of Labor, Bureau of Labor Statistics.
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EXHIBIT 10.13
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("Basic Provisions")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
March 19, 1992, is made by and between Ira N. Mendelsohn, Pamela M. Mendelsohn
and Trill Corp., a Delaware corporation ("Lessor") and Acme Rents, Inc., a
California corporation ("Lessee"), (collectively, the (collectively, the
"Parties", or individually a "Party").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease situated in
Long Beach, County of Los Angeles, State of California and generally described
as (describe briefly the nature of the property) Lots 22, 23, 24, 25, 26, 27,
28, 29 & 30 Block 14, Tract 2600 (see Addendum for assessor's parcel nos.)
("Premises"). (See Paragraph 2 for further provisions.)
1.3 TERM: five (5) years and -0- months ("Original Term") commencing May
1, 1992 ("Commencement Date") and ending April 30, 1997 ("Expiration Date").
(See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: N/A ("Early Possession Date"). (See Paragraphs
3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $3,833.00 per month ("Base Rent"), payable on the first
day of each month commencing May 1, 1992 (See Paragraph 4 for further
provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted upon exercise of option only.
1.6 BASE RENT PAID UPON EXECUTION: $-0-
1.7 SECURITY DEPOSIT: amount of first month's rent ("Security Deposit").
(See Paragraph 6 for further provisions.)
1.8 PERMITTED USE: equipment storage. (See Paragraph 6 for further
provisions.)
1.9 INSURING PARTY: Lessor is the "Insuring Party" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: PARAGRAPH DELETED
1.11 GUARANTOR: PARAGRAPH DELETED
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 50 all of which constitute a part of this Lease.
<PAGE>
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within thirty (30)
days after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)), made or
to be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within six
(6) months following the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matter other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
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3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason, Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of
the Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when
the term actually commences, if possession is not tendered to Lessee when
required by this Lease and Lessee does not terminate this Lease, as aforesaid,
the period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Lessee would otherwise have enjoyed under
the terms hereof, but minus any days of delay caused by the facts, changes or
omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit
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moneys with Lessor sufficient to restore said Security Deposit to the full
amount required by this Lease. Any time the Base Rent increases during the term
of this Lease, Lessee shall, upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor,
no part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (iii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
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Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give written
notice of such fact to Lessor, Lessee shall also immediately give Lessor a copy
of any statement, report, notice, registration, application, permit, business
plan, license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include,
but not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and in
a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee
shall, within five (5) days after receipt of Lessor's written request, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with
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respect to Lessee's activities, including but not limited to the installation,
operation, use, monitoring, maintenance, or removal of any Hazardous Substance
or storage tank on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease, violation of Applicable Law, or a contamination, caused or
materially contributed to by Lessee is found to exist or be imminent, or unless
the inspection is requested or ordered by a governmental authority as the result
of any such existing or imminent violation or contamination. In any such case,
Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may
be, for the costs and expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are reasonably or
readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements the age of such
portion of the Premises), including without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical lighting facilities, boilers,
fired or unfired pressure vessels, fire sprinkler and/or standpipe and hose or
other automatic fire extinguishing system, including fire alarm and/or smoke
detection systems and equipment, fire hydrants, fixtures, walls (interior and
exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass,
skylights, landscaping, driveways, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, about, or adjacent to the Premises.
Lessee shall not cause or permit any Hazardous Substance to be spilled or
released in, on, under or about the Premises (including through the plumbing or
sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of, the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
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7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non-structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms
of this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of
any statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of, any
needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(s) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities, (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon, and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and in compliance
with all Applicable Law. Lessee shall promptly upon completion thereof furnish
Lessor with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the
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commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises as provided by
law. If Lessee shall, in good faith, contest the validity of any such lien,
claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises. If Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal
to one and one-half times the amount of such contested lien, claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so. Lessor may require Lessee to pay Lessor's attorney's fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations or Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations or Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility Installations. The obligation of Lessee shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence.
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Premiums for policy periods commencing prior to or extending beyond the Lease
term shall be prorated to correspond to the Lease term. Payment shall be made
by Lessee to Lessor within ten (10) days following receipt of an invoice for any
amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's Indemnity obligations
under this Lease. The limits of said insurance required by this Lease or as
carried by Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance to be carried by Lessee shall
be primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has
a deductible clause, the deductible amount shall not exceed $1,000 per
occurrence, and Lessee shall be liable for such deductible amount in the event
of an Insured Loss, as defined in Paragraph 9.1(c).
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(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be
liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party with
respect to the insurance required by this Paragraph 8.4 and shall provide Lessor
with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide," Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. If Lessee is
the Insuring Party, Lessee shall cause to be delivered to Lessor certified
copies of policies of such insurance or certificates evidencing the existence
and amounts of such insurance with the insureds and loss payable clauses as
required by this Lease. No such policy shall be cancellable or subject to
modification except after thirty (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing
renewal thereof, or Lessor may order such insurance and charge the cost thereof
to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If
the Insuring Party shall fail to procure and maintain the insurance required to
be carried by the Insuring Party under this Paragraph 8, the other Party may,
but shall not be required to, procure and maintain the same, but at Lessee's
expense.
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8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought
against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately
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prior to such damage or destruction, excluding from such calculation the value
of the land and Lessee Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverages was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right
to reimbursement from Lessor (or any funds contributed by Lessee to repair any
such damage or destruction. Premises Partial Damage due to floor or earthquake
shall be subject to Paragraph 9.3 rather than Paragraph 9.2, not withstanding
that there may be some insurance coverage, but the net proceeds of any such
insurance shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue
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in full force and effect, or (ii) give written notice to Lessee within thirty
(30) days after receipt by Lessor of knowledge of the occurrence of such damage
of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's said commitment. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction by any authorized
public authority), this Lease shall terminate sixty (60) days following the date
of such Premises Total Destruction, whether or not the damage or destruction is
an Insured Loss or was caused by a negligent or willful act of Lessee. In the
event, however, that the damage or destruction was caused by Lessee, Lessor
shall have the right to recover Lessor's damages from Lessee except as released
and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercised Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option
during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insured proceeds, Lessor shall, at
Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage
- --Insured), whether or not Lessor or Lessee repairs or restores the Premises,
the Base Rent, Real Property Taxes, insurance premiums, and other charges, if
any, payable by Lessee hereunder for the period during which such damage, its
repair or the restoration continues (not to exceed the period for which rental
value insurance is required under Paragraph 8.3(b)), shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and
other changes, if any, as aforesaid, all other obligations of Lessee hereunder
shall be performed by Lessee, and Lessee shall have no claim against Lessor for
any damage suffered by reason of any such repair or restoration.
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(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, given written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Law and this Lease shall continue in full force and effect, but
subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option
either (i) investigate and remediate such Hazardous Substance Condition, if
required, as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) if the estimated
cost to investigate and remediate such condition exceeds twelve (12) times the
then monthly Base Rent or $100,000, whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the giving of such notice.
In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the investigation and remediation of such Hazardous Substance
Condition totally at Lessee's expense and without reimbursement from Lessor
except to the extent of an amount equal to twelve (12) times the then monthly
Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with
the funds required of Lessee or satisfactory assurance thereof within thirty
(30) days following Lessee's said commitment. In such event this Lease shall
continue in full force and effect, and Lessor shall proceed to make such
investigation and remediation as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the
required funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination. If
a Hazardous Substance Condition occurs for which Lessee is not legally
responsible, there shall be abatement of Lessee's obligations under this Lease
to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed
twelve months.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor,
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of the Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
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10. REAL PROPERTY TAXES.
10.1(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period
of time prior to or after the expiration or earlier termination of the term
hereof, Lessee's share of such taxes shall be equitably prorated to cover only
the period of time within the tax fiscal year this Lease is in effect, and
Lessor shall reimburse Lessee for any overpayment after such proration. If
Lessee shall fail to pay any Real Property Taxes required by this Lease to be
paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall
reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included
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within the tax parcel assessed, such proportion to be determined by Lessor from
the respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof, in good faith, shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any
of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the Net Worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent
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(110%) of the Base Rent then in effect, whichever is greater. Pending
determination of the new fair market rental value, if disputed by Lessee, Lessee
shall pay the amount set forth in Lessor's Notice, with any overpayment credited
against the next installment(s) of Base Rent coming due, and any underpayment
for the period retroactively to the effective date of the adjustment being due
and payable immediately upon the determination thereof. Further, in the event
of such Breach and market value adjustment, (i) the purchase price of any option
to purchase the Premises held by Lessee shall be subject to similar adjustment
to the then fair market value (without the Lease being considered an encumbrance
or any deduction for depreciation or obsolescence, and considering the Premises
at its highest and best use and in good condition), or one hundred ten percent
(110%) of the price previously in effect, whichever is greater, (ii) any index-
oriented rental or price adjustment formulas contained in this Lease shall be
adjusted to require that the base index be determined with reference to the
index applicable to the time of such adjustment and (iii) any fixed rental
adjustments scheduled during the remainder of the Lease term shall be increased
in the same ratio as the new market rental bears to the Base Rent in effect
immediately prior to the market value adjustment.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee
or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee
of any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
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(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to confirm and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary, Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other changes so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its options and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
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(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as
a failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" is defined as the occurrence of any one or more of the following
Defaults, and, where a grace period for cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as otherwise expressly provided in this Lease, the failure
of Lessee to make any payment of Lease Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease or the failure of
Lessee to fulfill any obligations under this Lease which endangers or threatens
life or property, where such failure continues for a period of three (3) days
following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this
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Lease by Lessee if Lessee commences such cure within said thirty (30) day period
and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S) 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in the Lease, where possession
is not restored to Lessee within thirty 30 days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's
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failure to perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom, including but not limited
to the costs of recovering possession of the Premises, expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorneys' fees, and that portion of the leasing commission paid by Lessor
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the prior sentence shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent. Efforts by Lessor
to mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph. If termination of
this Lease is obtained through the provisional remedy of unlawful detainer,
Lessor shall have the right to recover in such proceeding the unpaid rent and
damages as are recoverable therein, or Lessor may reserve therein the right to
recover all or any part thereof in a separate suit for such rent and/or damages.
If a notice and grace period required under subparagraphs 13.1(b), (c) or (d)
was not previously given, a notice to pay rent or quit, or to perform or quit,
as the case may be, given to Lessee under any statute authorizing the forfeiture
of leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods, shall constitute both an unlawful
detainer and a Breach of this Lease entitling Lessor to the remedies provided
for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment or a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws of judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by
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Lessor of the provisions of this Paragraph unless specifically so stated in
writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
land area not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages
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received, over and above the legal and other expenses incurred by Lessor in the
condemnation matter, repair any damage to the Premises caused by such
condemnation, except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
15. BROKERS' FEE. PARAGRAPH DELETED
16. TENANCY STATEMENT.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but no
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
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22. NO PRIOR OR OTHER AGREEMENTS. This Lease contains all agreements between
the Parties with respect to any matter mentioned herein, and no other prior or
contemporaneous agreement or understanding shall be effective.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 24.
The addresses noted adjacent to a Party's signature on this Lease shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received
on a Sunday or legal holiday, it shall be deemed received on the next business
day.
24. WAIVERS.
No waiver by Lessor of the Default or Breach of any term, covenant or
condition hereof by Lessee, shall be deemed a waiver of any other term, covenant
or condition hereof, or of any subsequent Default or Breach by Lessee of the
same or of any other term, covenant or condition hereof. Lessor's consent to,
or approval of, any act shall not be deemed to render unnecessary the obtaining
of Lessor's consent to, or approval of, any subsequent or similar act by Lessee,
or be construed as the basis of an estoppel to enforce the provision or
provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
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26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorneys to the record owner of the Premises.
30.4 SELF EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
25
<PAGE>
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorneys' fees. Such fees may be awarded in
the same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorneys' fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred. Lessor shall be entitled to attorneys'
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any
time place on or about the Premises or building any ordinary "For Sale" signs
and Lessor may at any time during the last one hundred twenty (120) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses
26
<PAGE>
(including but not limited to architects'; attorneys'; engineers' or other
consultants' fees) incurred in the consideration of, or response to, a request
by Lessee for any Lessor consent pertaining to this Lease or the Premises,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, practice or storage tank, shall be
paid by Lessee to Lessor upon receipt of an invoice and supporting documentation
therefor. Subject to Paragraph 12.2(e) (applicable to assignment or
subletting), Lessor may, as a condition to considering any such request by
Lessee, require that Lessee deposit with Lessor an amount of money (in addition
to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor
to represent the cost Lessor will incur in considering and responding to
Lessee's request. Except as otherwise provided, any unused portion of said
deposit shall be refunded to Lessee without interest. Lessor's consent to any
act, assignment of this Lease or subletting of the Premises by Lessee shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR. PARAGRAPH DELETED
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
27
<PAGE>
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee; or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1 whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise Option because
of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessees due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee, or (iii) Lessor gives to
Lessee three or more notices of Default under Paragraph 13.1 during any twelve
month period, whether or not the Defaults are cured or (iv) if Lessee commits a
Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures and that Lessor shall have no obligation whatsoever to provide same.
Lessor assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
28
<PAGE>
said Party to institute suit for recovery of such sum if it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payables under this Lease. As long as they do not
materially change Lessee's obligations hereunder. Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES: THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE IF THE SUBJECT PROPERTY IS LOCATED
29
<PAGE>
IN A STATE OTHER THAN CALIFORNIA AN ATTORNEY FROM THE STATE WHERE THE
PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
<TABLE>
<S> <C>
Executed at____________________________________ Executed at_________________________________
on_______________________________________, 1992 on____________________________________, 1992
by LESSOR: by LESSEE:
Ira N. Mendelsohn, Pamela M. Mendelsohn Acme Rents, Inc. a California corporation
- ----------------------------------------------- --------------------------------------------
and Trill Corp.
- ----------------------------------------------- --------------------------------------------
By /s/ IRA N. MENDELSOHN By /s/ BRUCE A. WARREN
--------------------------------------------- ------------------------------------------
/s/ PAMELA M. MENDELSOHN
--------------------------------------------- ------------------------------------------
Name Printed: Ira N. Mendelsohn and Pamela M. Name Printed: Bruce A. Warren
---------------------------------- -------------------------------
Mendelsohn
- -----------------------------------------------
Address: 22 Linda Isle, Newport Beach, CA 92660 Title: V.P. and CFO
--------------------------------------- --------------------------------------
By /s/ THOMAS R. LAMIA By
--------------------------------------------- ------------------------------------------
Name Printed: Thomas R. Lamia Name Printed:
---------------------------------- -------------------------------
Title: President, Trill Corp. Title:
----------------------------------------- --------------------------------------
Address: 10 East Kirke Street Address: 17871 Mitchell Drive
--------------------------------------- ------------------------------------
Chevy Chase, MD 20815 Irvine, CA 92714
- ----------------------------------------------- --------------------------------------------
Tel. No. (301) 652-3644 Fax No. (212) 319-4090 Tel. No. (714) 222-2950 Fax No. (714)222-2968
------------- -------------- -------------- -------------
</TABLE>
30
<PAGE>
ADDENDUM
--------
49. Assessor's parcel numbers:
<TABLE>
<S> <C>
Lots #22 & 23 7429-026-007
24 7429-026-008
25 7429-026-009
26 7429-026-010
27 7429-026-011
28 7429-026-012
29 & 30 7429-026-024
</TABLE>
50. Option to Extend Term. Provided that Lessee is not in default under
---------------------
any of the terms, conditions, covenants or provisions of the Lease, either at
the time of exercise or at the time the extended term would otherwise commence,
Lessee shall have the option (the "Option") to extend the original five (5) year
term of the Lease for an additional five (5) years upon all the same terms and
conditions contained in the Lease, except: (i) there shall be no further option
to extend the term; and (ii) the Base Rent shall be adjusted as set forth in
this Paragraph 50 (the "Option Period Base Rent"). Lessee may exercise such
option by delivering to Lessor a written notice (the "Exercise Notice") to such
effect on or before the date which is exactly six (6) months prior to the
expiration of the original five (5) year term of the Lease.
Within thirty (30) days of receipt by Lessor of the Exercise Notice, Lessor
and Lessee shall attempt to agree upon an Option Period Base Rent based upon the
fair market rental on the date of the Exercise Notice. In the event Lessor and
Lessee are unable to agree on such Option Period Base Rent, Lessor, at Lessor's
cost, shall appoint an appraiser (Lessor's "Appraiser") within forty (40) days
after receipt of the Exercise Notice. The Appraiser shall, within thirty (30)
days of his appointment by Lessor, determine the fair market rental value of the
Premises as of the date of the Exercise Notice. In the event Lessee does not
agree with the fair market rental value as determined by Lessor's Appraiser,
Lessee may, at Lessee's cost, appoint a second appraiser. Lessee's Appraiser
shall, within thirty (30) days of his appointment by Lessee, make a
determination of fair market value of the Premises. The two appraisers shall
agree on the fair market value If the two appraisers cannot agree, they shall
select a third appraiser. The Appraiser shall: (i) be certified as a Member of
the Institute of Appraisers; (ii) have a minimum of five years' experience
appraising; and (iii) have experience appraising comparable sites in the Orange
County area. The Appraiser shall, within thirty (30) days from his appointment,
determine the fair market rental of the Premises as of the date of the Exercise
Notice within the range of the other two appraisals. In no event shall the
Option Period Base Rent be less than the Base Rent for the Premises for the
original five (5) years terms of the Lease, nor shall the Option Period Base
Rent be greater than an increase of four percent (4%) per annum over the Base
Rent for the original five (5) year term of the Lease. Lessor and Lessee shall
execute an amendment to the Lease containing the Option Period Base Rent. The
Appraiser's determination of the Option Period Base Rent shall be binding upon
Lessor and Lessee. The cost of any third appraisal shall be borne one-half by
Lessor and one-half by Lessee.
The Option Period Base Rent shall be adjusted effective as of the thirtieth
(30th) month of the additional five (5) year term (the "Adjusted Option Period
Base Rent"). Such adjustment shall reflect the percentage increased, if any, in
the cost of living as shown in the Consumer Price Index for Urban Wage Earners
and Clerical Workers, Los Angeles - Long Beach - Anaheim, California, all items
(1982 - 1984 = 100), as published by the U.S. Department of Labor, Bureau of
Labor Statistics, from the month containing the date of the Exercise Notice (the
"Base Index Month") to the twenty-ninth (29th) month of the additional five (5)
year lease term (the "Adjustment Month"). In no event shall the Adjusted Option
Period Base Rent be less than the Option Period Base Rent, nor shall the Option
Period Base Rent adjustment be greater than an increase of four percent (4%) per
annum over the initial Option Period Base Rent. (By way of example only, if the
Consumer Price Index for the Base Index Month is 110 and the Consumer Price
Index for the Adjustment Month is 132, and there would be a 20% increase in the
cost of living and the Adjusted Option Period Base Rent would be 20% higher than
the Option Period Rent. If the Consumer Price Index referred to above is
changed such that the base year (e.g., 1982 - 1984 = 100) differs from that used
as of the Base Index Month,
<PAGE>
the Consumer Price Index shall be converted in accordance with the conversion
factor published by the U.S. Department of Labor, Bureau of Labor Statistics.
51. Payment of Attorneys' Fees and Costs. Lessee agrees that it shall pay
------------------------------------
in full when due all legal fees and costs incurred by Lessor in connection with
the acquisition by Lessor of fee title to the Premises, the preparation of this
Lease and all matters relating thereto.
<PAGE>
EXHIBIT 10.14
STANDARD INDUSTRIAL LEASE -- SPECIAL NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, May 31, 1989, is
made by and between ARI Real Estate Partnership, a California general
partnership (herein called "Lessor") and Acme Rents, Inc., a California
corporation (herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of Los Angeles, State of
California, commonly known as 326 Mira Loma Avenue, Glendale, California, and
described as Lot 19 in Block 1 of Tract No. 910, in the City of Glendale in the
County of Los Angeles, State of California, as per Map recorded in Book 16, Page
133 of Maps, in the Office of the County Recorder of said county. Said real
property including the land and all improvements therein, is herein called "the
Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for Ten years commencing on
June 1, 1989 and ending on May 31, 1999 unless sooner terminated pursuant to any
provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent until possession of the Premises is tendered to Lessee; provided,
however, that if Lessor shall not have delivered possession of the Premises
within sixty (60) days from said commencement date, Lessee may, at Lessee's
option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT: SPECIAL NET LEASE.
4.1 RENT. Lessee shall pay to Lessor as rent for the Premises the amounts
provided in Exhibit A, attached hereto.
SPECIAL NET
(This is a special form containing unique provisions and should
only be used in special situations where the LESSEE will pay rent
under all circumstances and in the event of destruction the LESSEE
will rebuild under all circumstances.)
Initials:___________
___________
<PAGE>
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be payable
in lawful money of the United States to Lessor at the address stated herein or
to such other persons or at such other places as Lessor may designate in
writing.
4.2 SPECIAL NET LEASE. This Lease is what is commonly called a "Net, Net,
Net Lease", it being understood that the Lessor shall receive the rent set forth
in Paragraph 4.1 free and clear of any and all other impositions, taxes, liens,
charges or expenses of any nature whatsoever in connection with the ownership
and operation of the Premises. In addition to the rent reserved by Paragraph
4.1, Lessee shall pay to the parties respectively entitled thereto all
impositions, insurance premiums, operating charges, maintenance charges,
construction costs, and any other charges, costs and expenses which arise or may
be contemplated under any provisions of this Lease during the term hereof. All
of such charges, costs and expenses shall constitute additional rent, and upon
the failure of Lessee to pay any of such costs, charges or expenses, Lessor
shall have the same rights and remedies as otherwise provided in this Lease for
the failure of Lessee to pay rent. It is the intention of the parties hereto
that this Lease shall not be terminable for any reason by the Lessee, and that
Lessee shall in no event be entitled to any abatement of or reduction in rent
payable under this Lease, except as herein expressly provided. Any present or
future law to the contrary shall not alter this agreement of the parties.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$-0- as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or
applies all or any portion of said deposit, Lessee shall within ten (10) days
after written demand therefor deposit cash with Lessor in an amount sufficient
to restore said deposit to the full amount hereinabove stated and Lessee's
failure to do so shall be a material breach of this Lease. If the monthly rent
shall, from time to time, increase during the term of this Lease, Lessee shall
thereupon deposit with Lessor additional security deposit so that the amount of
security deposit held by Lessor shall at all times bear the same proportion to
current rent as the original security deposit bears to the original monthly rent
set forth in paragraph 4 hereof. Lessor shall not be required to keep said
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for equipment
rental and maintenance or any other use which is reasonably comparable and for
no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this
-2- Initials:_______
_______
<PAGE>
warranty has been violated, then it shall be the obligation of the Lessor, after
written notice from Lessee, to promptly, at Lessor's sole cost and expense,
rectify any such violation. In the event Lessee does not give to Lessor written
notice of the violation of this warranty within six months from the date that
the Lease term commences, the correction of same shall be the obligation of the
Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2(a)
shall be of no force or effect if, prior to the date of this Lease, Lessee was
the owner or occupant of the Premises, and, in such event, Lessee shall correct
any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the
Premises in any manner that will tend to create waste or a nuisance or, if there
shall be more than one tenant in the building containing the Premises, shall
tend to disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession) and
Lessor further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease. Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition and
repair the Premises and every part thereof, structural and nonstructural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including, without
limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air
conditioning system maintenance contract) ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior and
exterior), foundations, ceilings, roofs (interior and exterior), floors,
windows, doors, plate glass and skylights located within the Premises, and all
landscaping,
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driveways, parking lots, fences and signs located on the Premises and sidewalks
and parkways adjacent to the Premises.
7.2 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris.
Lessee shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the premises in good
operating condition.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations
under this Paragraph 7, or under any other paragraph of this Lease, Lessor may
at its option (but shall not be required to) enter upon the Premises after ten
(10) days' prior written notice to Lessee (except in the case of an emergency,
in which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the maximum rate than allowable by law
shall become due and payable as additional rental to Lessor together with
Lessee's next rental installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warranty), Paragraph 9
(relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation of the Premises), it is intended by the parties hereto that Lessor
have no obligation, in any manner whatsoever, to repair and maintain the
Premises nor the building located thereon nor the equipment therein, whether
structural or nonstructural, all of which obligations are intended to be that of
the Lessee under Paragraph 7.1 hereof. Lessee expressly waives the benefit of
any statute now or hereinafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the premises in good order, condition and repair.
7.5 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.5
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that
Lessee remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond in an amount equal to one and one-
half times the estimated cost of such improvements, to insure Lessor against any
liability for mechanic's and materialmen's liens and to insure completion of the
work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shalt be presented
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to Lessor in written form, with proposed detailed plans. If Lessor shall give
its consent, the consent shall be deemed conditioned upon Lessee acquiring a
permit to do so from appropriate governmental agencies, the furnishing of a copy
thereof to Lessor prior to the commencement of the work and the compliance by
Lessee of all conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of non-
responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee
to pay Lessor's attorneys fees and costs in participating in such action if
Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.5(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this Paragraph 7.5(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in this Paragraph 8, the term "insuring
party" shall mean the party who has the obligation to obtain the Property
Insurance required hereunder. The insuring party shall be designated in
Paragraph 46 hereof. In the event Lessor is the insuring party, Lessor shall
also maintain the liability insurance described in paragraph 8.2 hereof, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee under said paragraph 8.2, but Lessor shall not be required to name Lessee
as an additional insured on such policy. Whether the insuring party is the
Lessor or the Lessee, Lessee shall, as additional rent for the Premises, pay the
cost of all insurance required hereunder, except for that portion of the cost
attributable to Lessor's liability insurance coverage in excess of $1,000,000
per occurrence. If Lessor is the insuring party Lessee shall, within ten (10)
days following demand by Lessor, reimburse Lessor for the cost of the insurance
so obtained.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain and
keep in force during the term of this Lease a policy of Combined Single Limit,
Bodily Injury and Property Damage insurance insuring Lessor and Lessee against
any liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $500,000 per occurrence. The
policy shall insure performance by Lessee of the indemnity provisions of this
Paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.
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8.3 PROPERTY INSURANCE.
(a) The insuring party shall obtain and keep in force during the term
of this Lease a policy or policies of insurance covering loss or damage to the
Premises, in the amount of the full replacement value thereof, as the same may
exist from time to time, which replacement value is now $500,000.00, but in no
event less than the total amount required by lenders having liens on the
Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), and special extended perils
("all risk" as such term is used in the insurance industry). Said insurance
shall provide for payment of loss thereunder to Lessor or to the holders of
mortgages or deeds of trust on the Premises. The insuring party shall, in
addition, obtain and keep in force during the term of this Lease a policy of
rental value insurance covering a period of one year, with loss payable to
Lessee, which insurance shall also cover all real estate taxes and insurance
costs for said period. A stipulated value or agreed amount endorsement deleting
the coinsurance provision of the policy shall be procured with said insurance as
well as an automatic increase in insurance endorsement causing the increase in
annual property insurance coverage by 2% per quarter. If the insuring party
shall fail to procure and maintain said insurance the other party may, but shall
not be required to, procure and maintain the same, but at the expense of Lessee.
If such insurance coverage has a deductible clause, the deductible amount shall
not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount.
(b) If the Premises are part of a larger building, or if the Premises
are part of a group of buildings owned by Lessor which are adjacent to the
Premises, then Lessee shall pay for any increase in the property insurance of
such other building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(c) If the Lessor is the insuring party the Lessor will not insure
Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide." The insuring
party shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancellable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand. Lessee shall not do or permit to be
done anything which shall invalidate the insurance policies referred to in
Paragraph 8.3. If Lessee does or permits to be done anything which shall
increase the cost of the insurance policies referred to in Paragraph 8.3, then
Lessee shall forthwith upon Lessor's demand reimburse Lessor for any additional
premiums attributable to any act or omission or operation of Lessee causing such
increase in the cost of insurance. If Lessor is the insuring party, and if the
insurance policies maintained hereunder cover other improvements in addition to
the Premises, Lessor shall deliver to Lessee a written statement setting forth
the amount of any such insurance cost increase and showing in reasonable detail
the manner in which it has been computed.
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8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee. Lessee's employees, invitees, customers, or any other person in or
about the Premises, nor shall Lessor be liable for injury to the person of
Lessee, Lessee's employees, agents or contractors, whether such damage or injury
is caused by or results from fire, steam, electricity, gas, water or rain, or
from the breakage, leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether the said damage or injury results from conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places and regardless of whether the cause
of such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE, DESTRUCTION, OBLIGATION TO REBUILD, RENT ABATEMENT.
9.1 OBLIGATION TO REBUILD. In the event that some or all of the
improvements constituting a part of the Premises or the Premises itself are
damaged or destroyed, partially or totally from any cause whatsoever, whether or
not such damage or destruction is covered by any insurance required to be
maintained under Paragraph 8.3 hereof, then Lessee shall repair, restore and
rebuild the Premises to its condition existing immediately prior to such damage
or destruction and this Lease shall remain in full force and effect. Such
repair, restoration and rebuilding (all of which are herein called "repair")
shall be commenced within a reasonable time after such damage or destruction has
occurred and shall be diligently pursued to completion.
9.2 INSURANCE PROCEEDS. The proceeds of any insurance maintained under
Paragraph 8.3 hereof shall be made available to Lessee for payment of costs and
expense of repair, provided however, that such proceeds may be made available to
Lessee subject to reasonable conditions, including, but not limited to
architect's certification of cost, retention of percentage of such proceeds
pending recordation
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of a notice of completion and a lien and completion bond to insure against
mechanic's or materialmen's liens arising out of the repair and to insure
completion of the repair, all at the expense of Lessee. In the event the
insurance proceeds are insufficient to cover the cost of repair, then any
amounts required over the amount of the insurance proceeds received that are
required to complete said repair shall be paid by Lessee. In the event the
insurance proceeds are not made available to Lessee within 120 days after such
damage or destruction, unless the amount of insurance coverage is in dispute
with the insurance carrier, Lessee shall have the option for 30 days commencing
on the expiration of such 120 day period, of cancelling this Lease. If Lessee
shall exercise such option, Lessee shall have no further obligation hereunder
and shall have no claim against Lessor. Lessee, in order to exercise said
option, shall exercise said option by giving written notice to Lessor within
said 30 day period, time being of the essence.
9.3 DAMAGE NEAR END OF TERM.
(a) If the Premises are damaged or destroyed, either partially or
totally, during the last six months of the term of this Lease, Lessor may at
Lessor's option cancel and terminate this Lease as of the date of occurrence of
such damage by giving written notice to Lessee of Lessor's election to do so
within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.3(a) to the contrary, in the event
that Lessee has an option to extend or renew this Lease, and the time within
which said option may be exercised has not yet expired, Lessee shall exercise
such option, if it is to be exercised at all, no later than 20 days after damage
or destruction to the Premises, either total or partial occurring during the
last six months of the term of this Lease, which damage or destruction is
covered by insurance required to be maintained under paragraph 8. If Lessee
duly exercises such option during said 20 day period, Lessee shall, in
accordance with paragraph 9.2, at Lessee's expense, repair such damage as soon
as reasonably possible and this Lease shall continue in full force and effect.
If Lessee fails to exercise such option during said 20 day period, then Lessor
may at Lessor's option terminate and cancel this Lease as of the expiration of
said 20 day period by giving written notice to Lessee of Lessor's election to do
so within 10 days after the expiration of said 20 day period, notwithstanding
any term or provision in the grant of option to the contrary.
9.4 ABATEMENT OF RENT. Notwithstanding the partial or total destruction
of the Premises and any part thereof, and notwithstanding whether the casualty
is insured or not, there shall be no abatement of rent or of any other
obligation of Lessee hereunder by reason of such damage or destruction unless
the Lease is terminated by virtue of any other provision of this Lease.
9.5 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.6 WAIVER. Lessee waives the provisions of any statutes which relate to
termination of leases when the thing leased is destroyed and agrees that such
event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessee shall pay the real property tax, as defined
in paragraph 10.2, applicable to the Premises during the term of this Lease.
All such payments shall be made at least
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ten (10) days prior to the delinquency date of such payment. Lessee shall
promptly furnish Lessor with satisfactory evidence that such taxes have been
paid. If any such taxes paid by Lessee shall cover any period of time prior to
or after the expiration of the term hereof, Lessee's share of such taxes shall
be equitably prorated to cover only the period of time within the tax fiscal
year during which this Lease shall be in effect, and Lessor shall reimburse
Lessee to the extent required. If Lessee shall fail to pay any such taxes,
Lessor shall have the right to pay the same, in which case Lessee shall repay
such amount to Lessor with Lessee's next rent installment together with interest
at the maximum rate then allowable by law.
10.2 DEFINITION OF "REAL PROPERTY TAX". As used herein the term "real
property tax" shall include any form of real estate tax or assessment, general,
special ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
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12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in
anyway, affect or limit the liability of Lessee under the terms of this Lease
even if after such assignment or subletting the terms of this Lease are
materially changed or altered without the consent of Lessee, the consent of whom
shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting
or assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee
of Lessee or any successor of Lessee, in the performance of any of the terms
hereof, Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, without notifying Lessee, or any successor of
Lessee, and without obtaining its or their consent thereto and such action shall
not relieve Lessee of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b)
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above, where such failure shall continue for a period of 30 days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's default is such that more than 30 days are reasonably required for its
cure, then Lessee shall not be deemed to be in default if Lessee commenced such
cure within said 30-day period and thereafter diligently prosecutes such cure to
completion.
(d) (i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. (S)101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days. Provided, however, in the event that
any provision of this paragraph 13.1 (d) is contrary to any applicable law, such
provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any
of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's
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obligation is such that more than thirty (30) days are required for performance
then Lessor shall not be in default if Lessor commences performance within such
30-day period and thereafter diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of rent, then rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any
other provision of this Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
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Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. BROKER'S FEE OMITTED
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at anytime upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be conclusive
upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15, in the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
from and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
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19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shalt not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may by notice to the other specify a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent so
accepted, regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
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27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
Paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure
to execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent.
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Notwithstanding anything to the contrary in this Lease, Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether to
grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor shall not work a merger,
and shall, at the option of Lessor, terminate all or any existing subtenancies
or may, at the option of Lessor, operate as an assignment to Lessor of any or
all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
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(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said
notice of default is cured, or (ii) during the period of time commencing on the
day after a monetary obligation to Lessor is due from Lessee and unpaid (without
any necessity for notice thereof to Lessee) continuing until the obligation is
paid, or (iii) at any time after an event of default described in paragraphs
13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of
such default to Lessee), or (iv) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
has become payable under paragraph 13.4 for each of such defaults, or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period prior
to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 30 days after the date that
Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to
diligently prosecute said cure to completion, or (iii) Lessee commits a default
described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of
Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each such default, or paragraph
13.1(c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so long
as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure to
do so shall constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such
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<PAGE>
payment shall not be regarded as a voluntary payment, and there shall survive
the right on the part of said party to institute suit for recovery of such sum.
If it shall be adjudged that there was no legal obligation on the part of said
party to pay such sum or any part thereof, said party shall be entitled to
recover such sum or so much thereof as it was not legally required to pay under
the provisions of this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. INSURING PARTY. The insuring party under this lease shall be the Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER
OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL
AND TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
ARI REAL ESTATE PARTNERSHIP,
Executed at:_______________________ a California general partnership
on_________________________________ By /s/ IRA N. MENDELSOHN
------------------------------
Ira N. Mendelsohn, Partner
Address____________________________ By_______________________________
___________________________________ "LESSOR" (Corporate seal)
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<PAGE>
Executed at:_______________________ ACME RENTS, INC.
on ________________________________ By /s/ IRA N. MENDELSOHN
-------------------------------
Ira N. Mendelsohn, President
Address____________________________ By_______________________________
___________________________________ "LESSEE" (Corporate seal)
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<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
LEASE LEASE
MONTH PAYMENT MONTH PAYMENT
- ----- ------- ----- -------
<S> <C> <C> <C>
1. 11,140.00 31. 9,280.00
2. 11,078.00 32. 9,218.00
3. 11,016.00 33. 9,156.00
4. 10,954.00 34. 9,094.00
5. 10,892.00 35. 9,032.00
6. 10,830.00 36. 8,970.00
7. 10,768.00 37. 6,685.00
8. 10,706.00 38. 6,647.00
9. 10,644.00 39. 6,609.00
10. 10,582.00 40. 6,571.00
11. 10,520.00 41. 6,533.00
12. 10,458.00 42. 6,495.00
13. 10,396.00 43. 6,457.00
14. 10,334.00 44. 6,419.00
15. 10,272.00 45. 6,381.00
16. 10,210.00 46. 6,343.00
17. 10,148.00 47. 6,305.00
18. 10,086.00 48. 6,267.00
19. 10,024.00 49. 6,229.00
20. 9,962.00 50. 6,191.00
21. 9,900.00 51. 6,153.00
22. 9,838.00 52. 6,115.00
23. 9,776.00 53. 6,077.00
24. 9,714.00 54. 6,039.00
25. 9,652.00 55. 6,001.00
26. 9,590.00 56. 5,963.00
27. 9,528.00 57. 5,925.00
28. 9,466.00 58. 5,887.00
29. 9,404.00 59. 5,849.00
30. 9,342.00 60. 5,811.00
</TABLE>
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<PAGE>
ADDENDUM TO LEASE
This Addendum is attached to, and made a part of that certain lease
agreement, together with any and all attachments, amendments, riders and
exhibits thereto (collectively referred to herein as the "Lease") dated, for
reference purposes, May 31, 1989 between ARI Real Estate Partnership, a
California general partnership, as Lessor and Acme Rents, Inc., a California
corporation, as Lessee. The terms used in this Addendum shall have the same
definitions as set forth in the Lease. The provisions of this Addendum shall
control over any inconsistent or conflicting provision of the Lease.
Acme Rental Company, a Co-Partnership, ("Acme Rental Company") is the
owner of the real property commonly known as 328 Mira Loma Avenue, Glendale,
California. Said property is contiguous with, and shares a common boundary line
with the Premises. Lessee leases said property from Acme Rental Company.
Acme Rental Company and Lessor are parties to that certain Covenant
and Agreement with City of Glendale To Hold Real Property as One Parcel for
Building Requirements (the "Covenant"). Said Covenant is to be recorded in the
official records of the Los Angeles County Recorder.
* * * * * * * * * * * * *
PERMISSION FOR ALTERATIONS AND REPAIRS.
Subject to all of the terms; and conditions of the Lease, including, but not
limited to the provisions of Section 6.2, 7.5, 8.6 and 8.7 of the Lease:
Lessor hereby grants permission to Lessee, at Lessee's sole cost and expense,
to cut openings for doorways into the west wall of the building located on
the Premises and to construct and install a man-door and a truck door in the
said west wall. Said doorways and doors shall be constructed in accordance
with the plans and specifications previously approved by Lessor, and said
plans and specifications are incorporated herein and made a part hereof by
this reference. All work performed, and all materials used, shall comply
with all applicable laws, regulations, and building codes.
Lessee shall notify Lessor at least ten (10) days prior to the commencement
of work so that Lessor may post a notice(s) of non-responsibility on and/or
about the Premises.
Lessee shall indemnify Lessor against any loss, cost or expense incurred or
suffered in connection with the attached Covenant and Agreement with the City
of Glendale.
Lessee shall post a lien and completion bond in the amount of 1.5 times the
estimated cost of constructing and removing the doors and sealing the
doorways before commencing work.
Lessee shall pay Lessor's reasonable attorneys' fees incurred in connection
with this Amendment to Lease, not to exceed $2,000.00.
REMOVAL AND RESTORATION.
Upon the expiration or earlier termination of the Lease, and provided that
Lessor gives Lessee sixty (60) days advance written notice, Lessee shall, at
Lessee's sole cost and expense, remove the doors and seal the doorways with
material that matches the walls of the building.
-21- Initials:_______
_______
<PAGE>
Notwithstanding the foregoing, if Lessor unilaterally elects to terminate the
Covenant and demands the removal of the doors and sealing of the doorways,
then Lessor shall pay the cost of removing the doors and installing the
doorways.
If Acme Rental Company elects to terminate the Covenant, and the doors must
be removed and the doorways must be sealed, then Lessee shall, upon sixty
(60) days advance written notice from Lessor, remove the doors and seal the
doorways at Lessee's sole cost and expense.
In all other respects, the Lease remains unmodified and in full force and
effect.
[SIGNATURES APPEAR ON NEXT PAGE.]
-22- Initials:_______
_______
<PAGE>
LESSOR
ARI Real Estate Partnership, a
California general partnership
Dated: 6/28/95 /s/ IRA N. MENDELSOHN
------------------- --------------------------------------
By: Ira N. Mendelsohn, general partner
Dated: 6/27/95 /s/ THOMAS R. LAMIA
------------------- --------------------------------------
By: Thomas R. Lamia, general partner
LESSEE
Acme Rents, Inc., a California
corporation
Dated: 6/26/95 /s/ DOUGLAS A. WAUGAMAN
------------------- --------------------------------------
By: Douglas A. Waugaman
---------------------------------
Its: V.P. CFO
---------------------------------
-23- Initials:_______
_______
<PAGE>
EXHIBIT 10.15
STOCK OPTION PLAN
FOR KEY EMPLOYEES
OF
ACME ACQUISITION HOLDINGS CORP.
<PAGE>
Page 2
STOCK OPTION PLAN
FOR KEY EMPLOYEES
OF
ACME ACQUISITION HOLDINGS CORP.
Acme Acquisition Holdings Corp., a corporation organized under the laws of
the State of Delaware (the "Company"), hereby adopts this Stock Option Plan for
Key Employees of Acme Acquisition Holdings Corp. The purposes of this Plan are
as follows:
(1) To further the growth, development and financial success of the
Company by providing additional incentives to certain of its key Employees who
have been or will be given responsibility for the management or administration
of the Company's business affairs, by assisting them to become owners of the
Company's Common Stock and thus to benefit directly from its growth, development
and financial success.
(2) To enable the Company to obtain and retain the services of the type of
professional, technical and managerial employees considered essential to the
long-range success of the Company by providing and offering them an opportunity
to become owners of the Company's Common Stock under options, including options
that are intended to qualify as "incentive stock options" under Section 422 of
the Code.
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
The masculine pronoun shall include the feminine and neuter and the singular
shall include the plural, where the context so indicates.
Section 1.1 - Board. "Board" shall mean the Board of Directors of the
----------- -----
Company.
Section 1.2 - Code. "Code" shall mean the Internal Revenue Code of 1986, as
----------- ----
amended.
Section 1.3 - Committee. "Committee" shall mean the Stock Option Committee
----------- ---------
of the Board, appointed as provided in Section 6.1.
Section 1.4 - Common Stock. "Common Stock" shall mean the common stock, par
----------- ------------
value $.01 per share, of the Company.
Section 1.5 - Company. "Company" shall mean Acme Acquisition Holdings Corp.
----------- -------
<PAGE>
Page 3
Section 1.6 - Director. "Director" shall mean a member of the Board.
----------- --------
Section 1.7 - Employee. "Employee" shall mean any employee (as defined in
----------- --------
accordance with the regulations and revenue rulings then applicable under
Section 3401(c) of the Code) of the Company, or of any corporation which is then
a Parent Corporation or a Subsidiary, whether such employee is so employed at
the time this Plan is adopted or becomes so employed subsequent to the adoption
of this Plan.
Section 1.8 - Exchange Act. "Exchange Act" shall mean the Securities
----------- ------------
Exchange Act of 1934, as amended.
Section 1.9 - Incentive Stock Option. "Incentive Stock Option" shall mean
----------- ----------------------
an Option which qualifies under Section 422 of the Code and which is designated
as an Incentive Stock Option by the Committee.
Section 1.10 - Non-Qualified Option. "Non-Qualified Option" shall mean an
------------ --------------------
Option which is not an Incentive Stock Option and which is designated as a Non-
Qualified Option by the Committee.
Section 1.11 - Officer. "Officer" shall mean an officer of the Company, as
------------ -------
defined in Rule 16a-l(f) under the Exchange Act, as such Rule may be amended in
the future.
Section 1.12 - Option. "Option" shall mean an option to purchase Common
------------ ------
Stock of the Company, granted under the Plan. "Options" includes both Incentive
Stock Options and Non-Qualified Options.
Section 1.13 - Optionee. "Optionee" shall mean an Employee to whom an
------------ --------
Option is granted under the Plan.
Section 1.14 - Parent Corporation. "Parent Corporation" shall mean any
------------ ------------------
corporation in an unbroken chain of corporations ending with the Company if each
of the corporations other than the Company then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
Section 1.15 - Plan. "Plan" shall mean this Stock Option Plan for Key
------------ ----
Employees of Acme Acquisition Holdings Corp.
Section 1.16 - Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
------------ ----------
under the Exchange Act, as such Rule may be amended in the future.
Section 1.17 - Secretary. "Secretary" shall mean the Secretary of the
------------ ---------
Company.
<PAGE>
Page 4
Section 1.18 - Securities Act. "Securities Act" shall mean the Securities
------------ --------------
Act of 1933, as amended.
Section 1.19 - Subsidiary. "Subsidiary" shall mean any corporation in an
------------ ----------
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
Section 1.20 - Termination of Employment. "Termination of Employment" shall
------------ -------------------------
mean the time when the employee-employer relationship between the Optionee and
the Company, a Parent Corporation or a Subsidiary is terminated for any reason,
with or without cause, including, but not by way of limitation, a termination by
resignation, discharge, death or retirement, but excluding terminations where
there is a simultaneous reemployment by the Company, a Parent Corporation or a
Subsidiary. The Committee, in its absolute discretion, shall determine the
effect of all other matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment;
provided, however, that, with respect to Incentive Stock Options, a leave of
absence shall constitute a Termination of Employment if, and to the extent that,
such leave of absence interrupts employment for the purposes of Section
422(a)(2) of the Code and the then applicable regulations and revenue rulings
under said Section.
ARTICLE II
SHARES SUBJECT TO PLAN
----------------------
Section 2.1 - Shares Subject to Plan
----------- ----------------------
The shares of stock subject to Options shall be shares of the
Company's Common Stock. The aggregate number of such shares which may be issued
upon exercise of Options shall not exceed. [3,500]
Section 2.2 - Unexercised Options
----------- -------------------
If any Option expires or is cancelled without having been fully
exercised, the number of shares subject to such Option but as to which such
Option was not exercised prior to its expiration or cancellation may again be
optioned hereunder, subject to the limitations of Section 2.1.
<PAGE>
Page 5
Section 2.3 - Changes in Company's Shares
----------- ---------------------------
In the event that the outstanding shares of Common Stock of the
Company are hereafter changed into or exchanged for a different number or kind
of shares or other securities of the Company, or of another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend or combination of shares,
appropriate adjustments shall be made by the Committee in the number and kind of
shares for the purchase of which Options may be granted, including adjustments
of the limitations in Section 2.1 on the maximum number and kind of shares which
may be issued on exercise of Options.
ARTICLE III
GRANTING OF OPTIONS
-------------------
Section 3.1 - Eligibility
----------- -----------
Any key Employee of the Company or of any corporation which is then a
Parent Corporation or a Subsidiary shall be eligible to be granted Options,
except as provided in Section 3.2.
Section 3.2 - Qualification of Incentive Stock Options
----------- ----------------------------------------
No Incentive Stock Option shall be granted unless such Option, when
granted, qualifies as an "incentive stock option" under Section 422 of the Code.
Section 3.3 - Granting of Options
----------- -------------------
(a) The Committee shall from time to time, in its absolute
discretion:
(i) Determine which Employees are key Employees and select
from among the key Employees (including those to whom Options have been
previously granted under the Plan) such of them as in its opinion should be
granted Options; and
(ii) Determine the number of shares to be subject to such
Options granted to such selected key Employees, and determine whether such
Options are to be Incentive Stock Options or Non-Qualified Options; and
(iii) Determine the terms and conditions of such Options,
consistent with the Plan.
<PAGE>
Page 6
(b) Upon the selection of an Employee to be granted an Option, the
Committee shall instruct the Secretary to issue such Option and may impose such
conditions on the grant of such Option as it deems appropriate. Without limiting
the generality of the preceding sentence, the Committee may, in its discretion
and on such terms as it deems appropriate, require as a condition on the grant
of an Option to an Employee that the Employee surrender for cancellation some or
all of the unexercised Options which have been previously granted to him. An
Option the grant of which is conditioned upon such surrender may have an option
price lower (or higher) than the option price of the surrendered Option, may
cover the same (or a lesser or greater) number of shares as the surrendered
Option, may contain such other terms as the Committee deems appropriate and
shall be exercisable in accordance with its terms, without regard to the number
of shares, price, option period or any other term or condition of the
surrendered Option.
ARTICLE IV
TERMS OF OPTIONS
----------------
Section 4.1 - Option Agreement
----------- ----------------
Each Option shall be evidenced by a written Stock Option Agreement,
which shall be executed by the Optionee and an authorized Officer of the Company
and which shall contain such terms and conditions as the Committee shall
determine, consistent with the Plan. Stock Option Agreements evidencing
Incentive Stock Options shall contain such terms and conditions as may he
necessary to qualify such Options as "incentive stock options" under Section 422
of the Code.
Section 4.2 - Option Price
----------- ------------
(a) The price of the shares subject to each Option shall be set by
the Committee; provided, however, that the price per share shall be not less
than 100% of the fair market value of such shares on the date such Option is
granted; provided, further, that, in the case of an Incentive Stock Option, the
price per share shall not be less than 110% of the fair market value of such
shares on the date such Option is granted in the case of an individual then
owning (within the meaning of Section 424(d) of the Code) more than 10% of the
total combined voting power of all classes of stock of the Company, any
Subsidiary or any Parent Corporation.
(b) For purposes of the Plan, the fair market value of a share of the
Company's Common Stock as of a given date shall be: (i) the closing price of a
share of the Company's Common Stock on the principal exchange on which shares of
the Company's Common Stock are then trading, if any, on the day previous to such
date, or, if shares were not traded on the day previous to such date, then on
the next preceding trading day during
<PAGE>
Page 7
which a sale occurred; or (ii) if such Common Stock is not traded on an exchange
but is quoted on NASDAQ or a successor quotation system, (1) the last sales
price (if the Company's Common Stock is then listed as a National Market Issue
under the NASD National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the Company's
Common Stock on the day previous to such date as reported by NASDAQ or such
successor quotation system; or (iii) if such Common Stock is not publicly traded
on an exchange and not quoted on NASDAQ or a successor quotation system, the
mean between the closing bid and asked prices for the Company's Common Stock, on
the day previous to such date, as determined in good faith by the Committee; or
(iv) if the Company's Common Stock is not publicly traded, the fair market value
established by the Committee acting in good faith.
Section 4.3 - Commencement of Exercisability
----------- ------------------------------
(a) No Option may be exercised in whole or in part during the first
six months after such Option is granted.
(b) Subject to the provisions of Sections 4.3(a), 4.3(c), 4.3(d) and
7.3, Options shall become exercisable at such times and in such installments
(which may be cumulative) as the Committee shall provide in the terms of each
individual Option; provided, however, that by a resolution adopted after an
Option is granted the Committee may, on such terms and conditions as it may
determine to be appropriate and subject to Sections 4.3(a), 4.3(c), 4.3(d) and
7.3, accelerate the time at which such Option or any portion thereof may be
exercised.
(c) No portion of an Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
(d) To the extent that the aggregate fair market value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company, any Subsidiary and any Parent
Corporation) exceeds $100,000, such options shall be taxed as Non-Qualified
Options. The rule set forth in the preceding sentence shall be applied by taking
options into account in the order in which they were granted. For purposes of
this Section 4.3(d), the fair market value of stock shall be determined as of
the time the option with respect to such stock is granted.
<PAGE>
Page 8
Section 4.4 - Expiration of Options
----------- ---------------------
(a) No Option may be exercised to any extent by anyone after the
first to occur of the following events:
(i) The expiration of ten years from the date the Option was
granted; or
(ii) With respect to an Incentive Stock Option in the case of
an Optionee owning (within the meaning of Section 424(d) of the Code), at
the time the Incentive Stock Option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company, any
Subsidiary or any Parent Corporation, the expiration of five years from the
date the Incentive Stock Option was granted; or
(iii) Except in the case of any Optionee who is disabled (within
the meaning of Section 22(e)(3) of the Code), the expiration of three
months from the date of the Optionee's Termination of Employment for any
reason other than such Optionee's death unless the Optionee dies within
said three-month period; or
(iv) In the case of an Optionee who is disabled (within the
meaning of Section 22(e)(3) of the Code), the expiration of one year from
the date of the Optionee's Termination of Employment for any reason other
than such Optionee's death unless the Optionee dies within said one-year
Period; or
(v) The expiration of one year from the date of the Optionee's
death.
(b) Subject to the provisions of Section 4.4(a), the Committee shall
provide, in the terms of each individual Option, when such Option expires and
becomes unexercisable; and (without limiting the generality of the foregoing)
the Committee may provide in the terms of individual Options that said Options
expire immediately upon a Termination of Employment for any reason.
Section 4.5 - Consideration
----------- -------------
In consideration of the granting of an Option, the Optionee shall
agree, in the written Stock Option Agreement, to remain in the employ of the
Company, a Parent Corporation or a Subsidiary for a period of at least one year
after the Option is granted. Nothing in this Plan or in any Stock Option
Agreement hereunder shall confer upon any Optionee any right to continue in the
employ of the Company, any Parent Corporation or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company, its Parent
<PAGE>
Page 9
Corporations and its Subsidiaries, which are hereby expressly reserved, to
discharge any Optionee at any time for any reason whatsoever, with or without
cause.
Section 4.6 - Adjustments in Outstanding Options
----------- ----------------------------------
In the event that the outstanding shares of the stock subject to
Options are changed into or exchanged for a different number or kind of shares
of the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend or combination of shares, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares as to which all
outstanding Options, or portions thereof then unexercised, shall be exercisable,
to the end that after such event the Optionee's proportionate interest shall be
maintained as before the occurrence of such event. Such adjustment in an
outstanding Option shall be made without change in the total price applicable to
the Option or the unexercised portion of the Option (except for any change in
the aggregate price resulting from rounding-off of share quantities or prices)
and with any necessary corresponding adjustment in Option price per share;
provided, however, that, in the case of Incentive Stock Options, each such
adjustment shall be made in such manner as not to constitute a "modification"
within the meaning of Section 424(h)(3) of the Code. Any such adjustment made by
the Committee shall be final and binding upon all Optionees, the Company and all
other interested Persons.
Section 4.7 - Mergers, Consolidation, Acquisition, Liquidation or
----------- ---------------------------------------------------
Dissolution
- -----------
In its absolute discretion, and on such terms and conditions as it
deems appropriate, the Committee may provide by the terms of any Option that
such Option cannot be exercised after the 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; and if the Committee so provides, it may, in its absolute discretion
and on such terms and conditions as it deems appropriate, also provide, either
by the terms of such Option or by a resolution adopted prior to the occurrence
of such merger, consolidation, acquisition, liquidation or dissolution, that,
for some period of time prior to such event, such Option shall be exercisable as
to all shares covered thereby, notwithstanding anything to the contrary in
Section 4.3(a), Section 4.3(b) and/or any installment provisions of such Option,
but subject to Section 4.3(d).
<PAGE>
Page 10
ARTICLE V
EXERCISE OF OPTIONS
-------------------
Section 5.1 - Person Eligible to Exercise
----------- ---------------------------
During the lifetime of the Optionee, only he may exercise an Option
(or any portion thereof) granted to him. After the death of the Optionee, any
exercisable portion of an Option may, prior to the time when such portion
becomes unexercisable under the Plan or the applicable Stock Option Agreement,
be exercised by his personal representative or by any person empowered to do so
under the deceased Optionee's will or under the then applicable laws of descent
and distribution.
Section 5.2 - Partial Exercise
----------- ----------------
At any time and from time to time prior to the time when any
exercisable Option or exercisable portion thereof becomes unexercisable under
the Plan or the applicable Stock Option Agreement, such Option or portion
thereof may be exercised in whole or in part; provided, however, that the
Company shall not be required to issue fractional shares and the Committee may,
by the terms of the Option, require any partial exercise to be with respect to a
specified minimum number of shares.
Section 5.3 - Manner of Exercise
----------- ------------------
An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when such Option or such portion becomes
unexercisable under the Plan or the applicable Stock Option Agreement:
(a) Notice in writing signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that such Option or portion
is exercised, such notice complying with all applicable rules established by the
Committee; and
(b) (i) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is thereby exercised; or
(ii) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Optionee duly endorsed for transfer to
the Company or (B) except with respect to Incentive Stock Options, shares
of the Company's Common Stock issuable to the Optionee upon exercise of the
Option, with a fair market value (as determined under Section 4.2(b)) on
the date of Option exercise equal to the aggregate Option price of the
shares with respect to which such Option or portion is thereby exercised;
or
<PAGE>
Page 11
(iii) With the consent of the Committee, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code or any successor
provision) and payable upon such terms as may be prescribed by the
Committee. The Committee may also prescribe the form of such note and the
security to be given for such note. No Option may, however, be exercised by
delivery of a promissory note or by a loan from the Company when or where
such loan or other extension of credit is prohibited by law; or
(iv) With the consent of the Committee, any combination of the
consideration provided in the foregoing subsections (i), (ii) and (iii);
and
(c) The payment to the Company (or other employer corporation) of all
amounts which it is required to withhold under federal, state or local law in
connection with the exercise of the Option; with the consent of the Committee,
(i) shares of the Company's Common Stock owned by the Optionee duly endorsed for
transfer or (ii) except with respect to Incentive Stock Options shares of the
Company's Common Stock issuable to the Optionee upon exercise of the Option,
valued in accordance with Section 4.2(b) at the date of Option exercise, may be
used to make all or part of such payment; and
(d) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its absolute discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share certificates
and issuing stop-transfer orders to transfer agents and registrars; and
(e) In the event that the Option or portion thereof shall be
exercised pursuant to Section 5.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons to exercise
the Option or portion thereof.
Section 5.4 - Conditions to Issuance of Stock Certificates and Exercise of
----------- ------------------------------------------------------------
Options
- -------
The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company. The
Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of any Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
<PAGE>
Page 12
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation) of all
amounts which it is required to withhold under federal, state or local law in
connection with the exercise of the Option;
(e) The holder of the Option being exercised becomes a party to any
stockholder's agreement then in effect, if and to the extent required by the
Company (this condition is also a condition to the exercise of an Option); and
(f) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may establish from time to time for
reasons of administrative convenience.
Section 5.5 - Rights as Shareholders
----------- ----------------------
The holders of Options shall not be, nor have any of the rights or
privileges of, shareholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by the Company to such holders.
Section 5.6 - Transfer Restrictions
----------- ---------------------
Unless otherwise approved in writing by the Committee, no shares
acquired upon exercise of any Option by any Officer may be sold, assigned,
pledged, encumbered or otherwise transferred until at least six months have
elapsed from (but excluding) the date that such Option was granted.
All shares acquired upon exercise of any Option shall bear and be
subject to the restrictions described in the following legend:
<PAGE>
Page 13
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"). These
securities have been acquired for investment and not with a view to
distribution or resale, and may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration statement for such
shares under the Act or an opinion of counsel satisfactory in form and
content to the issuer that such registration is not required under the Act.
The shares represented by this certificate are subject to a right of
first refusal option in favor of certain stockholders and a drag-along
right in favor of certain stockholders, each as set forth in an agreement
between the issuer corporation and the registered holder, or its
predecessor in interest, a copy of which is on file at the principal office
of the issuer corporation and will be furnished upon request to the holder
of record of the securities represented by this certificate."
The Committee, in its absolute discretion, may impose such other
restrictions on the transferability of the shares purchasable upon the exercise
of an Option as it deems appropriate. Any such other restriction shall be set
forth in the respective Stock Option Agreement and may be referred to on the
certificates evidencing such shares. The Committee may require the Employee to
give the Company prompt notice of any disposition of shares of stock, acquired
by exercise of an Incentive Stock Option, within two years from the date of
granting such Option or one year after the transfer of such shares to such
Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Incentive Stock Option refer to such requirement to
give prompt notice of disposition.
ARTICLE VI
ADMINISTRATION
--------------
Section 6.1 - Stock Option Committee
----------- ----------------------
The Stock Option Committee shall consist of two or more Directors,
appointed by and holding office at the pleasure of the Board. Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee shall be filled by the Board.
Section 6.2 - Duties and Powers of Committee
----------- ------------------------------
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to interpret the Plan and the Options and to adopt such
rules for the administration, interpretation and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such
<PAGE>
Page 14
rules. Any such interpretations and rules in regard to Incentive Stock Options
shall be consistent with the basic purpose of the Plan to grant "incentive stock
options" within the meaning of Section 422 of the Code. The Board shall have no
right to exercise any of the rights or duties of the Committee under the Plan.
Section 6.3 - Majority Rule
----------- -------------
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
Section 6.4 - Professional Assistance: Good Faith Actions
----------- -------------------------------------------
The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and its
Officers and Directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Optionees, the Company and all other interested persons. No member of
the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Options, and
all members of the Committee shall be fully protected by the Company in respect
to any such action determination or interpretation.
ARTICLE VII
OTHER PROVISIONS
----------------
Section 7.1 - Options Not Transferable
----------- ------------------------
No Option or interest or right therein or part thereof shall be liable
for the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect; provided, however, that nothing in this Section 7.1 shall
prevent transfers by will or by the applicable laws of descent and distribution.
<PAGE>
Page 15
Section 7.2 - Amendment, Suspension or Termination of the Plan
----------- ------------------------------------------------
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Committee.
However, without approval of the Company's shareholders given within 12 months
before or after the action by the Committee, no action of the Committee may,
except as provided in Section 2.3, increase any limit imposed in Section 2.1 on
the maximum number of shares which may be issued on exercise of Options,
materially modify the eligibility requirements of Section 3.1, reduce the
minimum Option price requirements of Section 4.2(a) or extend the limit imposed
in this Section 7.2 on the period during which Options may be granted or amend
or modify the Plan in a manner requiring shareholder approval under Rule 16b-3.
Neither the amendment, suspension nor termination of the Plan shall, without the
consent of the holder of the Option, impair any rights or obligations under any
Option theretofore granted. No Option may be granted during any period of
suspension nor after termination of the Plan, and in no event may any Option be
granted under this Plan after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted by
the Board; or
(b) The expiration of ten years from the date the Plan is approved by
the Company's shareholders under Section 7.3.
Section 7.3 - Approval of Plan by Shareholders
----------- --------------------------------
This Plan will be submitted for the approval of the Company's
shareholders within 12 months after the date of the Board's initial adoption of
the Plan. Options may be granted prior to such shareholder approval; provided,
however, that such Options shall not be exercisable prior to the time when the
Plan is approved by the shareholders; provided, further, that if such approval
has not been obtained at the end of said 12-month period, all Options previously
granted under the Plan shall thereupon be cancelled and become null and void.
The Company shall take such actions with respect to the Plan as may be necessary
to satisfy the requirements of Rule 16b-3(b).
Section 7.4 - Effect of Plan Upon Other Option and Compensation Plans
----------- -------------------------------------------------------
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or any Subsidiary (a) to establish any other
forms of incentives or compensation for employees of the Company, any Parent
Corporation or any Subsidiary or (b) to grant or assume options otherwise than
under this Plan in connection with any proper corporate purpose, including,
<PAGE>
Page 16
but not by way of limitation, the grant or assumption of options in connection
with the acquisition by purchase, lease, merger, consolidation or otherwise, of
the business, stock or assets of any corporation, firm or association.
Section 7.5 - Titles
----------- ------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of the Plan.
Section 7.6 - Conformity to Securities Laws
----------- -----------------------------
The Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. Notwithstanding anything
herein to the contrary, the Plan shall be administered, and Options shall be
granted and may be exercised, only in such a manner as to conform to such laws,
rules and regulations. To the extent permitted by applicable law, the Plan and
Options granted hereunder shall he deemed amended to the extent necessary to
conform to such laws, rules and regulations.
<PAGE>
Page 17
* * * *
I hereby certify that the foregoing Plan was duly adopted by the Board
of Directors of Acme Acquisition Holdings Corp. on July 25, 1995.
Executed on this 25th day of July, 1995.
/s/ DOUGLAS WAUGAMAN
--------------------------
Douglas Waugaman
Vice President & CFO
* * * *
I hereby certify that the foregoing Plan was duly approved by the
shareholders of Acme Acquisition Holdings Corp. on July 25, 1995.
Executed on this 25th day of July, 1995.
/s/ DOUGLAS WAUGAMAN
--------------------------
Douglas Waugaman
Vice President & CFO
<PAGE>
EXHIBIT 10.16
INCENTIVE STOCK OPTION AGREEMENT
THIS 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":
WHEREAS, the Company wishes to afford the Employee the opportunity to
purchase shares of its Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has
determined that it would be to the advantage and in the best interests of the
Company and its shareholders to grant the Incentive Stock Option provided for
herein to the Employee as an inducement to enter into or remain in the service
of the Company, its Parent Corporations or its Subsidiaries and as an incentive
for increased efforts during such service, and has advised the Company thereof
and instructed the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board. "Board" shall mean the Board of Directors of the
----------- -----
Company.
Section 1.2 - Code. "Code" shall mean the Internal Revenue Code of
----------- ----
1986, as amended.
Section 1.3 - Committee. "Committee" shall mean the Stock Option
----------- ---------
Committee of the Board, appointed as provided in the Plan.
1
<PAGE>
Section 1.4 - Common Stock. "Common Stock" shall mean the common
----------- ------------
stock, par value $.01 per share, of the Company.
Section 1.5 - Company. "Company" shall mean Acme Acquisition Holdings
----------- -------
Corp., a Delaware corporation.
Section 1.6 - Director. "Director" shall mean a member of the Board.
----------- --------
Section 1.7 - EBITA. "EBITA" shall mean the consolidated earnings of
----------- -----
the Company before interest, taxes and amortization, calculated in accordance
with generally accepted accounting principles.
Section 1.8 - Exchange Act. "Exchange Act" shall mean the Securities
----------- ------------
Exchange Act of 1934, as amended.
Section 1.9 - Officer. "Officer" shall mean an officer of the
----------- -------
Company, as defined in Rule 16a-1(f) under the Exchange Act, as such Rule may be
amended in the future.
Section 1.10 - Option. "Option" shall mean the incentive stock option
------------ ------
to purchase Common Stock of the Company granted under this Agreement.
Section 1.11 - Optionee. "Optionee" shall mean the Employee under this
------------ --------
Agreement.
Section 1.12 - Parent Corporation. "Parent Corporation" shall mean
------------ ------------------
any corporation in an unbroken chain of corporations ending with the Company if
each of the corporations other than the Company then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.13 - Plan. "Plan" shall mean the Stock Option Plan for Key
------------ ----
Employees of Acme Acquisition Holdings Corp.
Section 1.14 - Rule 16b-3. "Rule 16b-3" shall mean that certain Rule
------------ ----------
16b-3 under the Exchange Act, as such Rule may be amended in the future.
Section 1.15 - Secretary. "Secretary" shall mean the Secretary of the
------------ ---------
Company.
Section 1.16 - Securities Act. "Securities Act" shall mean the
------------ --------------
Securities Act of 1933, as amended.
Section 1.17 - Subsidiary. "Subsidiary" shall mean any corporation in
------------ ----------
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one (1) of the other corporations in such chain.
2
<PAGE>
Section 1.18 - Termination of Employment. "Termination of Employment"
------------ -------------------------
shall mean the time when the employee-employer relationship between the Optionee
and the Company, a Parent Corporation or a Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, a
termination by resignation, discharge, death or retirement, but excluding any
termination where there is a simultaneous reemployment by the Company, a Parent
Corporation or a Subsidiary. The Committee, in its absolute discretion, shall
determine the effect of all other matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Employment; provided, however, that a leave of absence shall constitute a
Termination of Employment if, and to the extent that, such leave of absence
interrupts employment for purposes of Section 422(a)(2) of the Code and the then
applicable regulations and revenue rulings under said Section.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
In consideration of the Employee's agreement to remain in the employ
of the Company, its Parent Corporations or its Subsidiaries and for other good
and valuable consideration, on the date hereof the Company irrevocably grants to
the Employee the option to purchase any part or all of an aggregate of the
number of shares of its Common Stock identified on the signature page hereto
upon the terms and conditions set forth in this Agreement.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of Common Stock covered by the Option
shall be the dollar amount per share, without commission or other charge,
identified on the signature page hereto.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company, the
Employee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least one year
from the date this Option is granted. Nothing in this Agreement or in the Plan
shall confer upon the Employee any right to continue in the employ of the
Company, any Parent Corporation or any Subsidiary or shall interfere with or
restrict in any way the rights of the Company, its Parent Corporations and its
Subsidiaries, which are hereby expressly reserved, to discharge the Employee at
any time for any reason whatsoever, with or without cause.
3
<PAGE>
Section 2.4 - Adjustments in Option
- ----------- ---------------------
In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Employee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the Option price per share; provided, however, that each such adjustment
shall be made in such manner as not to constitute a "modification" within the
meaning of Section 424(h)(3) of the Code. Any such adjustment made by the
Committee shall be final and binding upon the Employee, the Company and all
other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Subject to Sections 3.5 and 5.6, the shares granted under this
Option shall become exercisable as follows:
(i) An installment covering 1/5 of the shares shall become
exercisable on January 6, 1997;
(ii) An installment covering 1/5 of the shares shall become
exercisable on January 1, 1998;
(iii) An installment covering 1/5 of the shares shall become
exercisable on January 1, 1999;
(iv) An installment covering 1/5 of the shares shall become
exercisable on January 1, 2000;
(v) An installment covering 1/5 of the shares shall become
exercisable on January 1, 2001.
(d) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
4
<PAGE>
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten years from the date the Option was granted;
or
(b) If the Employee owned (within the meaning of Section 424(d) of
the Code), at the time the Option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company, any Subsidiary or
any Parent Corporation, the expiration of five years from the date the Option
was granted; or
(c) The time of the Employee's Termination of Employment unless such
Termination of Employment results from his death, his retirement, his disability
(within the meaning of Section 22(e)(3) of the Code) or his being discharged not
for good cause; or
(d) The expiration of three months from the date of the Employee's
Termination of Employment by reason of his retirement or his being discharged
not for good cause, unless the Employee dies within said three-month period; or
(e) The expiration of one year from the date of the Employee's
Termination of Employment by reason of his disability (within the meaning of
Section 22(e)(3) of the Code); or
(f) The expiration of one year from the date of the Employee's death;
or
(g) The effective date of either the 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, unless the Committee waives this provision in
connection with such transaction. At least ten days prior to the effective date
of such merger, consolidation, acquisition, liquidation or dissolution, the
Committee shall give the Employee notice of such event if the Option has then
neither been fully exercised nor become unexercisable under this Section 3.3.
5
<PAGE>
Section 3.4 - Acceleration of Exercisability
- ----------- ------------------------------
In the event of the 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,
the Committee may, in its absolute discretion and upon such terms and conditions
as it deems appropriate, provide by resolution, adopted prior to such event and
incorporated in the notice referred to in Section 3.3(g), that at some time
prior to the effective date of such event this Option shall be exercisable as to
all the shares covered hereby, notwithstanding that this Option may not yet have
become fully exercisable under Section 3.1(a); provided, however, that this
-----------------
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation, or a parent or subsidiary of such corporation, so that
such assumption or substitution complies with the provisions of Section 424(a)
of the Code; and
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 3.5 or Section
5.6.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction, and determinations regarding whether provisions for
assumption or substitution have been made as defined in subsection (b) above.
Section 3.5 - Special Tax Consequences
- ----------- ------------------------
The Employee acknowledges that, to the extent that the aggregate fair
market value of stock with respect to which "incentive stock options" (within
the meaning of Section 422 of the Code, but without regard to Section 422(d) of
the Code), including the Option, are exercisable for the first time by the
Employee during any calendar year (under the Plan and all other incentive stock
option plans of the Company, any Subsidiary and any Parent Corporation) exceeds
$100,000, such options shall be treated as not qualifying under Section 422 of
the Code but rather shall be taxed as non-qualified options. The Employee
further acknowledges that the rule set forth in the preceding sentence shall be
applied by taking options into account in the order in which they were granted.
For purposes of these rules, the fair market value of stock shall be determined
as of the time the option with respect to such stock is granted.
6
<PAGE>
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Employee, only he may exercise the Option
or any portion thereof. After the death of the Employee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his personal representative or
by any person empowered to do so under the Employee's will or under the then
applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
_____________ shares (or the minimum installment set forth in Section 3.1, if a
smaller number of shares) and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Employee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee; and
(b) (i) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is exercised; or
(ii) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Employee duly endorsed for transfer to
the Company, or (B) shares of the Company's Common Stock issuable to the
Employee upon exercise of the Option, with a fair market value (as
determined under Section 4.2(b) of the Plan) on the date of Option exercise
equal to the aggregate purchase price of the shares with respect to which
such Option or portion is exercised; or
(iii) With the consent of the Committee, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code or successor provision)
and payable upon such terms as may be prescribed by the Committee. The
Committee may also
7
<PAGE>
prescribe the form of such note and the security to be given for such note.
The Option may not be exercised, however, by delivery of a promissory note
or by a loan from the Company when or where such loan or other extension of
credit is prohibited by law; or
(iv) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (i), (ii) and (iii);
and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Employee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Employee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable to it to
the effect that any subsequent transfer of shares acquired on an Option exercise
does not violate the Securities Act, and may issue stop-transfer orders covering
such shares. Share certificates evidencing stock issued on exercise of this
Option shall bear an appropriate legend referring to the provisions of this
subsection (c) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection (c) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares;
(d) Full payment to the Company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; with the consent of the Committee, (i)
shares of the Company's Common Stock owned by the Employee duly endorsed for
transfer, or (ii) shares of the Company's Common Stock issuable to the Employee
upon exercise of the Option, valued in accordance with Section 4.2(b) of the
Plan at the date of Option exercise, may be used to make all or part of such
payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Employee, appropriate proof
of the right of such person or persons to exercise the Option.
8
<PAGE>
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.
Section 4.5 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
9
<PAGE>
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Employee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. The
Board shall have no right to exercise any of the rights or duties of the
Committee under the Plan and this Agreement.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Employee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Employee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Employee shall,
if the Employee is then deceased, be given to the Employee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall
be deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
10
<PAGE>
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 - Shareholder Approval
- ----------- --------------------
The Plan will be submitted for approval by the Company's shareholders
within twelve months after the date the Plan was initially adopted by the Board.
This Option may not be exercised to any extent by anyone prior to the time when
the Plan is approved by the shareholders, and if such approval has not been
obtained by the end of said twelve-month period, this Option shall thereupon be
canceled and become null and void. The Company shall take such actions as may
be necessary to satisfy the requirements of Rule 16b-3(b).
Section 5.7 - Notification of Disposition
- ----------- ---------------------------
The Employee shall give prompt notice to the Company of any
disposition or other transfer of any shares of stock acquired under this
Agreement if such disposition or transfer is made (a) within ten years from the
date of granting the Option with respect to such shares or (b) within one year
after the transfer of such shares to him. Such notice shall specify the date of
such disposition or other transfer and the amount realized, in cash, other
property, assumption of indebtedness or other consideration, by the Employee in
such disposition or other transfer.
Section 5.8 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under
the laws of the State of Delaware.
Section 5.9 - Conformity to Securities Laws
- ----------- -----------------------------
The Employee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and the Option
is granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the
Plan and this Agreement shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
11
<PAGE>
Section 5.10 - Company's Right to Repurchase Shares
- ------------- ------------------------------------
Upon Termination of Employment, the Company shall have the option to
repurchase all (but not less than all) of the shares of stock which have been
purchased by the Employee pursuant to exercise of the Option and which the
Employee then holds. The repurchase price payable by the Company if it
exercises its repurchase option shall be the fair market value of the shares.
The Company's option shall expire upon the closing of an initial public offering
of equity securities by the Company or the Parent.
The Company's repurchase option shall be exercisable by giving written
notice (accompanied by payment for the shares) to the Employee within thirty
calendar days after the Termination of Employment. In the event that the book
value of such shares as of the end of the immediately preceding fiscal year has
not yet been certified by the Company's accountants at the time of said
Termination of Employment, said thirty calendar day period for the Company's
exercise of its repurchase option shall commence upon said certification.
Section 5.11 - Restrictions on Transfer of Shares
- ------------- ----------------------------------
(a) There can be no valid transfer (as hereinafter defined) of any
shares of stock purchased on exercise of the Option, or any interest in such
shares, by any holder of such shares or interests unless such transfer is solely
for cash consideration and is made in compliance with the following provisions:
(1) Before there can be a valid transfer of any shares or any
interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give written notice (by registered or certified
mail) to the Company. Such notice shall specify the identity of the
proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed
transfer. The date such notice is mailed shall be hereinafter referred to
as the "notice date" and the record holder of the Offered Shares shall be
hereinafter referred to as the "Offeror."
(2) For a period of thirty calendar days after the notice date,
the Company shall have the option to purchase all (but not less than all)
of the Offered Shares at the purchase price and on the terms set forth in
subsection (a)(3) of this Section 5.11. This option shall be exercisable
by the Company by mailing (by registered or certified mail) written notice
of exercise to the Offeror prior to the end of said thirty days.
(3) The price at which the Company may purchase the Offered
Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in
the notice required under subsection (a)(1) of this Section 5.11). The
Company's notice of exercise of such option shall be accompanied by full
payment for the Offered Shares and, upon such
12
<PAGE>
payment by the Company, the Company shall acquire full right, title and
interest to all of the Offered Shares.
(4) If, and only if, the option given pursuant to subsection
(a)(2) of this Section 5.11 is not exercised, the transfer proposed in the
notice given pursuant to subsection (a)(1) of this Section 5.11 may take
place; provided, however, that such transfer must, in all respects, be
-----------------
exactly as proposed in said notice except that such transfer may not take
place either before the tenth calendar day after the expiration of said
thirty-day option exercise period or after the ninetieth calendar day after
the expiration of said thirty-day option exercise period, and if such
transfer has not taken place prior to said ninetieth day, such transfer may
not take place without once again complying with subsection (a) of this
Section 5.11.
(b) As used in this Section 5.11, the term "transfer" means any sale,
encumbrance, pledge, gift or other form of disposition or transfer of shares of
the Company's stock or any legal or equitable interest therein; provided,
however, that the term "transfer" does not include a transfer of such shares or
interests by will or by the applicable laws of descent and distribution or a
gift of such shares if the donee agrees to be bound by the provisions of this
Section 5.11.
(c) None of the shares of the Company's stock purchased on exercise
of the Option shall be transferred on the Company's books nor shall the Company
recognize any such transfer of any such shares or any interest therein unless
and until all applicable provisions of this Section 5.11 have been complied with
in all respects. The certificates of stock evidencing shares of stock purchased
on exercise of the Option shall bear an appropriate legend referring to the
transfer restrictions imposed by this Section 5.11 and to the repurchase option
provided for in Section 5.10.
13
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
________________________________________
By _____________________________________
Martin R. Reid
President and Chief Executive Officer
By _____________________________________
Douglas Waugaman
Secretary
___________________________
Name:
____________________________
____________________________
Address
Employee's Taxpayer
Identification Number:
____________________________
DATE: __________, ____
Number of shares covered by Option ___
Exercise Price per share - $______
14
<PAGE>
EXHIBIT 10.17
INCENTIVE STOCK OPTION AGREEMENT
THIS 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":
WHEREAS, the Company wishes to afford the Employee the opportunity to
purchase shares of its Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has
determined that it would be to the advantage and in the best interests of the
Company and its shareholders to grant the Incentive Stock Option provided for
herein to the Employee as an inducement to enter into or remain in the service
of the Company, its Parent Corporations or its Subsidiaries and as an incentive
for increased efforts during such service, and has advised the Company thereof
and instructed the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board. "Board" shall mean the Board of Directors of the
----------- -----
Company.
Section 1.2 - Code. "Code" shall mean the Internal Revenue Code of
----------- ----
1986, as amended.
Section 1.3 - Committee. "Committee" shall mean the Stock Option
----------- ---------
Committee of the Board, appointed as provided in the Plan.
1
<PAGE>
Section 1.4 - Common Stock. "Common Stock" shall mean the common
----------- ------------
stock, par value $.01 per share, of the Company.
Section 1.5 - Company. "Company" shall mean Acme Acquisition Holdings
----------- -------
Corp., a Delaware corporation.
Section 1.6 - Director. "Director" shall mean a member of the Board.
----------- --------
Section 1.7 - EBITA. "EBITA" shall mean the consolidated earnings of
----------- -----
the Company before interest, taxes and amortization, calculated in accordance
with generally accepted accounting principles.
Section 1.8 - Exchange Act. "Exchange Act" shall mean the Securities
----------- ------------
Exchange Act of 1934, as amended.
Section 1.9 - Officer. "Officer" shall mean an officer of the
----------- -------
Company, as defined in Rule 16a-1(f) under the Exchange Act, as such Rule may be
amended in the future.
Section 1.10 - Option. "Option" shall mean the incentive stock option
------------ ------
to purchase Common Stock of the Company granted under this Agreement.
Section 1.11 - Optionee. "Optionee" shall mean the Employee under this
------------ --------
Agreement.
Section 1.12 - Parent Corporation. "Parent Corporation" shall mean
------------ ------------------
any corporation in an unbroken chain of corporations ending with the Company if
each of the corporations other than the Company then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.13 - Plan. "Plan" shall mean the Stock Option Plan for Key
------------ ----
Employees of Acme Acquisition Holdings Corp.
Section 1.14 - Rule 16b-3. "Rule 16b-3" shall mean that certain Rule
------------ ----------
16b-3 under the Exchange Act, as such Rule may be amended in the future.
Section 1.15 - Secretary. "Secretary" shall mean the Secretary of the
------------ ---------
Company.
Section 1.16 - Securities Act. "Securities Act" shall mean the
------------ --------------
Securities Act of 1933, as amended.
Section 1.17 - Subsidiary. "Subsidiary" shall mean any corporation in
------------ ----------
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one (1) of the other corporations in such chain.
2
<PAGE>
Section 1.18 - Termination of Employment. "Termination of Employment"
------------ -------------------------
shall mean the time when the employee-employer relationship between the Optionee
and the Company, a Parent Corporation or a Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, a
termination by resignation, discharge, death or retirement, but excluding any
termination where there is a simultaneous reemployment by the Company, a Parent
Corporation or a Subsidiary. The Committee, in its absolute discretion, shall
determine the effect of all other matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Employment; provided, however, that a leave of absence shall constitute a
Termination of Employment if, and to the extent that, such leave of absence
interrupts employment for purposes of Section 422(a)(2) of the Code and the then
applicable regulations and revenue rulings under said Section.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
In consideration of the Employee's agreement to remain in the employ
of the Company, its Parent Corporations or its Subsidiaries and for other good
and valuable consideration, on the date hereof the Company irrevocably grants to
the Employee the option to purchase any part or all of an aggregate of the
number of shares of its Common Stock identified on the signature page hereto
upon the terms and conditions set forth in this Agreement.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of Common Stock covered by the Option
shall be the dollar amount per share, without commission or other charge,
identified on the signature page hereto.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company, the
Employee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least one year
from the date this Option is granted. Nothing in this Agreement or in the Plan
shall confer upon the Employee any right to continue in the employ of the
Company, any Parent Corporation or any Subsidiary or shall interfere with or
restrict in any way the rights of the Company, its Parent Corporations and its
Subsidiaries, which are hereby expressly reserved, to discharge the Employee at
any time for any reason whatsoever, with or without cause.
3
<PAGE>
Section 2.4 - Adjustments in Option
- ----------- ---------------------
In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Employee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the Option price per share; provided, however, that each such adjustment
shall be made in such manner as not to constitute a "modification" within the
meaning of Section 424(h)(3) of the Code. Any such adjustment made by the
Committee shall be final and binding upon the Employee, the Company and all
other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Subject to Sections 3.5 and 5.6, the shares granted under this
Option shall become exercisable as follows:
(i) An installment covering 1/3 of the shares shall become
exercisable on April 1, 1997;
(ii) An installment covering 1/3 of the shares shall become
exercisable on April 1, 1998;
(iii) An installment covering 1/3 of the shares shall become
exercisable on April 1, 1999.
(d) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
4
<PAGE>
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten years from the date the Option was granted;
or
(b) If the Employee owned (within the meaning of Section 424(d) of
the Code), at the time the Option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company, any Subsidiary or
any Parent Corporation, the expiration of five years from the date the Option
was granted; or
(c) The time of the Employee's Termination of Employment unless such
Termination of Employment results from his death, his retirement, his disability
(within the meaning of Section 22(e)(3) of the Code) or his being discharged not
for good cause; or
(d) The expiration of three months from the date of the Employee's
Termination of Employment by reason of his retirement or his being discharged
not for good cause, unless the Employee dies within said three-month period; or
(e) The expiration of one year from the date of the Employee's
Termination of Employment by reason of his disability (within the meaning of
Section 22(e)(3) of the Code); or
(f) The expiration of one year from the date of the Employee's death;
or
(g) The effective date of either the 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, unless the Committee waives this provision in
connection with such transaction. At least ten days prior to the effective date
of such merger, consolidation, acquisition, liquidation or dissolution, the
Committee shall give the Employee notice of such event if the Option has then
neither been fully exercised nor become unexercisable under this Section 3.3.
5
<PAGE>
Section 3.4 - Acceleration of Exercisability
- ----------- ------------------------------
In the event of the 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,
the Committee may, in its absolute discretion and upon such terms and conditions
as it deems appropriate, provide by resolution, adopted prior to such event and
incorporated in the notice referred to in Section 3.3(g), that at some time
prior to the effective date of such event this Option shall be exercisable as to
all the shares covered hereby, notwithstanding that this Option may not yet have
become fully exercisable under Section 3.1(a); provided, however, that this
-----------------
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation, or a parent or subsidiary of such corporation, so that
such assumption or substitution complies with the provisions of Section 424(a)
of the Code; and
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 3.5 or
Section 5.6.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction, and determinations regarding whether provisions for
assumption or substitution have been made as defined in subsection (b) above.
Section 3.5 - Special Tax Consequences
- ----------- ------------------------
The Employee acknowledges that, to the extent that the aggregate fair
market value of stock with respect to which "incentive stock options" (within
the meaning of Section 422 of the Code, but without regard to Section 422(d) of
the Code), including the Option, are exercisable for the first time by the
Employee during any calendar year (under the Plan and all other incentive stock
option plans of the Company, any Subsidiary and any Parent Corporation) exceeds
$100,000, such options shall be treated as not qualifying under Section 422 of
the Code but rather shall be taxed as non-qualified options. The Employee
further acknowledges that the rule set forth in the preceding sentence shall be
applied by taking options into account in the order in which they were granted.
For purposes of these rules, the fair market value of stock shall be determined
as of the time the option with respect to such stock is granted.
6
<PAGE>
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Employee, only he may exercise the Option
or any portion thereof. After the death of the Employee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his personal representative or
by any person empowered to do so under the Employee's will or under the then
applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
_____________ shares (or the minimum installment set forth in Section 3.1, if a
smaller number of shares) and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under
Section 3.3:
(a) Notice in writing signed by the Employee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee; and
(b) (i) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is exercised; or
(ii) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Employee duly endorsed for transfer to
the Company, or (B) shares of the Company's Common Stock issuable to the
Employee upon exercise of the Option, with a fair market value (as
determined under Section 4.2(b) of the Plan) on the date of Option exercise
equal to the aggregate purchase price of the shares with respect to which
such Option or portion is exercised; or
(iii) With the consent of the Committee, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code or successor provision)
and payable upon such terms as may be prescribed by the Committee. The
Committee may also
7
<PAGE>
prescribe the form of such note and the security to be given for such note.
The Option may not be exercised, however, by delivery of a promissory note
or by a loan from the Company when or where such loan or other extension of
credit is prohibited by law; or
(iv) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (i), (ii) and (iii);
and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Employee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Employee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable to it to
the effect that any subsequent transfer of shares acquired on an Option exercise
does not violate the Securities Act, and may issue stop-transfer orders covering
such shares. Share certificates evidencing stock issued on exercise of this
Option shall bear an appropriate legend referring to the provisions of this
subsection (c) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection (c) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares;
(d) Full payment to the Company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; with the consent of the Committee, (i)
shares of the Company's Common Stock owned by the Employee duly endorsed for
transfer, or (ii) shares of the Company's Common Stock issuable to the Employee
upon exercise of the Option, valued in accordance with Section 4.2(b) of the
Plan at the date of Option exercise, may be used to make all or part of such
payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Employee, appropriate proof
of the right of such person or persons to exercise the Option.
8
<PAGE>
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.
Section 4.5 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
9
<PAGE>
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Employee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. The
Board shall have no right to exercise any of the rights or duties of the
Committee under the Plan and this Agreement.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Employee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Employee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Employee shall,
if the Employee is then deceased, be given to the Employee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall
be deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
10
<PAGE>
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 - Shareholder Approval
- ----------- --------------------
The Plan will be submitted for approval by the Company's shareholders
within twelve months after the date the Plan was initially adopted by the Board.
This Option may not be exercised to any extent by anyone prior to the time when
the Plan is approved by the shareholders, and if such approval has not been
obtained by the end of said twelve-month period, this Option shall thereupon be
cancelled and become null and void. The Company shall take such actions as may
be necessary to satisfy the requirements of Rule 16b-3(b).
Section 5.7 - Notification of Disposition
- ----------- ---------------------------
The Employee shall give prompt notice to the Company of any
disposition or other transfer of any shares of stock acquired under this
Agreement if such disposition or transfer is made (a) within ten years from the
date of granting the Option with respect to such shares or (b) within one year
after the transfer of such shares to him. Such notice shall specify the date of
such disposition or other transfer and the amount realized, in cash, other
property, assumption of indebtedness or other consideration, by the Employee in
such disposition or other transfer.
Section 5.8 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under
the laws of the State of Delaware.
Section 5.9 - Conformity to Securities Laws
- ----------- -----------------------------
The Employee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and the Option
is granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the
Plan and this Agreement shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
11
<PAGE>
Section 5.10 - Company's Right to Repurchase Shares
- ------------- ------------------------------------
Upon Termination of Employment, the Company shall have the option to
repurchase all (but not less than all) of the shares of stock which have been
purchased by the Employee pursuant to exercise of the Option and which the
Employee then holds. The repurchase price payable by the Company if it
exercises its repurchase option shall be the fair market value of the shares.
The Company's option shall expire upon the closing of an initial public offering
of equity securities by the Company or the Parent.
The Company's repurchase option shall be exercisable by giving written
notice (accompanied by payment for the shares) to the Employee within thirty
calendar days after the Termination of Employment. In the event that the book
value of such shares as of the end of the immediately preceding fiscal year has
not yet been certified by the Company's accountants at the time of said
Termination of Employment, said thirty calendar day period for the Company's
exercise of its repurchase option shall commence upon said certification.
Section 5.11 - Restrictions on Transfer of Shares
- ------------- ----------------------------------
(a) There can be no valid transfer (as hereinafter defined) of any
shares of stock purchased on exercise of the Option, or any interest in such
shares, by any holder of such shares or interests unless such transfer is solely
for cash consideration and is made in compliance with the following provisions:
(1) Before there can be a valid transfer of any shares or any
interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give written notice (by registered or certified
mail) to the Company. Such notice shall specify the identity of the
proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed
transfer. The date such notice is mailed shall be hereinafter referred to
as the "notice date" and the record holder of the Offered Shares shall be
hereinafter referred to as the "Offeror."
(2) For a period of thirty calendar days after the notice date,
the Company shall have the option to purchase all (but not less than all)
of the Offered Shares at the purchase price and on the terms set forth in
subsection (a)(3) of this Section 5.11. This option shall be exercisable
by the Company by mailing (by registered or certified mail) written notice
of exercise to the Offeror prior to the end of said thirty days.
(3) The price at which the Company may purchase the Offered
Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in
the notice required under subsection (a)(1) of this Section 5.11). The
Company's notice of exercise of such option shall be accompanied by full
payment for the Offered Shares and, upon such
12
<PAGE>
payment by the Company, the Company shall acquire full right, title and
interest to all of the Offered Shares.
(4) If, and only if, the option given pursuant to subsection
(a)(2) of this Section 5.11 is not exercised, the transfer proposed in the
notice given pursuant to subsection (a)(1) of this Section 5.11 may take
place; provided, however, that such transfer must, in all respects, be
-----------------
exactly as proposed in said notice except that such transfer may not take
place either before the tenth calendar day after the expiration of said
thirty-day option exercise period or after the ninetieth calendar day after
the expiration of said thirty-day option exercise period, and if such
transfer has not taken place prior to said ninetieth day, such transfer may
not take place without once again complying with subsection (a) of this
Section 5.11.
(b) As used in this Section 5.11, the term "transfer" means any sale,
encumbrance, pledge, gift or other form of disposition or transfer of shares of
the Company's stock or any legal or equitable interest therein; provided,
however, that the term "transfer" does not include a transfer of such shares or
interests by will or by the applicable laws of descent and distribution or a
gift of such shares if the donee agrees to be bound by the provisions of this
Section 5.11.
(c) None of the shares of the Company's stock purchased on exercise
of the Option shall be transferred on the Company's books nor shall the Company
recognize any such transfer of any such shares or any interest therein unless
and until all applicable provisions of this Section 5.11 have been complied with
in all respects. The certificates of stock evidencing shares of stock purchased
on exercise of the Option shall bear an appropriate legend referring to the
transfer restrictions imposed by this Section 5.11 and to the repurchase option
provided for in Section 5.10.
13
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
________________________________________
By _____________________________________
Martin R. Reid
President and Chief Executive Officer
By _____________________________________
Douglas Waugaman
Secretary
___________________________
Name:
____________________________
____________________________
Address
Employee's Taxpayer
Identification Number:
____________________________
DATE: __________, ____
Number of shares covered by Option ___
Exercise Price per share - $______
14
<PAGE>
EXHIBIT 10.18
AMENDED INCENTIVE STOCK OPTION AGREEMENT
THIS 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":
WHEREAS, the Company wishes to afford the Employee the opportunity to
purchase shares of its Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has
determined that it would be to the advantage and in the best interests of the
Company and its shareholders to grant the Incentive Stock Option provided for
herein to the Employee as an inducement to enter into or remain in the service
of the Company, its Parent Corporations or its Subsidiaries and as an incentive
for increased efforts during such service, and has advised the Company thereof
and instructed the undersigned officers to issue said Option;
WHEREAS, the Company and Employee desire to amend and restate in its
entirety each option previously granted to Employee in order to clarify the
timing of the provisions related to exercisability;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree that the option agreement
related to options heretofore granted to Employee by Company is hereby amended
and restated in its entirety to read as set forth herein:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board. "Board" shall mean the Board of Directors of the
----------- -----
Company.
Section 1.2 - Code. "Code" shall mean the Internal Revenue Code of
----------- ----
1986, as amended.
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Section 1.3 - Committee. "Committee" shall mean the Stock Option
----------- ---------
Committee of the Board, appointed as provided in the Plan.
Section 1.4 - Common Stock. "Common Stock" shall mean the common
----------- ------------
stock, par value $.01 per share, of the Company.
Section 1.5 - Company. "Company" shall mean Acme Acquisition Holdings
----------- -------
Corp., a Delaware corporation.
Section 1.6 - Director. "Director" shall mean a member of the Board.
----------- --------
Section 1.7 - EBITA. "EBITA" shall mean the consolidated earnings of
----------- -----
the Company before interest, taxes and amortization, calculated in accordance
with generally accepted accounting principles.
Section 1.8 - Exchange Act. "Exchange Act" shall mean the Securities
----------- ------------
Exchange Act of 1934, as amended.
Section 1.9 - Officer. "Officer" shall mean an officer of the
----------- -------
Company, as defined in Rule 16a-1(f) under the Exchange Act, as such Rule may be
amended in the future.
Section 1.10 - Option. "Option" shall mean the incentive stock option
------------ ------
to purchase Common Stock of the Company granted under this Agreement.
Section 1.11 - Optionee. "Optionee" shall mean the Employee under this
------------ --------
Agreement.
Section 1.12 - Parent Corporation. "Parent Corporation" shall mean
------------ ------------------
any corporation in an unbroken chain of corporations ending with the Company if
each of the corporations other than the Company then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.13 - Plan. "Plan" shall mean the Stock Option Plan for Key
------------ ----
Employees of Acme Acquisition Holdings Corp.
Section 1.14 - Rule 16b-3. "Rule 16b-3" shall mean that certain Rule
------------ ----------
16b-3 under the Exchange Act, as such Rule may be amended in the future.
Section 1.15 - Secretary. "Secretary" shall mean the Secretary of the
------------ ---------
Company.
Section 1.16 - Securities Act. "Securities Act" shall mean the
------------ --------------
Securities Act of 1933, as amended.
2
<PAGE>
Section 1.17 - Subsidiary. "Subsidiary" shall mean any corporation in
------------ ----------
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one (1) of the other corporations in such chain.
Section 1.18 - Termination of Employment. "Termination of Employment"
------------ -------------------------
shall mean the time when the employee-employer relationship between the Optionee
and the Company, a Parent Corporation or a Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, a
termination by resignation, discharge, death or retirement, but excluding any
termination where there is a simultaneous reemployment by the Company, a Parent
Corporation or a Subsidiary. The Committee, in its absolute discretion, shall
determine the effect of all other matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Employment; provided, however, that a leave of absence shall constitute a
Termination of Employment if, and to the extent that, such leave of absence
interrupts employment for purposes of Section 422(a)(2) of the Code and the then
applicable regulations and revenue rulings under said Section.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
In consideration of the Employee's agreement to remain in the employ
of the Company, its Parent Corporations or its Subsidiaries and for other good
and valuable consideration, on the date hereof the Company irrevocably grants to
the Employee the option to purchase any part or all of an aggregate of the
number of shares of its Common Stock identified on the signature page hereto
upon the terms and conditions set forth in this Agreement.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of Common Stock covered by the Option
shall be the dollar amount per share, without commission or other charge,
identified on the signature page hereto.
3
<PAGE>
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company, the
Employee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least one year
from the date this Option is granted. Nothing in this Agreement or in the Plan
shall confer upon the Employee any right to continue in the employ of the
Company, any Parent Corporation or any Subsidiary or shall interfere with or
restrict in any way the rights of the Company, its Parent Corporations and its
Subsidiaries, which are hereby expressly reserved, to discharge the Employee at
any time for any reason whatsoever, with or without cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Employee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the Option price per share; provided, however, that each such adjustment
shall be made in such manner as not to constitute a "modification" within the
meaning of Section 424(h)(3) of the Code. Any such adjustment made by the
Committee shall be final and binding upon the Employee, the Company and all
other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Subject to Sections 3.5 and 5.6, the shares granted under this
Option shall become exercisable as follows:
(i) 16.67% shall become exercisable on January 26, 1996;
(ii) 16.67% shall become exercisable on December 31, 1996;
(iii) 16.66% shall become exercisable on December 31, 1997;
(iv) 25% shall become exercisable on December 31, 1998;
4
<PAGE>
(v) 25% 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 1996 (in the case of the 1998 installment)
and fiscal 1997 (in the case of the 1999 installment):
1998 installment - a portion of such installment covering 46.5 shares
1999 installment - a portion of such installment covering 46.5 shares
(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 fiscal 1996 (in the case of the 1998 installment)
and fiscal 1997 (in the case of the 1999 installment):
1998 installment - a portion of such installment covering 46.5 share
1999 installment - a portion of such installment covering 46.5 shares
(d) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten years from the date the Option was granted;
or
(b) If the Employee owned (within the meaning of Section 424(d) of
the Code), at the time the Option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company, any Subsidiary or
any Parent Corporation, the expiration of five years from the date the Option
was granted; or
5
<PAGE>
(c) The time of the Employee's Termination of Employment unless such
Termination of Employment results from his death, his retirement, his disability
(within the meaning of Section 22(e)(3) of the Code) or his being discharged not
for good cause; or
(d) The expiration of three months from the date of the Employee's
Termination of Employment by reason of his retirement or his being discharged
not for good cause, unless the Employee dies within said three-month period; or
(e) The expiration of one year from the date of the Employee's
Termination of Employment by reason of his disability (within the meaning of
Section 22(e)(3) of the Code); or
(f) The expiration of one year from the date of the Employee's death;
or
(g) The effective date of either the 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, unless the Committee waives this provision in
connection with such transaction. At least ten days prior to the effective date
of such merger, consolidation, acquisition, liquidation or dissolution, the
Committee shall give the Employee notice of such event if the Option has then
neither been fully exercised nor become unexercisable under this Section 3.3.
Section 3.4 - Acceleration of Exercisability
- ----------- ------------------------------
In the event of the 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,
the Committee may, in its absolute discretion and upon such terms and conditions
as it deems appropriate, provide by resolution, adopted prior to such event and
incorporated in the notice referred to in Section 3.3(g), that at some time
prior to the effective date of such event this Option shall be exercisable as to
all the shares covered hereby, notwithstanding that this Option may not yet have
become fully exercisable under Section 3.1(a); provided, however, that this
-----------------
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation, or a parent or subsidiary of such corporation, so that
such assumption or substitution complies with the provisions of Section 424(a)
of the Code; and
6
<PAGE>
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 3.5 or
Section 5.6.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction, and determinations regarding whether provisions for
assumption or substitution have been made as defined in subsection (b) above.
Section 3.5 - Special Tax Consequences
- ----------- ------------------------
The Employee acknowledges that, to the extent that the aggregate fair
market value of stock with respect to which "incentive stock options" (within
the meaning of Section 422 of the Code, but without regard to Section 422(d) of
the Code), including the Option, are exercisable for the first time by the
Employee during any calendar year (under the Plan and all other incentive stock
option plans of the Company, any Subsidiary and any Parent Corporation) exceeds
$100,000, such options shall be treated as not qualifying under Section 422 of
the Code but rather shall be taxed as non-qualified options. The Employee
further acknowledges that the rule set forth in the preceding sentence shall be
applied by taking options into account in the order in which they were granted.
For purposes of these rules, the fair market value of stock shall be determined
as of the time the option with respect to such stock is granted.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Employee, only he may exercise the Option
or any portion thereof. After the death of the Employee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his personal representative or
by any person empowered to do so under the Employee's will or under the then
applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
_____________ shares (or the minimum installment set forth in Section 3.1, if a
smaller number of shares) and shall be for whole shares only.
7
<PAGE>
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under
Section 3.3:
(a) Notice in writing signed by the Employee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee; and
(b) (i) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is exercised; or
(ii) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Employee duly endorsed for transfer to
the Company, or (B) shares of the Company's Common Stock issuable to the
Employee upon exercise of the Option, with a fair market value (as
determined under Section 4.2(b) of the Plan) on the date of Option exercise
equal to the aggregate purchase price of the shares with respect to which
such Option or portion is exercised; or
(iii) With the consent of the Committee, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code or successor provision)
and payable upon such terms as may be prescribed by the Committee. The
Committee may also prescribe the form of such note and the security to be
given for such note. The Option may not be exercised, however, by delivery
of a promissory note or by a loan from the Company when or where such loan
or other extension of credit is prohibited by law; or
(iv) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (i), (ii) and (iii);
and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Employee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Employee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without
8
<PAGE>
limiting the generality of the foregoing, the Committee may require an opinion
of counsel acceptable to it to the effect that any subsequent transfer of shares
acquired on an Option exercise does not violate the Securities Act, and may
issue stop-transfer orders covering such shares. Share certificates evidencing
stock issued on exercise of this Option shall bear an appropriate legend
referring to the provisions of this subsection (c) and the agreements herein.
The written representation and agreement referred to in the first sentence of
this subsection (c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the Securities Act, and
such registration is then effective in respect of such shares;
(d) Full payment to the Company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; with the consent of the Committee, (i)
shares of the Company's Common Stock owned by the Employee duly endorsed for
transfer, or (ii) shares of the Company's Common Stock issuable to the Employee
upon exercise of the Option, valued in accordance with Section 4.2(b) of the
Plan at the date of Option exercise, may be used to make all or part of such
payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Employee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
9
<PAGE>
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.
Section 4.5 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Employee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. The
Board shall have no right to exercise any of the rights or duties of the
Committee under the Plan and this Agreement.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Employee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
10
<PAGE>
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Employee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Employee shall,
if the Employee is then deceased, be given to the Employee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall
be deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 - Shareholder Approval
- ----------- --------------------
The Plan will be submitted for approval by the Company's shareholders
within twelve months after the date the Plan was initially adopted by the Board.
This Option may not be exercised to any extent by anyone prior to the time when
the Plan is approved by the shareholders, and if such approval has not been
obtained by the end of said twelve-month period, this Option shall thereupon be
cancelled and become null and void. The Company shall take such actions as may
be necessary to satisfy the requirements of Rule 16b-3(b).
Section 5.7 - Notification of Disposition
- ----------- ---------------------------
The Employee shall give prompt notice to the Company of any
disposition or other transfer of any shares of stock acquired under this
Agreement if such disposition or transfer is made (a) within ten years from the
date of granting the Option with respect to such shares or (b) within one year
after the transfer of such shares to him. Such notice shall specify the date of
such disposition or other transfer and the amount realized, in cash, other
property, assumption of indebtedness or other consideration, by the Employee in
such disposition or other transfer.
11
<PAGE>
Section 5.8 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under
the laws of the State of Delaware.
Section 5.9 - Conformity to Securities Laws
- ----------- -----------------------------
The Employee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and the Option
is granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the
Plan and this Agreement shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
Section 5.10 - Company's Right to Repurchase Shares
- ------------- ------------------------------------
Upon Termination of Employment, the Company shall have the option to
repurchase all (but not less than all) of the shares of stock which have been
purchased by the Employee pursuant to exercise of the Option and which the
Employee then holds. The repurchase price payable by the Company if it
exercises its repurchase option shall be the fair market value of the shares.
The Company's option shall expire upon the closing of an initial public offering
of equity securities by the Company or the Parent.
The Company's repurchase option shall be exercisable by giving written
notice (accompanied by payment for the shares) to the Employee within thirty
calendar days after the Termination of Employment. In the event that the book
value of such shares as of the end of the immediately preceding fiscal year has
not yet been certified by the Company's accountants at the time of said
Termination of Employment, said thirty calendar day period for the Company's
exercise of its repurchase option shall commence upon said certification.
Section 5.11 - Restrictions on Transfer of Shares
- ------------- ----------------------------------
(a) There can be no valid transfer (as hereinafter defined) of any
shares of stock purchased on exercise of the Option, or any interest in such
shares, by any holder of such shares or interests unless such transfer is solely
for cash consideration and is made in compliance with the following provisions:
(1) Before there can be a valid transfer of any shares or any
interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give written notice (by registered or certified
mail) to the Company. Such notice shall specify the identity of the
proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed
transfer. The date such notice is mailed shall be hereinafter referred
12
<PAGE>
to as the "notice date" and the record holder of the Offered Shares shall
be hereinafter referred to as the "Offeror."
(2) For a period of thirty calendar days after the notice date,
the Company shall have the option to purchase all (but not less than all)
of the Offered Shares at the purchase price and on the terms set forth in
subsection (a)(3) of this Section 5.11. This option shall be exercisable
by the Company by mailing (by registered or certified mail) written notice
of exercise to the Offeror prior to the end of said thirty days.
(3) The price at which the Company may purchase the Offered
Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in
the notice required under subsection (a)(1) of this Section 5.11). The
Company's notice of exercise of such option shall be accompanied by full
payment for the Offered Shares and, upon such payment by the Company, the
Company shall acquire full right, title and interest to all of the Offered
Shares.
(4) If, and only if, the option given pursuant to subsection
(a)(2) of this Section 5.11 is not exercised, the transfer proposed in the
notice given pursuant to subsection (a)(1) of this Section 5.11 may take
place; provided, however, that such transfer must, in all respects, be
-----------------
exactly as proposed in said notice except that such transfer may not take
place either before the tenth calendar day after the expiration of said
thirty-day option exercise period or after the ninetieth calendar day after
the expiration of said thirty-day option exercise period, and if such
transfer has not taken place prior to said ninetieth day, such transfer may
not take place without once again complying with subsection (a) of this
Section 5.11.
(b) As used in this Section 5.11, the term "transfer" means any sale,
encumbrance, pledge, gift or other form of disposition or transfer of shares of
the Company's stock or any legal or equitable interest therein; provided,
however, that the term "transfer" does not include a transfer of such shares or
interests by will or by the applicable laws of descent and distribution or a
gift of such shares if the donee agrees to be bound by the provisions of this
Section 5.11.
(c) None of the shares of the Company's stock purchased on exercise
of the Option shall be transferred on the Company's books nor shall the Company
recognize any such transfer of any such shares or any interest therein unless
and until all applicable provisions of this Section 5.11 have been complied with
in all respects. The certificates of stock evidencing shares of stock purchased
on exercise of the Option shall bear an appropriate legend referring to the
transfer restrictions imposed by this Section 5.11 and to the repurchase option
provided for in Section 5.10.
13
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
________________________________________
By _____________________________________
Martin R. Reid
President and Chief Executive Officer
By _____________________________________
Douglas Waugaman
Secretary
___________________________
Name:
____________________________
____________________________
Address
Employee's Taxpayer
Identification Number:
____________________________
DATE: __________, ____
Number of shares covered by Option ___
Exercise Price per share - $______
14
<PAGE>
EXHIBIT 10.19
AMENDED INCENTIVE STOCK OPTION AGREEMENT
THIS 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":
WHEREAS, the Company wishes to afford the Employee the opportunity to
purchase shares of its Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has
determined that it would be to the advantage and in the best interests of the
Company and its shareholders to grant the Incentive Stock Option provided for
herein to the Employee as an inducement to enter into or remain in the service
of the Company, its Parent Corporations or its Subsidiaries and as an incentive
for increased efforts during such service, and has advised the Company thereof
and instructed the undersigned officers to issue said Option;
WHEREAS, the Company and Employee desire to amend and restate in its
entirety each option previously granted to Employee in order to clarify the
timing of the provisions related to exercisability;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree that the option agreement
related to options heretofore granted to Employee by Company is hereby amended
and restated in its entirety to read as set forth herein:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board. "Board" shall mean the Board of Directors of the
----------- -----
Company.
Section 1.2 - Code. "Code" shall mean the Internal Revenue Code of
----------- ----
1986, as amended.
1
<PAGE>
Section 1.3 - Committee. "Committee" shall mean the Stock Option
----------- ---------
Committee of the Board, appointed as provided in the Plan.
Section 1.4 - Common Stock. "Common Stock" shall mean the common
----------- ------------
stock, par value $.01 per share, of the Company.
Section 1.5 - Company. "Company" shall mean Acme Acquisition Holdings
----------- -------
Corp., a Delaware corporation.
Section 1.6 - Director. "Director" shall mean a member of the Board.
----------- --------
Section 1.7 - EBITA. "EBITA" shall mean the consolidated earnings of
----------- -----
the Company before interest, taxes and amortization, calculated in accordance
with generally accepted accounting principles.
Section 1.8 - Exchange Act. "Exchange Act" shall mean the Securities
----------- ------------
Exchange Act of 1934, as amended.
Section 1.9 - Officer. "Officer" shall mean an officer of the
----------- -------
Company, as defined in Rule 16a-1(f) under the Exchange Act, as such Rule may be
amended in the future.
Section 1.10 - Option. "Option" shall mean the incentive stock option
------------ ------
to purchase Common Stock of the Company granted under this Agreement.
Section 1.11 - Optionee. "Optionee" shall mean the Employee under this
------------ --------
Agreement.
Section 1.12 - Parent Corporation. "Parent Corporation" shall mean
------------ ------------------
any corporation in an unbroken chain of corporations ending with the Company if
each of the corporations other than the Company then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.13 - Plan. "Plan" shall mean the Stock Option Plan for Key
------------ ----
Employees of Acme Acquisition Holdings Corp.
Section 1.14 - Rule 16b-3. "Rule 16b-3" shall mean that certain Rule
------------ ----------
16b-3 under the Exchange Act, as such Rule may be amended in the future.
Section 1.15 - Secretary. "Secretary" shall mean the Secretary of the
------------ ---------
Company.
Section 1.16 - Securities Act. "Securities Act" shall mean the
------------ --------------
Securities Act of 1933, as amended.
2
<PAGE>
Section 1.17 - Subsidiary. "Subsidiary" shall mean any corporation in
------------ ----------
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one (1) of the other corporations in such chain.
Section 1.18 - Termination of Employment. "Termination of Employment"
------------ -------------------------
shall mean the time when the employee-employer relationship between the Optionee
and the Company, a Parent Corporation or a Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, a
termination by resignation, discharge, death or retirement, but excluding any
termination where there is a simultaneous reemployment by the Company, a Parent
Corporation or a Subsidiary. The Committee, in its absolute discretion, shall
determine the effect of all other matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Employment; provided, however, that a leave of absence shall constitute a
Termination of Employment if, and to the extent that, such leave of absence
interrupts employment for purposes of Section 422(a)(2) of the Code and the then
applicable regulations and revenue rulings under said Section.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
In consideration of the Employee's agreement to remain in the employ
of the Company, its Parent Corporations or its Subsidiaries and for other good
and valuable consideration, on the date hereof the Company irrevocably grants to
the Employee the option to purchase any part or all of an aggregate of the
number of shares of its Common Stock identified on the signature page hereto
upon the terms and conditions set forth in this Agreement.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of Common Stock covered by the Option
shall be the dollar amount per share, without commission or other charge,
identified on the signature page hereto.
3
<PAGE>
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company, the
Employee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least one year
from the date this Option is granted. Nothing in this Agreement or in the Plan
shall confer upon the Employee any right to continue in the employ of the
Company, any Parent Corporation or any Subsidiary or shall interfere with or
restrict in any way the rights of the Company, its Parent Corporations and its
Subsidiaries, which are hereby expressly reserved, to discharge the Employee at
any time for any reason whatsoever, with or without cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Employee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the Option price per share; provided, however, that each such adjustment
shall be made in such manner as not to constitute a "modification" within the
meaning of Section 424(h)(3) of the Code. Any such adjustment made by the
Committee shall be final and binding upon the Employee, the Company and all
other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Subject to Sections 3.5 and 5.6, the shares granted under this
Option shall become exercisable as follows:
(i) 20% shall become exercisable on January 26,1996;
(ii) 20% shall become exercisable on December 31, 1996;
(iii) 20% shall become exercisable on December 31, 1997;
(iv) 20% shall become exercisable on December 31, 1998;
4
<PAGE>
(v) 20% 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):
1998 installment - a portion of such installment covering 10 shares
1999 installment - a portion of such installment covering 10 shares
(c) Notwithstanding the foregoing, if the Committee determines in its sole
discretion that the Company has reached certain financial objectiv 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 fiscal 1996 (in the case
of the 1998 installment) and fiscal 1997 (in the case of the 1999 installment):
1998 installment - a portion of such installment covering 10 shares
1999 installment - a portion of such installment covering 10 shares
(d) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten years from the date the Option was granted;
or
(b) If the Employee owned (within the meaning of Section 424(d) of
the Code), at the time the Option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company, any Subsidiary or
any Parent Corporation, the expiration of five years from the date the Option
was granted; or
5
<PAGE>
(c) The time of the Employee's Termination of Employment unless such
Termination of Employment results from his death, his retirement, his disability
(within the meaning of Section 22(e)(3) of the Code) or his being discharged not
for good cause; or
(d) The expiration of three months from the date of the Employee's
Termination of Employment by reason of his retirement or his being discharged
not for good cause, unless the Employee dies within said three-month period; or
(e) The expiration of one year from the date of the Employee's
Termination of Employment by reason of his disability (within the meaning of
Section 22(e)(3) of the Code); or
(f) The expiration of one year from the date of the Employee's death;
or
(g) The effective date of either the 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, unless the Committee waives this provision in
connection with such transaction. At least ten days prior to the effective date
of such merger, consolidation, acquisition, liquidation or dissolution, the
Committee shall give the Employee notice of such event if the Option has then
neither been fully exercised nor become unexercisable under this Section 3.3.
Section 3.4 - Acceleration of Exercisability
- ----------- ------------------------------
In the event of the 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,
the Committee may, in its absolute discretion and upon such terms and conditions
as it deems appropriate, provide by resolution, adopted prior to such event and
incorporated in the notice referred to in Section 3.3(g), that at some time
prior to the effective date of such event this Option shall be exercisable as to
all the shares covered hereby, notwithstanding that this Option may not yet have
become fully exercisable under Section 3.1(a); provided, however, that this
-----------------
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation, or a parent or subsidiary of such corporation, so that
such assumption or substitution complies with the provisions of Section 424(a)
of the Code; and
6
<PAGE>
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 3.5 or
Section 5.6.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction, and determinations regarding whether provisions for
assumption or substitution have been made as defined in subsection (b) above.
Section 3.5 - Special Tax Consequences
- ----------- ------------------------
The Employee acknowledges that, to the extent that the aggregate fair
market value of stock with respect to which "incentive stock options" (within
the meaning of Section 422 of the Code, but without regard to Section 422(d) of
the Code), including the Option, are exercisable for the first time by the
Employee during any calendar year (under the Plan and all other incentive stock
option plans of the Company, any Subsidiary and any Parent Corporation) exceeds
$100,000, such options shall be treated as not qualifying under Section 422 of
the Code but rather shall be taxed as non-qualified options. The Employee
further acknowledges that the rule set forth in the preceding sentence shall be
applied by taking options into account in the order in which they were granted.
For purposes of these rules, the fair market value of stock shall be determined
as of the time the option with respect to such stock is granted.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Employee, only he may exercise the Option
or any portion thereof. After the death of the Employee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his personal representative or
by any person empowered to do so under the Employee's will or under the then
applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
_____________ shares (or the minimum installment set forth in Section 3.1, if a
smaller number of shares) and shall be for whole shares only.
7
<PAGE>
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under
Section 3.3:
(a) Notice in writing signed by the Employee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee; and
(b) (i) Full payment (in cash or by check) for the shares with respect
to which such Option or portion is exercised; or
(ii) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Employee duly endorsed for transfer to
the Company, or (B) shares of the Company's Common Stock issuable to the
Employee upon exercise of the Option, with a fair market value (as
determined under Section 4.2(b) of the Plan) on the date of Option exercise
equal to the aggregate purchase price of the shares with respect to which
such Option or portion is exercised; or
(iii) With the consent of the Committee, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code or successor provision)
and payable upon such terms as may be prescribed by the Committee. The
Committee may also prescribe the form of such note and the security to be
given for such note. The Option may not be exercised, however, by delivery
of a promissory note or by a loan from the Company when or where such loan
or other extension of credit is prohibited by law; or
(iv) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (i), (ii) and (iii);
and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Employee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Employee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without
8
<PAGE>
limiting the generality of the foregoing, the Committee may require an opinion
of counsel acceptable to it to the effect that any subsequent transfer of shares
acquired on an Option exercise does not violate the Securities Act, and may
issue stop-transfer orders covering such shares. Share certificates evidencing
stock issued on exercise of this Option shall bear an appropriate legend
referring to the provisions of this subsection (c) and the agreements herein.
The written representation and agreement referred to in the first sentence of
this subsection (c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the Securities Act, and
such registration is then effective in respect of such shares;
(d) Full payment to the Company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; with the consent of the Committee, (i)
shares of the Company's Common Stock owned by the Employee duly endorsed for
transfer, or (ii) shares of the Company's Common Stock issuable to the Employee
upon exercise of the Option, valued in accordance with Section 4.2(b) of the
Plan at the date of Option exercise, may be used to make all or part of such
payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Employee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
9
<PAGE>
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.
Section 4.5 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Employee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. The
Board shall have no right to exercise any of the rights or duties of the
Committee under the Plan and this Agreement.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Employee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
10
<PAGE>
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Employee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Employee shall,
if the Employee is then deceased, be given to the Employee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall
be deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 - Shareholder Approval
- ----------- --------------------
The Plan will be submitted for approval by the Company's shareholders
within twelve months after the date the Plan was initially adopted by the Board.
This Option may not be exercised to any extent by anyone prior to the time when
the Plan is approved by the shareholders, and if such approval has not been
obtained by the end of said twelve-month period, this Option shall thereupon be
cancelled and become null and void. The Company shall take such actions as may
be necessary to satisfy the requirements of Rule 16b-3(b).
Section 5.7 - Notification of Disposition
- ----------- ---------------------------
The Employee shall give prompt notice to the Company of any
disposition or other transfer of any shares of stock acquired under this
Agreement if such disposition or transfer is made (a) within ten years from the
date of granting the Option with respect to such shares or (b) within one year
after the transfer of such shares to him. Such notice shall specify the date of
such disposition or other transfer and the amount realized, in cash, other
property, assumption of indebtedness or other consideration, by the Employee in
such disposition or other transfer.
11
<PAGE>
Section 5.8 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under
the laws of the State of Delaware.
Section 5.9 - Conformity to Securities Laws
- ----------- -----------------------------
The Employee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and the Option
is granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the
Plan and this Agreement shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
Section 5.10 - Company's Right to Repurchase Shares
- ------------- ------------------------------------
Upon Termination of Employment, the Company shall have the option to
repurchase all (but not less than all) of the shares of stock which have been
purchased by the Employee pursuant to exercise of the Option and which the
Employee then holds. The repurchase price payable by the Company if it
exercises its repurchase option shall be the fair market value of the shares.
The Company's option shall expire upon the closing of an initial public offering
of equity securities by the Company or the Parent.
The Company's repurchase option shall be exercisable by giving written
notice (accompanied by payment for the shares) to the Employee within thirty
calendar days after the Termination of Employment. In the event that the book
value of such shares as of the end of the immediately preceding fiscal year has
not yet been certified by the Company's accountants at the time of said
Termination of Employment, said thirty calendar day period for the Company's
exercise of its repurchase option shall commence upon said certification.
Section 5.11 - Restrictions on Transfer of Shares
- ------------- ----------------------------------
(a) There can be no valid transfer (as hereinafter defined) of any
shares of stock purchased on exercise of the Option, or any interest in such
shares, by any holder of such shares or interests unless such transfer is solely
for cash consideration and is made in compliance with the following provisions:
(1) Before there can be a valid transfer of any shares or any
interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give written notice (by registered or certified
mail) to the Company. Such notice shall specify the identity of the
proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed
transfer. The date such notice is mailed shall be hereinafter referred
12
<PAGE>
to as the "notice date" and the record holder of the Offered Shares shall
be hereinafter referred to as the "Offeror."
(2) For a period of thirty calendar days after the notice date,
the Company shall have the option to purchase all (but not less than all)
of the Offered Shares at the purchase price and on the terms set forth in
subsection (a)(3) of this Section 5.11. This option shall be exercisable
by the Company by mailing (by registered or certified mail) written notice
of exercise to the Offeror prior to the end of said thirty days.
(3) The price at which the Company may purchase the Offered
Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in
the notice required under subsection (a)(1) of this Section 5.11). The
Company's notice of exercise of such option shall be accompanied by full
payment for the Offered Shares and, upon such payment by the Company, the
Company shall acquire full right, title and interest to all of the Offered
Shares.
(4) If, and only if, the option given pursuant to subsection
(a)(2) of this Section 5.11 is not exercised, the transfer proposed in the
notice given pursuant to subsection (a)(1) of this Section 5.11 may take
place; provided, however, that such transfer must, in all respects, be
-----------------
exactly as proposed in said notice except that such transfer may not take
place either before the tenth calendar day after the expiration of said
thirty-day option exercise period or after the ninetieth calendar day after
the expiration of said thirty-day option exercise period, and if such
transfer has not taken place prior to said ninetieth day, such transfer may
not take place without once again complying with subsection (a) of this
Section 5.11.
(b) As used in this Section 5.11, the term "transfer" means any sale,
encumbrance, pledge, gift or other form of disposition or transfer of shares of
the Company's stock or any legal or equitable interest therein; provided,
however, that the term "transfer" does not include a transfer of such shares or
interests by will or by the applicable laws of descent and distribution or a
gift of such shares if the donee agrees to be bound by the provisions of this
Section 5.11.
(c) None of the shares of the Company's stock purchased on exercise
of the Option shall be transferred on the Company's books nor shall the Company
recognize any such transfer of any such shares or any interest therein unless
and until all applicable provisions of this Section 5.11 have been complied with
in all respects. The certificates of stock evidencing shares of stock purchased
on exercise of the Option shall bear an appropriate legend referring to the
transfer restrictions imposed by this Section 5.11 and to the repurchase option
provided for in Section 5.10.
13
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
________________________________________
By _____________________________________
Martin R. Reid
President and Chief Executive Officer
By _____________________________________
Douglas Waugaman
Secretary
___________________________
Name:
____________________________
____________________________
Address
Employee's Taxpayer
Identification Number:
____________________________
DATE: __________, ____
Number of shares covered by Option ___
Exercise Price per share - $______
14
<PAGE>
EXHIBIT 10.20
INCENTIVE STOCK OPTION AGREEMENT
THIS 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":
WHEREAS, the Company wishes to afford the Employee the opportunity to
purchase shares of its Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has
determined that it would be to the advantage and in the best interests of the
Company and its shareholders to grant the Incentive Stock Option provided for
herein to the Employee as an inducement to enter into or remain in the service
of the Company, its Parent Corporations or its Subsidiaries and as an incentive
for increased efforts during such service, and has advised the Company thereof
and instructed the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board. "Board" shall mean the Board of Directors of the
----------- -----
Company.
Section 1.2 - Code. "Code" shall mean the Internal Revenue Code of
----------- ----
1986, as amended.
Section 1.3 - Committee. "Committee" shall mean the Stock Option
----------- ---------
Committee of the Board, appointed as provided in the Plan.
1
<PAGE>
Section 1.4 - Common Stock. "Common Stock" shall mean the common
----------- ------------
stock, par value $.01 per share, of the Company.
Section 1.5 - Company. "Company" shall mean Acme Acquisition Holdings
----------- -------
Corp., a Delaware corporation.
Section 1.6 - Director. "Director" shall mean a member of the Board.
----------- --------
Section 1.7 - EBITA. "EBITA" shall mean the consolidated earnings of
----------- -----
the Company before interest, taxes and amortization, calculated in accordance
with generally accepted accounting principles.
Section 1.8 - Exchange Act. "Exchange Act" shall mean the Securities
----------- ------------
Exchange Act of 1934, as amended.
Section 1.9 - Officer. "Officer" shall mean an officer of the
----------- -------
Company, as defined in Rule 16a-1(f) under the Exchange Act, as such Rule may be
amended in the future.
Section 1.10 - Option. "Option" shall mean the incentive stock option
------------ ------
to purchase Common Stock of the Company granted under this Agreement.
Section 1.11 - Optionee. "Optionee" shall mean the Employee under this
------------ --------
Agreement.
Section 1.12 - Parent Corporation. "Parent Corporation" shall mean
------------ ------------------
any corporation in an unbroken chain of corporations ending with the Company if
each of the corporations other than the Company then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.13 - Plan. "Plan" shall mean the Stock Option Plan for Key
------------ ----
Employees of Acme Acquisition Holdings Corp.
Section 1.14 - Rule 16b-3. "Rule 16b-3" shall mean that certain Rule
------------ ----------
16b-3 under the Exchange Act, as such Rule may be amended in the future.
Section 1.15 - Secretary. "Secretary" shall mean the Secretary of the
------------ ---------
Company.
Section 1.16 - Securities Act. "Securities Act" shall mean the
------------ --------------
Securities Act of 1933, as amended.
Section 1.17 - Subsidiary. "Subsidiary" shall mean any corporation in
------------ ----------
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one (1) of the other corporations in such chain.
2
<PAGE>
Section 1.18 - Termination of Employment. "Termination of Employment"
------------ -------------------------
shall mean the time when the employee-employer relationship between the Optionee
and the Company, a Parent Corporation or a Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, a
termination by resignation, discharge, death or retirement, but excluding any
termination where there is a simultaneous reemployment by the Company, a Parent
Corporation or a Subsidiary. The Committee, in its absolute discretion, shall
determine the effect of all other matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Employment; provided, however, that a leave of absence shall constitute a
Termination of Employment if, and to the extent that, such leave of absence
interrupts employment for purposes of Section 422(a)(2) of the Code and the then
applicable regulations and revenue rulings under said Section.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
In consideration of the Employee's agreement to remain in the employ
of the Company, its Parent Corporations or its Subsidiaries and for other good
and valuable consideration, on the date hereof the Company irrevocably grants to
the Employee the option to purchase any part or all of an aggregate of the
number of shares of its Common Stock identified on the signature page hereto
upon the terms and conditions set forth in this Agreement.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of Common Stock covered by the Option
shall be the dollar amount per share, without commission or other charge,
identified on the signature page hereto.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company, the
Employee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least one year
from the date this Option is granted. Nothing in this Agreement or in the Plan
shall confer upon the Employee any right to continue in the employ of the
Company, any Parent Corporation or any Subsidiary or shall interfere with or
restrict in any way the rights of the Company, its Parent Corporations and its
Subsidiaries, which are hereby expressly reserved, to discharge the Employee at
any time for any reason whatsoever, with or without cause.
3
<PAGE>
Section 2.4 - Adjustments in Option
- ----------- ---------------------
In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Employee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the Option price per share; provided, however, that each such adjustment
shall be made in such manner as not to constitute a "modification" within the
meaning of Section 424(h)(3) of the Code. Any such adjustment made by the
Committee shall be final and binding upon the Employee, the Company and all
other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Subject to Sections 3.5 and 5.6, the shares granted under this
Option shall become exercisable as follows:
(i) An installment covering 1/4 of the shares shall become
exercisable on April 1, 1997;
(ii) An installment covering 1/4 of the shares shall become
exercisable on April 1, 1998;
(iii) An installment covering 1/4 of the shares shall become
exercisable on April 1, 1999;
(iv) An installment covering 1/4 of the shares shall become
exercisable on April 1, 2000.
(d) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
4
<PAGE>
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten years from the date the Option was granted;
or
(b) If the Employee owned (within the meaning of Section 424(d) of
the Code), at the time the Option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company, any Subsidiary or
any Parent Corporation, the expiration of five years from the date the Option
was granted; or
(c) The time of the Employee's Termination of Employment unless such
Termination of Employment results from his death, his retirement, his disability
(within the meaning of Section 22(e)(3) of the Code) or his being discharged not
for good cause; or
(d) The expiration of three months from the date of the Employee's
Termination of Employment by reason of his retirement or his being discharged
not for good cause, unless the Employee dies within said three-month period; or
(e) The expiration of one year from the date of the Employee's
Termination of Employment by reason of his disability (within the meaning of
Section 22(e)(3) of the Code); or
(f) The expiration of one year from the date of the Employee's death;
or
(g) The effective date of either the 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, unless the Committee waives this provision in
connection with such transaction. At least ten days prior to the effective date
of such merger, consolidation, acquisition, liquidation or dissolution, the
Committee shall give the Employee notice of such event if the Option has then
neither been fully exercised nor become unexercisable under this Section 3.3.
5
<PAGE>
Section 3.4 - Acceleration of Exercisability
- ----------- ------------------------------
In the event of the 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,
the Committee may, in its absolute discretion and upon such terms and conditions
as it deems appropriate, provide by resolution, adopted prior to such event and
incorporated in the notice referred to in Section 3.3(g), that at some time
prior to the effective date of such event this Option shall be exercisable as to
all the shares covered hereby, notwithstanding that this Option may not yet have
become fully exercisable under Section 3.1(a); provided, however, that this
-----------------
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation, or a parent or subsidiary of such corporation, so that
such assumption or substitution complies with the provisions of Section 424(a)
of the Code; and
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 3.5 or
Section 5.6.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction, and determinations regarding whether provisions for
assumption or substitution have been made as defined in subsection (b) above.
Section 3.5 - Special Tax Consequences
- ----------- ------------------------
The Employee acknowledges that, to the extent that the aggregate fair
market value of stock with respect to which "incentive stock options" (within
the meaning of Section 422 of the Code, but without regard to Section 422(d) of
the Code), including the Option, are exercisable for the first time by the
Employee during any calendar year (under the Plan and all other incentive stock
option plans of the Company, any Subsidiary and any Parent Corporation) exceeds
$100,000, such options shall be treated as not qualifying under Section 422 of
the Code but rather shall be taxed as non-qualified options. The Employee
further acknowledges that the rule set forth in the preceding sentence shall be
applied by taking options into account in the order in which they were granted.
For purposes of these rules, the fair market value of stock shall be determined
as of the time the option with respect to such stock is granted.
6
<PAGE>
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Employee, only he may exercise the Option
or any portion thereof. After the death of the Employee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his personal representative or
by any person empowered to do so under the Employee's will or under the then
applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
_____________ shares (or the minimum installment set forth in Section 3.1, if a
smaller number of shares) and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Employee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee; and
(b) (i) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is exercised; or
(ii) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Employee duly endorsed for transfer to
the Company, or (B) shares of the Company's Common Stock issuable to the
Employee upon exercise of the Option, with a fair market value (as
determined under Section 4.2(b) of the Plan) on the date of Option exercise
equal to the aggregate purchase price of the shares with respect to which
such Option or portion is exercised; or
(iii) With the consent of the Committee, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code or successor provision)
and payable upon such terms as may be prescribed by the Committee. The
Committee may also
7
<PAGE>
prescribe the form of such note and the security to be given for such note.
The Option may not be exercised, however, by delivery of a promissory note
or by a loan from the Company when or where such loan or other extension of
credit is prohibited by law; or
(iv) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (i), (ii) and (iii);
and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Employee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Employee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable to it to
the effect that any subsequent transfer of shares acquired on an Option exercise
does not violate the Securities Act, and may issue stop-transfer orders covering
such shares. Share certificates evidencing stock issued on exercise of this
Option shall bear an appropriate legend referring to the provisions of this
subsection (c) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection (c) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares;
(d) Full payment to the Company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; with the consent of the Committee, (i)
shares of the Company's Common Stock owned by the Employee duly endorsed for
transfer, or (ii) shares of the Company's Common Stock issuable to the Employee
upon exercise of the Option, valued in accordance with Section 4.2(b) of the
Plan at the date of Option exercise, may be used to make all or part of such
payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Employee, appropriate proof
of the right of such person or persons to exercise the Option.
8
<PAGE>
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.
Section 4.5 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
9
<PAGE>
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Employee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. The
Board shall have no right to exercise any of the rights or duties of the
Committee under the Plan and this Agreement.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Employee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Employee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Employee shall,
if the Employee is then deceased, be given to the Employee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall
be deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
10
<PAGE>
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 - Shareholder Approval
- ----------- --------------------
The Plan will be submitted for approval by the Company's shareholders
within twelve months after the date the Plan was initially adopted by the Board.
This Option may not be exercised to any extent by anyone prior to the time when
the Plan is approved by the shareholders, and if such approval has not been
obtained by the end of said twelve-month period, this Option shall thereupon be
cancelled and become null and void. The Company shall take such actions as may
be necessary to satisfy the requirements of Rule 16b-3(b).
Section 5.7 - Notification of Disposition
- ----------- ---------------------------
The Employee shall give prompt notice to the Company of any
disposition or other transfer of any shares of stock acquired under this
Agreement if such disposition or transfer is made (a) within ten years from the
date of granting the Option with respect to such shares or (b) within one year
after the transfer of such shares to him. Such notice shall specify the date of
such disposition or other transfer and the amount realized, in cash, other
property, assumption of indebtedness or other consideration, by the Employee in
such disposition or other transfer.
Section 5.8 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under
the laws of the State of Delaware.
Section 5.9 - Conformity to Securities Laws
- ----------- -----------------------------
The Employee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and the Option
is granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the
Plan and this Agreement shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
11
<PAGE>
Section 5.10 - Company's Right to Repurchase Shares
- ------------- ------------------------------------
Upon Termination of Employment, the Company shall have the option to
repurchase all (but not less than all) of the shares of stock which have been
purchased by the Employee pursuant to exercise of the Option and which the
Employee then holds. The repurchase price payable by the Company if it
exercises its repurchase option shall be the fair market value of the shares.
The Company's option shall expire upon the closing of an initial public offering
of equity securities by the Company or the Parent.
The Company's repurchase option shall be exercisable by giving written
notice (accompanied by payment for the shares) to the Employee within thirty
calendar days after the Termination of Employment. In the event that the book
value of such shares as of the end of the immediately preceding fiscal year has
not yet been certified by the Company's accountants at the time of said
Termination of Employment, said thirty calendar day period for the Company's
exercise of its repurchase option shall commence upon said certification.
Section 5.11 - Restrictions on Transfer of Shares
- ------------- ----------------------------------
(a) There can be no valid transfer (as hereinafter defined) of any
shares of stock purchased on exercise of the Option, or any interest in such
shares, by any holder of such shares or interests unless such transfer is solely
for cash consideration and is made in compliance with the following provisions:
(1) Before there can be a valid transfer of any shares or any
interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give written notice (by registered or certified
mail) to the Company. Such notice shall specify the identity of the
proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed
transfer. The date such notice is mailed shall be hereinafter referred to
as the "notice date" and the record holder of the Offered Shares shall be
hereinafter referred to as the "Offeror."
(2) For a period of thirty calendar days after the notice date,
the Company shall have the option to purchase all (but not less than all)
of the Offered Shares at the purchase price and on the terms set forth in
subsection (a)(3) of this Section 5.11. This option shall be exercisable
by the Company by mailing (by registered or certified mail) written notice
of exercise to the Offeror prior to the end of said thirty days.
(3) The price at which the Company may purchase the Offered
Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in
the notice required under subsection (a)(1) of this Section 5.11). The
Company's notice of exercise of such option shall be accompanied by full
payment for the Offered Shares and, upon such
12
<PAGE>
payment by the Company, the Company shall acquire full right, title and
interest to all of the Offered Shares.
(4) If, and only if, the option given pursuant to subsection
(a)(2) of this Section 5.11 is not exercised, the transfer proposed in the
notice given pursuant to subsection (a)(1) of this Section 5.11 may take
place; provided, however, that such transfer must, in all respects, be
-----------------
exactly as proposed in said notice except that such transfer may not take
place either before the tenth calendar day after the expiration of said
thirty-day option exercise period or after the ninetieth calendar day after
the expiration of said thirty-day option exercise period, and if such
transfer has not taken place prior to said ninetieth day, such transfer may
not take place without once again complying with subsection (a) of this
Section 5.11.
(b) As used in this Section 5.11, the term "transfer" means any sale,
encumbrance, pledge, gift or other form of disposition or transfer of shares of
the Company's stock or any legal or equitable interest therein; provided,
however, that the term "transfer" does not include a transfer of such shares or
interests by will or by the applicable laws of descent and distribution or a
gift of such shares if the donee agrees to be bound by the provisions of this
Section 5.11.
(c) None of the shares of the Company's stock purchased on exercise
of the Option shall be transferred on the Company's books nor shall the Company
recognize any such transfer of any such shares or any interest therein unless
and until all applicable provisions of this Section 5.11 have been complied with
in all respects. The certificates of stock evidencing shares of stock purchased
on exercise of the Option shall bear an appropriate legend referring to the
transfer restrictions imposed by this Section 5.11 and to the repurchase option
provided for in Section 5.10.
13
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
________________________________________
By _____________________________________
Martin R. Reid
President and Chief Executive Officer
By _____________________________________
Douglas Waugaman
Secretary
___________________________
Name:
____________________________
____________________________
Address
Employee's Taxpayer
Identification Number:
____________________________
DATE: __________, ____
Number of shares covered by Option ___
Exercise Price per share - $______
14
<PAGE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------------- --------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding..... 5,753,128 5,494,571 5,214,128 5,067,071 6,686,869
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........... 1,203,954 1,203,954 1,053,816 1,203,954 28,044
Options................ 206,568 206,568 206,568 206,568 201,894
Warrants............... 82,308 82,308 82,308 82,308 82,308
----------- ----------- ----------- --------- ---------
7,245,958 6,987,401 6,556,820 6,559,901 6,999,115
=========== =========== =========== ========= =========
Income before
extraordinary item..... $ (294,000) $ 1,976,000 $ 3,715,000 $ 899,000 $ 330,000
Preferred stock
accretion.............. (1,013,000) (1,646,000) (1,717,000) (420,000) (554,000)
----------- ----------- ----------- --------- ---------
$(1,307,000) $ 330,000 $ 1,998,000 $ 479,000 $(224,000)
=========== =========== =========== ========= =========
Net income (loss)....... $ (294,000) $ 1,976,000 $ 3,237,000 $ 899,000 $ 330,000
Preferred stock
accretion.............. (1,013,000) (1,646,000) (1,717,000) (420,000) (554,000)
----------- ----------- ----------- --------- ---------
$(1,307,000) $ 330,000 $ 1,520,000 $ 479,000 $(224,000)
=========== =========== =========== ========= =========
Per share amount:
Income (loss) before
extraordinary item.... $ (.18) $ .05 $ .30 $ .07 $(.03)
Extraordinary item..... -- -- (.07) -- --
----------- ----------- ----------- --------- ---------
Net income (loss)...... $ (.18) $ .05 $ .23 $ .07 $ (.03)
=========== =========== =========== ========= =========
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF RENTAL SERVICE CORPORATION
RSC Holdings Inc. (Delaware)
RSC Acquisition Corporation (Delaware)
Wholly owned subsidiaries of RSC Holdings Inc.
Acme Dixie Inc. (Delaware)
Acme Duval Inc. (Delaware)
Acme Rents, Inc. (California)
Wholly owned subsidiaries of RSC Acquisition Corporation
Acme Alabama, Inc. (Alabama)
The Air & Pump Company, Inc. (Texas)
Walker Jones Equipment, Inc. (Mississippi)
<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 , 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- ) and related Prospectus of
Rental Service Corporation for the registration of 5,000,000 shares of its
common stock.
ERNST & YOUNG LLP
Phoenix, Arizona
, 1996
The foregoing consent is in the form that will be signed upon the completion
of the stock split described in Note 11 to the consolidated financial
statements.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
June 13, 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- ) and related
Prospectus of Rental Service Corporation for the registration of 5,000,000
shares of its common stock.
/s/ ERNST & YOUNG LLP
Orange County, California
June 13, 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, and our report dated May 14, 1996 with respect to the
statement of operations of Rental Service Company for the year ended May 31,
1993, in the Registration Statement (Form S-1 No. 333- ) and related
Prospectus of Rental Service Corporation for the registration of 5,000,000
shares of its common stock.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
June 13, 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 three month period ended March 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 1,455,000 1,478,000
<SECURITIES> 0 0
<RECEIVABLES> 16,218,000 17,646,000
<ALLOWANCES> 0 0
<INVENTORY> 5,997,000 6,980,000
<CURRENT-ASSETS> 0 0
<PP&E> 77,156,000 103,424,000
<DEPRECIATION> 13,709,000 18,305,000
<TOTAL-ASSETS> 137,832,000 168,351,000
<CURRENT-LIABILITIES> 31,015,000 40,766,000
<BONDS> 0 0
0 0
28,401,000 36,455,000
<COMMON> 46,000 7,209,000
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 137,832,000 168,351,000
<SALES> 47,170,000 19,656,000
<TOTAL-REVENUES> 65,917,000 27,197,000
<CGS> 35,545,000 16,082,000
<TOTAL-COSTS> 48,162,000 21,149,000
<OTHER-EXPENSES> 8,325,000 3,866,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,314,000 1,639,000
<INCOME-PRETAX> 6,116,000 543,000
<INCOME-TAX> 2,401,000 213,000
<INCOME-CONTINUING> 3,715,000 330,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 478,000 0
<CHANGES> 0 0
<NET-INCOME> 3,237,000 330,000
<EPS-PRIMARY> .23 (.03)
<EPS-DILUTED> .23 (.03)
</TABLE>
