<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1997
REGISTRATION NO. 333-40707
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
RENTAL SERVICE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7353 33-0569350
(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:
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<S> <C>
ELIZABETH A. BLENDELL, ESQ. JERRY V. ELLIOTT, ESQ.
LATHAM & WATKINS JAMES S. SCOTT, SR., ESQ.
633 WEST FIFTH STREET SHEARMAN & STERLING
SUITE 4000 599 LEXINGTON AVENUE
LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10022
(213) 485-1234 (212) 848-4000
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued , 1997
5,000,000 Shares
[LOGO OF RSC]
COMMON STOCK
-----------
OF THE 5,000,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 4,000,000 SHARES
ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,000,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY ARE
BEING SOLD BY THE COMPANY. THE COMMON STOCK IS TRADED ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "RSV." ON DECEMBER 12, 1997, THE LAST REPORTED
SALE PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE WAS $25 7/8
PER SHARE.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
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.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- ----------
<S> <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 "Underwriters."
(2) Before deducting expenses payable by the Company estimated at
$1,000,000.
(3) The Company and certain Selling Stockholders have granted the U.S.
Underwriters an option, exercisable within 30 days of the date hereof,
to purchase up to an aggregate of 750,000 additional Shares at the price
to public less underwriting discounts and commissions for the purpose of
covering overallotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions, proceeds to Company and proceeds to Selling Stockholders
will be $ , $ , $ and $ , respectively.
The Company will not receive any proceeds from the sale of Shares by the
Selling Stockholders. See "Principal and Selling Stockholders" and
"Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Shearman & Sterling, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER WILLIAM BLAIR & COMPANY
, .
<PAGE>
[MAP SHOWING RENTAL LOCATIONS AND LOCATIONS TO BE ACQUIRED.]
2
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING
STOCKHOLDER OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
---------------
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE TAKEN
IN ANY JURISDICTION BY THE COMPANY OR ANY UNDERWRITER THAT WOULD PERMIT A
PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED,
OTHER THAN IN THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS
COMES ARE REQUIRED BY THE COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES
ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF THE COMMON STOCK
AND THE DISTRIBUTION OF THIS PROSPECTUS.
---------------
TABLE OF CONTENTS
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PAGE
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Available Information..................................................... 4
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 14
Use of Proceeds........................................................... 20
Price Range of Common Stock and Dividend Policy........................... 21
Capitalization............................................................ 22
Unaudited Pro Forma Consolidated Financial Data........................... 23
Selected Consolidated Financial and Operating Data........................ 31
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 34
</TABLE>
<TABLE>
<CAPTION>
PAGE
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Business................................................................... 48
Management................................................................. 56
Principal and Selling Stockholders......................................... 64
Certain Relationships and Related Transactions............................. 66
Description of Capital Stock............................................... 67
Shares Eligible for Future Sale............................................ 68
Underwriters............................................................... 70
Certain United States Tax Considerations for Non-United States Holders..... 73
Legal Matters.............................................................. 76
Experts.................................................................... 76
Index to Financial Statements.............................................. F-1
</TABLE>
The Company operates through its 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. Industry figures were obtained from the Rental
Equipment Register (the "RER"), an industry trade magazine, the Dodge Report,
published by the F.W. Dodge Company, an independent market research firm (the
"Dodge Report"), and other industry sources that the Company has not
independently verified.
---------------
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.
---------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
3
<PAGE>
AVAILABLE 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 securities 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. For further
information pertaining to the Company and the securities 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. The Company is also subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and
other information 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. The Company's
Common Stock is listed on the New York Stock Exchange. Consequently, reports
and other information concerning the Company may also be inspected at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005. Electronic filings made through the Electronic Data Gathering Analysis
and Retrieval System are publicly available through the Commission's Website
(http://www.sec.gov). In addition, the Company consummated its initial public
offering on September 23, 1996 and sold 3,000,000 shares of its Common Stock
in a public offering consummated on June 4, 1997, and the related Registration
Statements of the Company on Form S-1, are available from the sources cited
above.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and notes thereto appearing
elsewhere in this Prospectus. Certain information contained in this summary and
elsewhere in this Prospectus, including information with respect to the
Company's plans and strategy for its business, especially RSC's growth
strategy, plans to raise additional capital and prospective acquisitions, are
forward-looking statements. Prospective investors should carefully consider the
factors set forth herein under the caption "Risk Factors" for a discussion of
important factors that could cause actual results to differ materially from
results referred to in the forward-looking statements. Unless otherwise
indicated, all information set forth in this Prospectus assumes no exercise of
the U.S. Underwriters' overallotment option. Capitalized terms used but not
defined in this Prospectus Summary have the meanings ascribed to them elsewhere
in this Prospectus.
THE COMPANY
The Company is a leading consolidator in the rapidly-growing equipment rental
industry, serving the needs of a wide variety of industrial, manufacturing,
construction, government and homeowner markets. As of December 12, 1997, RSC
operated the largest rental network in the United States with 166 rental
locations. 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 maintenance, repair and
operations ("MRO") supplies, small tools, contractor supplies, parts 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. The Company has a diverse customer
base and rented equipment to over 20,000 customers in 1996, with the top ten
customers representing less than 8% of total revenues. The Company's customers
include industrial companies (such as manufacturers, petrochemical facilities,
large chemical processing companies, paper mills, entertainment companies and
public utilities), construction companies (such as contractors), governmental
entities and homeowners.
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 its formation in July 1992 through
its initial public offering in September 1996, the Company acquired 16
businesses consisting of 65 locations and opened 30 start-up locations. Since
its initial public offering in September 1996, the Company has completed 28
acquisitions consisting of 73 locations, has entered into letters of intent to
acquire an additional five companies consisting of 20 locations and has opened
17 start-up locations. See "--Recent Developments." The Company also focuses 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. By pursuing such
growth strategies, the Company has increased total revenues from $41.8 million
in the year ended December 31, 1994 to $128.4 million in the year ended
December 31, 1996. Operating income has increased from $3.9 million to $13.8
million during the same period. During the first nine months of 1997, the
Company generated revenues of $172.3 million with operating income of $25.0
million, increases of 85.1% and 165.6%, respectively, over the same period in
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."
The Company believes 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
5
<PAGE>
or national operators. Relative to smaller companies with only one or two
rental locations, the Company believes RSC benefits from several competitive
advantages, including sophisticated management information systems, volume
purchasing discounts, professional management, a diverse customer base, a
modern and well-maintained rental fleet, the ability to transfer equipment
among rental locations to satisfy customer demand and national brand identity.
Management believes 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. As a result of consolidation and industry
growth, 1996 rental revenues of the top 100 rental equipment companies
increased over 1995 rental revenues by approximately 24%, to $3.1 billion,
according to estimates by the RER. In spite of this growth, these top 100
companies represented only a small percentage of the estimated $20 billion in
industry rental revenues in 1996.
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 small- to medium-sized
markets provide an extensive selection of acquisition candidates and attractive
start-up locations. The Company believes future acquisitions and start-up
locations will provide opportunities to achieve greater geographic and customer
diversification. Through its geographic diversification, the Company believes
it can more effectively manage economic fluctuations than single-location
businesses by transferring equipment to regions with higher demand. See
"Business--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 150 miles away,
which draw on this equipment pool to serve local customers' needs. The hub
locations provide full-service rental fleet maintenance and repair operations
for the satellite locations. The Company believes 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
"Business--Fleet Management."
Advanced Information Systems. The Company has made substantial investments in
its management information systems in order to improve asset utilization and
financial performance. Every rental location has on-line access to a
centralized computer system that provides real-time transaction processing,
extensive fleet management tools and 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. With
the acquisition of Center, the Company obtained Center's proprietary
information system, which, among other enhancements, automatically prioritizes
equipment for maintenance based on type, age and recent use. The Company
believes Center's system is scaleable over a large number of locations, and
expects to add it to the Company's existing systems. See "--Recent
Developments--Acquisition of Center Rental," "Business--Fleet Management" and
"--Information Systems"
Decentralized Management. Under the Company's decentralized management
structure, RSC's region vice presidents and district managers, who currently
average over 20 years of rental experience, are responsible for management,
customer service, marketing strategies and business growth, including pursuing
acquisitions and
6
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identifying start-up locations, in their regions. Each region vice president
and district manager is compensated through a stock option program and cash
bonus plan tied directly to the 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 sale prices for
used rental equipment.
Superior Customer Service. The Company believes 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 supplies, tools, parts and equipment. Depending upon market needs, RSC
also offers value-added services to its customers such as a radio-dispatched
transportation fleet and 24 hours-a-day, seven days-a-week support services,
including on-site maintenance and repair. The Company believes 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 Company employees relating to customer
service, strategy, finance, information systems, fleet management, safety and
risk management and human resources. See "Business--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 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 more than 25
demographic characteristics found in the Company's most successful geographic
markets. The Company also seeks to increase revenues at new and existing
locations through fleet expansion, improved asset utilization and targeted
marketing efforts. Following the IAT Acquisition, the Company also has begun to
increase revenues across existing locations by cross-selling both equipment
rental services and MRO tools and supplies to its industrial customers.
Acquisitions. RSC's acquisition efforts focus on acquiring stable, respected
businesses in markets the Company believes offer opportunities for additional
growth. The Company primarily targets acquisitions of 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. The Company believes it can capitalize in such markets
on its competitive advantages relative to the small, local equipment rental
businesses and equipment dealers who have traditionally served such markets.
Immediately after completing an acquisition, the Company generally 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 seeking to provide consistent, high-
quality service to the acquired business' customers. The Company has a proven
track record in completing and integrating acquisitions. Proprietors of smaller
businesses often place significant emphasis on the Company's reputation in
these areas, and the Company believes this reputation provides it access to
additional acquisition opportunities. Since its formation in 1992, RSC has
acquired 44 businesses consisting of 138 locations. See "Business--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 enhances 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
7
<PAGE>
equipment elsewhere. Since the Company opened its first start-up location in
October 1994, the Company has opened 46 additional start-up locations. See
"Business--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 replace assets in, and increase the breadth and
depth of, its existing rental equipment fleet through capital expenditures. In
addition, RSC's information systems provide the data necessary to improve asset
deployment based upon such factors as price realization, time utilization and
individual asset return on investment. Through its national accounts marketing
program, the Company targets large petrochemical, industrial and commercial
customers. The Company offers these customers In-Plant Maintenance ("IPM")
services whereby RSC locates equipment at a customer's facility and assumes
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 to improve asset utilization rates. In
addition, through the IAT Acquisition, the Company has increased its MRO supply
business and its tool room management and small tool trailer business. The
Company has also created an Industrial Division, with a dedicated and specially
trained sales force focusing exclusively on industrial customers. See
"Business--Fleet Management," "--Information Systems" and "--Sales and
Marketing."
RECENT DEVELOPMENTS
ACQUISITION OF CENTER RENTAL
On December 2, 1997, the Company acquired all of the outstanding capital
stock of Rent-It-Center, Inc. d/b/a Center Rentals & Sales and substantially
all of the assets of certain affiliated entities (collectively, "Center") for
approximately $100.9 million in cash, 482,315 shares of RSC common stock (of
which 64,544 shares will be issued over seven years, subject to earlier
issuance within three years if certain performance objectives are achieved) and
the assumption of approximately $16.0 million of Center's debt (the "Center
Acquisition"). Center is a leading independent rental company and also sells a
variety of equipment ranging from small tools to heavy equipment, including
related commodity supplies. Center operates a total of 14 locations in
Colorado, New Mexico, Texas, Kansas, Missouri and Nebraska, and had combined
revenues of approximately $49.8 million for its fiscal year ended October 31,
1997. Center's balance sheet is consolidated with the Company's under the
purchase method of accounting as of December 2, 1997. Pursuant to the
acquisition agreements, the Company assumed effective control of Center's
operations on November 1, 1997, and has included Center's revenues, costs and
expenses from such date in its consolidated statements of operations, net of
related imputed purchase price adjustments.
The Company believes Center's management philosophy and operating strategy
are similar to the Company's, and that Center is a strong strategic fit for the
Company. In addition, the Company believes Center is one of the best managed
independent rental companies of its size. For example, Center has developed a
proprietary information system that allows it to operate on a nearly paperless
basis. This system automatically prioritizes equipment for maintenance based on
type, age and recent use. The Company believes Center's system is scaleable
over a large number of locations, and expects to add it to the Company's
existing systems. Center also operates on a "hub" and "satellite" strategy
similar to that employed by the Company, and Center's locations in the Rocky
Mountains and the Southwest are a natural geographic extension of RSC's
existing locations.
Center's senior management team has remained with the Company. David P.
Lanoha, Center's chief executive officer, became a Senior Vice President of
Operations of RSC, with responsibility for RSC's western region. The Company
believes Mr. Lanoha's extensive contacts and reputation in the equipment rental
industry will enable him to assist RSC in attracting potential sellers and that
Mr. Lanoha's willingness to remain as an
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executive of the Company after the sale of Center may encourage other owners of
rental businesses to do the same. In addition, Jack Markle, President of
Center, has remained with RSC and is responsible for Center's operations.
ACQUISITION OF VALLEY RENTALS
On October 28, 1997, the Company signed a letter of intent to acquire
substantially all of the assets of JDW Enterprises, Inc. d/b/a Valley Rentals
("Valley") for a total purchase price of $104.0 million, consisting of
$93.6 million of cash and $10.4 million of RSC common stock (the "Valley
Acquisition"). The purchase price is subject to adjustment based on levels of
accounts receivable, inventory and equipment. Valley is a leading independent
rental company in the Southwest, operates a total of ten locations in Arizona
and New Mexico, and had trailing twelve months revenues of approximately $36.2
million as of September 30, 1997. The transaction is anticipated to close by
January 31, 1998, and will be recorded under the purchase method of accounting.
The closing is subject to a number of closing conditions, including the
execution of a definitive purchase agreement, RSC board and bank approval and
early termination or expiration of the waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act").
The Company believes the Valley Acquisition is an excellent strategic fit
with both the Company's existing operations and the Colorado and New Mexico
locations of Center. Valley is a leader in the Arizona rental market, and
operates on a limited "hub" and "satellite" system similar to the Company and
Center. Valley's rental operations are concentrated in the construction
industry, given its primary locations in Maricopa County, Arizona. Based on
figures published in the Dodge Report, Maricopa County had the highest level of
construction spending in the United States for the last four years. Valley's
locations in the Southwest are a natural geographic extension of RSC's and
Center's existing locations.
OTHER ACQUISITIONS AND START-UPS
On December 12, 1997, the Company acquired all of the outstanding capital
stock of Siems Rental & Sales Co., Inc. ("Siems") for $8.0 million in cash,
126,315 shares of RSC common stock and the assumption of approximately $13.5
million of Siems' debt. Siems is an independent rental company engaged in the
rental, sales and service of various types of construction and industrial
equipment. Siems operates a total of six locations in Maryland, Delaware,
Pennsylvania and Virginia, and had trailing twelve months revenues of
approximately $21.0 million as of September 30, 1997. Siems' balance sheet is
consolidated with the Company's under the purchase method of accounting as of
December 12, 1997. Pursuant to the acquisition agreement, the Company assumed
effective control of Siems' operations on November 1, 1997, and has included
Siems' revenues, costs and expenses from such date in its consolidated
statements of operations, net of related imputed purchase price adjustments.
Subsequent to September 30, 1997, the Company completed the acquisitions of
substantially all of the assets of Kansas Enterprises, Inc. d/b/a AAA Rent-All;
Sunbelt Equipment & Rentals, Inc.; Roesch Equipment Company; Allen Equipment,
Inc. and R&M Rentals, Inc. for a total combined purchase price of approximately
$16.5 million. These acquisitions have a combined ten locations in Arkansas,
Florida, Illinois, Kansas and Missouri.
As of December 12, 1997, the Company is party to additional letters of intent
to acquire four businesses for a total combined purchase price of approximately
$9.7 million and having a combined ten locations in Florida, Georgia, South
Carolina and Tennessee. Each of these acquisitions is subject to a number of
closing conditions, including the execution of definitive purchase agreements
and RSC board approval.
9
<PAGE>
AMENDMENT OF REVOLVING CREDIT FACILITY
On December 2, 1997, the Company amended and restated its revolving credit
facility (the "Revolver") to increase its total available financing to $600.0
million. This increase consisted of an increase in the availability under the
Revolver from $300.0 million to $500.0 million and a new $100.0 million seven-
year term loan facility (the "Term Loan" and, together with the Revolver, the
"Bank Facility"). In addition, the Bank Facility extended the maturity date of
the Revolver to December 2, 2002, changed the methodology for determining the
interest rate margins, increased the allowed levels of capital expenditures and
investments and amended several covenants, including the computation
methodology of certain financial covenants. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
INCREASE IN AUTHORIZED COMMON STOCK
On November 3, 1997, the Company began soliciting written consent of its
stockholders for the approval of an increase in the number of authorized shares
of its common stock, par value $.01 per share, from 20 million to 40 million
shares. Stockholder approval of the increase became effective on November 28,
1997. On December 11, 1997, the Company amended its Certificate of
Incorporation to effect such increase.
THE OFFERING
The offering hereby of 4,000,000 shares of Common Stock, par value $.01 per
share, of the Company (the "Common Stock") in the United States and Canada (the
"U.S. Offering") and the concurrent offering of 1,000,000 shares of Common
Stock outside the United States and Canada (the "International Offering") are
collectively referred to as the "Offering." The closing of each of the U.S.
Offering and the International Offering is conditioned upon the closing of the
other.
Shares Offered by the Company:
U.S. Offering.............. 4,000,000 shares
International Offering..... 1,000,000 shares
Total..................... 5,000,000 shares
Shares Outstanding
Immediately After the
Offering................... 20,488,153 shares(1)
Use of Proceeds to the
Company.................... To reduce the Company's indebtedness under
the Revolver in order to provide borrowing
availability for general corporate purposes,
including acquisitions. See "Use of
Proceeds."
New York Stock Exchange
Symbol..................... RSV
- --------
(1) Excludes (i) 877,241 shares subject to options outstanding as of December
12, 1997 pursuant to the Company's Equity Participation Plans at a weighted
average exercise price of $18.57 per share, (ii) 364,298 shares reserved
for issuance pursuant to the Company's Equity Participation Plans, (iii)
250,000 shares reserved for issuance pursuant to the Company's Employee
Qualified Stock Purchase Plan (the "QSP Plan") and (iv) up to 829,395
shares reserved for issuance in connection with certain pending and
completed acquisitions. See "Management--Equity Participation Plans," "--
Employee Qualified Stock Purchase Plan" and "--Recent Developments."
RISK FACTORS
For a discussion of certain factors that should be considered in evaluating
an investment in the Common Stock, see "Risk Factors."
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary consolidated statement of operations data for the years
ended December 31, 1994, 1995 and 1996, and summary consolidated balance sheet
data as of December 31, 1995 and 1996, have been derived from the audited
consolidated financial statements of the Company appearing elsewhere in this
Prospectus. The summary consolidated financial data with respect to the
Company's statement of operations for the period ended December 31, 1992 and
for the year ended December 31, 1993, and with respect to the balance sheet as
of December 31, 1992, 1993 and 1994 has been derived from audited financial
statements of the Company not included in this Prospectus. The summary
consolidated financial data with respect to the Company's Statement of
operations for the nine months ended September 30, 1996 and 1997, and with
respect to the balance sheet as of September 30, 1997, 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 nine months ended September 30, 1997 are not necessarily
indicative of the results which may be expected for future periods, including
for the year ending December 31, 1997. The selected operating data presented
has not been audited. The summary consolidated financial and operating data
presented 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.
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
JULY 17, NINE MONTHS ENDED
1992 YEARS ENDED DECEMBER 31, SEPTEMBER 30,
(INCEPTION) ---------------------------------------------- ------------------------------
THROUGH PRO FORMA PRO FORMA
DECEMBER 31, AS ADJUSTED AS ADJUSTED
1992 1993 1994 1995 1996 1996(1) 1996 1997 1997(1)
------------ ------- ------- ------- ------- ----------- ------- -------- -----------
(IN THOUSANDS, EXCEPT LOCATIONS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(2):
Revenues:
Equipment rentals...... $2,145 $17,238 $27,775 $47,170 $94,218 $227,548 $67,742 $111,549 $191,785
Sales of parts,
supplies and new
equipment............. 1,785 7,387 10,800 14,621 21,919 133,996 16,450 47,119 107,646
Sales of used
equipment(3).......... 257 1,007 3,240 4,126 12,217 N/A 8,903 13,664 N/A
------ ------- ------- ------- ------- -------- ------- -------- --------
Total revenues....... 4,187 25,632 41,815 65,917 128,354 361,544 93,095 172,332 299,431
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 1,153 11,405 16,284 27,854 55,202 114,922 40,977 57,506 93,217
Depreciation,
equipment rentals..... 245 2,161 4,020 7,691 17,840 42,157 12,375 24,493 39,015
Cost of sales of
parts, supplies and
new equipment......... 1,650 5,370 7,978 10,439 15,582 99,852 11,799 36,383 81,018
Cost of sales of used
equipment(3).......... 248 589 2,320 2,178 8,488 N/A 5,820 9,261 N/A
------ ------- ------- ------- ------- -------- ------- -------- --------
Total cost of
revenues............ 3,296 19,525 30,602 48,162 97,112 256,931 70,971 127,643 213,250
------ ------- ------- ------- ------- -------- ------- -------- --------
Gross profit............ 891 6,107 11,213 17,755 31,242 104,613 22,124 44,689 86,181
Selling, general and
administrative expense. 341 2,683 4,747 6,421 12,254 50,639 9,061 13,444 34,465
Depreciation and
amortization, excluding
equipment rental
depreciation........... 11 211 504 1,186 2,835 5,276 1,829 3,789 5,597
Amortization of
intangibles(4)......... 321 2,635 2,078 718 2,379 9,343 1,825 2,463 6,428
------ ------- ------- ------- ------- -------- ------- -------- --------
Operating income........ 218 578 3,884 9,430 13,774 39,355 9,409 24,993 39,691
Interest expense, net... 77 407 731 3,314 7,063 18,468 5,819 8,863 18,791
------ ------- ------- ------- ------- -------- ------- -------- --------
Income before income
taxes and extraordinary
items.................. 141 171 3,153 6,116 6,711 20,887 3,590 16,130 20,900
Provision for income
taxes.................. 81 465 1,177 2,401 2,722 8,480 1,411 7,172 9,300
------ ------- ------- ------- ------- -------- ------- -------- --------
Income (loss) before
extraordinary items.... 60 (294) 1,976 3,715 3,989 $ 12,407 2,179 8,958 $ 11,600
======== ========
Extraordinary items(5).. -- -- -- (478) (1,269) (1,269) (534)
------ ------- ------- ------- ------- ------- --------
Net income (loss)....... 60 (294) 1,976 3,237 2,720 910 8,424
Redeemable preferred
stock accretion........ 133 1,013 1,646 1,717 1,643 1,643 --
------ ------- ------- ------- ------- ------- --------
Net income (loss)
available to common
stockholders........... $ (73) $(1,307) $ 330 $ 1,520 $ 1,077 $ (733) $ 8,424
====== ======= ======= ======= ======= ======= ========
Income (loss) before
extraordinary items per
common share........... $ (.01) $ (.23) $ .06 $ .39 $ .33 $ .58 $ .09 $ .68 $ .55
======== ========
Extraordinary items per
common
share(5)............... -- -- -- (.09) (.18) (.22) (.04)
------ ------- ------- ------- ------- ------- --------
Net income (loss) per
common share........... $ (.01) $ (.23) $ .06 $ .30 $ .15 $ (.13) $ .64
====== ======= ======= ======= ======= ======= ========
Weighted average common
shares outstanding(6).. 5,590 5,632 5,428 5,088 7,218 21,260 5,773 13,150 21,256
SELECTED OPERATING DATA:
Beginning locations..... -- 11 21 25 50 50 94
Locations acquired...... 11 11 1 26 25 16 34
Locations opened........ -- -- 3 10 19 17 11
Locations closed, sold
or held for
sale(7)................ -- (1) -- (11) -- -- (5)
------ ------- ------- ------- ------- ------- --------
Ending locations........ 11 21 25 50 94 83 134
====== ======= ======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
AS OF DECEMBER 31, 1997
------------------------------------------- -----------------------
PRO FORMA
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(1)
------- ------- ------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net book value of rental
equipment.............. $ 8,591 $16,223 $24,138 $ 52,818 $116,921 $229,894 $318,489
Total assets............ 18,360 35,877 48,098 137,832 218,933 462,577 759,507
Total debt (including
capital leases)........ 5,024 4,411 12,752 68,555 68,594 224,535 361,395
Redeemable preferred
stock (net of treasury
stock)................. 10,144 25,956 26,684 28,401 -- -- --
Common stockholders'
equity (deficit)....... 24 (1,281) (1,474) 46 95,072 171,889 319,648
</TABLE>
12
<PAGE>
- --------
(1) The pro forma as adjusted consolidated statements of operations for the
year ended December 31, 1996 give effect to the Pro Forma Combined
Acquisitions, the Pro Forma Acquisition Adjustments and the 1996 Pro Forma
Offering Adjustments, as described in "Unaudited Pro Forma Consolidated
Financial Data" as if such transactions had occurred on the first day of
the period presented. The pro forma as adjusted consolidated statements of
operations for the nine months ended September 30, 1997 and the pro forma
as adjusted balance sheet at September 30, 1997 give effect to the 1997
Completed Acquisitions, the Center Acquisition, the Valley Acquisition, the
Other Acquisitions and the 1997 Pro Forma Offering Adjustments, in the case
of the statement of operations as if such transactions had occurred on the
first day of the period presented and in the case of the balance sheet as
if they had occurred at September 30, 1997. See "Unaudited Pro Forma
Consolidated Financial Data."
(2) The Company's acquisitions have been accounted for as purchases and,
accordingly, the operations of the acquired businesses are included in the
statements of operations data from the effective date of acquisition. On
April 25, 1997, the Company completed the IAT Acquisition, and pursuant to
the acquisition agreement, the Company assumed effective control of IAT's
operations on March 1, 1997. Accordingly, the Company has included IAT's
revenues, costs and expenses from March 1, 1997 in its consolidated
statements of operations, net of related imputed purchase price
adjustments, and has included IAT's balance sheet in its consolidated
balance sheets since April 25, 1997.
(3) Sales of used equipment and cost of sales of used equipment are included
with sales of parts, supplies and new equipment and cost of sales of parts,
supplies and new equipment, respectively, on a pro forma as adjusted basis
for the year ended December 31, 1996 and the nine months ended
September 30, 1997.
(4) 1993 data includes $781,000 for the write-off of costs in excess of net
assets acquired.
(5) The extraordinary item in the year ended December 31, 1995 represents the
loss on extinguishment of debt related to the Company's $30.0 million
revolving credit facility (the "Old Revolver") paid off September 12, 1995.
The extraordinary item in the year ended December 31, 1996 and the nine
months ended September 30, 1996 represents the loss on extinguishment of
debt related to the amendment to the Revolver in September 1996. The
extraordinary item in the nine months ended September 30, 1997 represents
the loss on extinguishment of debt related to the amendment and restatement
of the Revolver in January 1997.
(6) See Note 1 to the Company's Consolidated Financial Statements.
(7) In 1996, the Company closed or disposed of its California locations, which
were previously classified as "assets held for sale" in the Company's
Consolidated Financial Statements.
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<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 Common Stock offered hereby. Certain
information contained in this Prospectus, including information with respect
to the Company's plans and strategy for its business, are forward-looking
statements. Prospective investors should carefully consider the factors set
forth below for a discussion of important factors that could cause actual
results to differ materially from the results referred to in forward-looking
statements contained in this Prospectus.
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. Between its formation in
1992 and its initial public offering in September 1996, the Company, through
its aggressive expansion strategy, acquired 16 businesses consisting of 65
locations and opened 30 start-up locations. Since its initial public offering
through December 12, 1997, the Company has completed 28 acquisitions
consisting of 73 locations and has opened 17 start-up locations. At December
12, 1997, the Company was a party to letters of intent to acquire five
equipment rental businesses (including Valley) with an aggregate total of 20
locations in six states for an aggregate purchase price of approximately
$102.1 million in cash, $10.75 million in RSC Common Stock and the assumption
of approximately $813,000 of debt. The Company's future growth will be
dependent upon a number of factors including, among others, the Company's
ability to identify attractive acquisition candidates and 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,
realize acceptable returns on capital investments in its rental fleet and
obtain financing to support expansion. There can be no assurance that the
Company will successfully expand, that, despite the aggressive pace of the
Company's growth, any acquired business will be successfully integrated into
the Company's operations or that any expansion will perform as expected or
result in profitability. The failure to effectively identify, evaluate and
integrate acquired businesses and start-up locations could adversely affect
the Company's growth prospects and the market price of the Common Stock.
Through two recent acquisitions and the acquisitions of Center and Siems, the
Company began operating in the Midwest, the Southwest, the Rocky Mountain area
and the Mid-Atlantic region, areas in which it had no prior experience and, as
a result of the Valley Acquisition, the Company expects to expand its
operations in the Southwest. The results achieved to date by the Company may
not be indicative of its prospects or ability to succeed in these or other new
markets, many of which may have different competitive conditions, seasonality
and demographic characteristics than the Company's current markets. As a
result of the IAT Acquisition, the Company has substantially increased its
presence in the MRO supply business, which generally requires maintenance of
higher levels of inventory, is more dependent on industrial customers and has
historically had lower gross margins than the Company's rental equipment
business.
In connection with prospective acquisitions and start-up locations, the
Company expects to increase 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 operating complexities of the
Company and the level of responsibility for both existing and new management
personnel. To manage this expected growth, the Company intends to increase the
investment 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, 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 "--Need for Additional Capital for Future
Growth; Restrictions Imposed by Lenders" and "Business--Growth Strategy."
14
<PAGE>
NEED FOR ADDITIONAL CAPITAL FOR FUTURE GROWTH; RESTRICTIONS IMPOSED BY LENDERS
Expansion of the Company through acquisitions, start-up locations and
internal growth will require significant capital expenditures. The Company
made capital expenditures of $86.8 million and $117.8 million in the year
ended December 31, 1996 and the first nine months of 1997, respectively, and
completed acquisitions for $27.3 million and $122.7 million in the aggregate,
respectively, during such periods. The Company's capital expenditures have
principally been discretionary expenditures to finance growth of its rental
equipment fleet; however, the Company must continue to reinvest in ongoing
capital expenditures to maintain the 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 is
selling Common Stock in this Offering and may in the future issue additional
equity securities 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 force the Company to curtail its growth or delay capital
expenditures, which would have a material adverse effect on the Company and
the market price of the Common Stock.
The Company's ability to finance future acquisitions, start-ups and internal
growth is limited by the covenants contained in the Bank Facility, including a
number of significant covenants that, among other things, restrict the ability
of the Company to dispose of assets or merge, incur debt, pay dividends,
repurchase or redeem capital stock, create liens, make capital expenditures
and make certain investments or acquisitions and otherwise restrict corporate
activities. The Bank Facility also contains, among other covenants,
requirements that the Company maintain specified financial ratios, including
minimum cash flow levels and interest coverage. Furthermore, any additional
financing agreements are likely to contain certain restrictive covenants that
will affect, and in some cases will significantly limit or prohibit, among
other things, the ability of the Company to pay dividends, make investments,
engage in transactions with stockholders and affiliates, issue capital stock,
incur indebtedness, create liens, sell assets and engage in mergers and
consolidations. As a result of these covenants, the ability of the Company and
its subsidiaries to respond to changing business and economic conditions and
to secure additional financing may be significantly restricted, and the
Company may be prevented from engaging in transactions, including
acquisitions, that might otherwise be considered important to the Company's
growth strategy or otherwise beneficial to the Company, which could have a
material adverse effect on the market price of the Common Stock. See
"Business--Growth Strategy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
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 Service, Inc., U.S. Rentals, Inc. and BET
Plant Services U.S.A.); regional competitors that operate in a few states;
small, independent businesses with one or two rental locations; and equipment
vendors and dealers who both sell and rent equipment directly to customers.
The industry's fragmented nature has attracted new competitors. Through its
acquisition of Prime Service, Inc., Atlas Copco North America Inc., a
subsidiary of Sweden-based Atlas Copco AB ("Atlas Copco"), an equipment
manufacturer, has entered into the equipment rental business, and the Company
believes equipment manufacturers, such as Caterpillar Inc. ("Caterpillar") and
John Deere Capital Corporation, a wholly owned subsidiary of Deere & Company
("John Deere"), and equipment dealers such as Neff Corp. ("Neff"), in which
General Electric Capital Corporation has an investment, also have entered or
may enter the equipment rental business. The Company also competes against MRO
suppliers, including large companies (such as W.W. Grainger and McMaster
Carr), as well as regional and independent competitors. Certain 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
15
<PAGE>
new market entrants that may be significantly larger and have greater
financial and marketing resources than the Company. 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. There can be no assurance that the Company will be able to
maintain or increase its market share or its revenues or compete effectively
in any of its markets.
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 already limited number of suitable
acquisition candidates. Management believes such competition has already
increased the prices obtained by businesses acquired by the Company and its
competitors. In addition, such competitors may also compete with the Company
for start-up locations, thereby limiting the number of attractive locations
for expansion. Competition in the rental or MRO business and competition in
making acquisitions could have a material adverse effect on the Company and
the market price of the Common Stock. See "Business--Competition."
GENERAL ECONOMIC CONDITIONS
The Company's business is sensitive to economic and competitive conditions,
including national, regional and local slowdowns in construction,
petrochemical or other industrial activity. After the consummation of the
Valley Acquisition, the Center Acquisition and the Other Acquisitions, the
Company will operate in 22 states (Alabama, Arizona, Arkansas, Colorado,
Delaware, Florida, Georgia, Illinois, Iowa, Kansas, Louisiana, Maryland,
Mississippi, Missouri, Nebraska, New Mexico, Oklahoma, Pennsylvania, South
Carolina, Tennessee, Texas and Virginia). The Company's operating results may
be adversely affected by events or conditions in a particular area, 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 and higher debt
costs for the Company, while simultaneously resulting in higher interest
payments by the Company under its variable rate credit facilities. There can
be no assurance that economic slowdowns, a decline in the petrochemical
industry or adverse economic or competitive conditions will not have a
material adverse effect on the Company's operating results, its financial
condition or the market price of the Common Stock. 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 and cost of
acquisitions and start-up locations; 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 and purchasing 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. 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.
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
value of the Common Stock. 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, Douglas A. Waugaman, Ronald Halchishak and David G. Ledlow, each a
Senior Vice President of Operations, and David Lanoha, who became a Senior
Vice President of Operations upon the
16
<PAGE>
closing of the Center Acquisition. The loss of service of one or more members
of senior management could have a material adverse effect on the Company's
business and the market price of the Common Stock. 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."
GOVERNMENT AND ENVIRONMENTAL REGULATION
The Company and its operations are subject to various federal, state and
local laws and regulations governing, among other things, worker safety, air
emissions, water discharge and the generation, handling, storage,
transportation, treatment and disposal of hazardous substances and wastes.
Under such laws, an owner or lessee of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances located on
or in, or emanating from, such property, as well as related costs of
investigation and property damage. Such laws often impose such liability
without regard to whether the owner or lessee knew of, or was responsible for,
the presence of such hazardous or toxic substances. There can be no assurance
that acquired or leased locations have been operated in compliance with
environmental laws and regulations or that future uses or conditions will not
result in the imposition of environmental liability upon the Company or expose
the Company to third-party actions such as tort suits. The Company 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. 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 other activities to come into compliance
with environmental laws, and the performance of appropriate remediation at
certain locations. The foregoing risks could have a material adverse effect on
the market price of the Common Stock. See "Business--Government and
Environmental Regulation."
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 or
service personnel are involved. The Company carries comprehensive insurance
subject to certain deductibles. There can be no assurance that existing or
future claims will not exceed the level of the Company's insurance, or that
such insurance will continue to be available on economically reasonable terms,
if at all. In addition, certain types of claims, such as claims for punitive
damages or for damages arising from intentional misconduct, are generally not
covered by the Company's insurance. Any of the foregoing risks could have a
material adverse effect on the market price of the Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and Amended and Restated Bylaws ("Bylaws")
include provisions that may delay, defer or prevent a takeover attempt that
may be in the best interest of stockholders. These provisions include the
ability of the Board of Directors to issue up to 500,000 shares of preferred
stock, having such rights, privileges and preferences as the Board of
Directors may determine, 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, or the perception that
such issuance might occur, 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
17
<PAGE>
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. The Bank Facility contains certain provisions which
may delay, defer or prevent a takeover attempt which may be in the best
interest of the Company's stockholders, including provisions providing that a
change in control of the Company is an event of default under the Bank
Facility. See "Description of Capital Stock" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
VOLATILITY OF STOCK PRICE
The Common Stock's market price has experienced and may be expected to
continue to experience significant volatility. Such volatility may be caused
by 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 NYSE 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. There can be no
assurance that the market price of the Common Stock will not decline below the
price at which shares of Common Stock are offered hereunder. See "Price Range
of Common Stock and Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon consummation of the Offering, the Company will have outstanding an
aggregate of 20,488,153 shares of Common Stock (21,078,977 shares if the U.S.
Underwriters' overallotment option is exercised in full). After the Offering,
the holders of 3,028,432 shares of Common Stock (2,869,256 shares if the U.S.
Underwriters' overallotment option is exercised in full) will be entitled to
certain registration rights under 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 certain of the Company's other current
stockholders have, subject to certain exceptions in the case of the Company
described in "Underwriters" (including securities to be issued pursuant to
employee benefit plans and acquisitions), 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 90 days after the date
of this Prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated. 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, or the perception that such shares may be issued,
and any dilutive effect on earnings per share may adversely affect the market
price of the Common Stock. 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. See "Description of Capital
Stock," "Principal and Selling Stockholders," "Shares Eligible for Future
Sale" and "Underwriters."
RHI'S BANKRUPTCY; INCREASE IN INDEBTEDNESS
In September 1995, the Company acquired Acme Holdings Inc. ("RHI"), an
equipment rental business with 22 locations, primarily serving Florida, the
Texas/Louisiana Gulf Coast and California. Between 1986 and 1990, RHI had
acquired nine equipment rental businesses financed primarily with debt. In
1993, RHI refinanced its debt through the public sale of $78.0 million of
senior notes (the "Retired Notes"). In 1994, due to a downturn in business
conditions, combined with RHI's highly leveraged capital structure, RHI faced
liquidity constraints and was unable to service its debt. In response, RHI
brought in a new management team and hired Martin R. Reid, the Company's
current Chief Executive Officer, as RHI's Chief Executive Officer in June
1994. This new management team initiated restructuring discussions with the
holders of the Retired Notes in August 1994,
18
<PAGE>
culminating in the prepackaged bankruptcy of RHI and its subsidiaries. On
September 12, 1995, the effective date of the prepackaged bankruptcy plan, the
holders of the Retired Notes received an aggregate of $35.4 million in cash
from the Company in exchange for the surrender of the Retired Notes and the
release of all claims against RHI. In addition, in exchange for providing the
financing necessary for the consummation of RHI's prepackaged bankruptcy plan,
the Company acquired RHI through a stock merger. Prior to such acquisition,
the Company and RHI shared certain common stockholders, including members of
RHI's management and affiliates of Brentwood Associates. In addition, from
July 1992 to September 1995, RHI provided executive management services to the
Company pursuant to a Management Agreement. RHI currently operates as a
subsidiary of the Company under the name RSC Holdings Inc. The Company's
growth strategy has increased and is expected to continue to increase the
Company's indebtedness. As a result of such increased levels of indebtedness,
a downturn in business could have a material adverse effect on the Company and
the market price of the Common Stock. See "Capitalization," "Unaudited Pro
Forma Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Management."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements, including
without limitation, 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.
These forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The words
"believe," "expect," "anticipate" and other similar expressions identify
forward-looking statements. Investors are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. These forward-looking statements are based largely on the Company's
current expectations and are subject to a number of important risks and
uncertainties, including those identified under "Risk Factors" and elsewhere
in this Prospectus. Actual results could differ materially from the forward-
looking statements. In light of these risks and uncertainties, there can be no
assurance that the results referred to in the forward-looking statements
contained in this Prospectus will in fact occur. The Company undertakes no
obligation to publicly release the result of any revisions to these forward-
looking statements that may be made to reflect any future events or
circumstances.
19
<PAGE>
USE OF PROCEEDS
The proceeds to the Company from the sale of the Common Stock offered hereby
(assuming an offering price of $26.00 per share), after deducting discounts
and estimated expenses of the Offering, are estimated to be $122.5 million
($137.1 million if the U.S. Underwriters' overallotment option is exercised in
full).
The Company intends to use the net proceeds of the Offering to reduce its
indebtedness under the Revolver in order to provide borrowing availability for
general corporate purposes, including the Valley Acquisition and other
acquisitions. At December 12, 1997, the Company was a party to letters of
intent to acquire five equipment rental businesses, of which a significant
portion of the purchase price is expected to be funded by future borrowings by
the Company, including borrowings under the Bank Facility. See "Prospectus
Summary--Recent Developments."
Proceeds from the Revolver were used to, among other things, fund capital
expenditures, acquisitions and start-up locations and meet seasonal
fluctuations in working capital. A reduction of amounts outstanding under the
Revolver will increase the amount of borrowing availability under such
facility. On a pro forma basis giving effect to the Offering, the repayment of
indebtedness under the Revolver with a portion of the net proceeds of the
Offering, the amendment and restatement of the Revolver and the implementation
of the Term Loan and the completion of the Center Acquisition, the Valley
Acquisition and the Other Acquisitions, there would have been approximately
$95.1 million available for borrowing under the Bank Facility at September 30,
1997, after taking into account restrictions under the borrowing base, if any,
and other customary restrictions. The Revolver bears interest at specified
margins over the prime and Eurodollar interest rates based on the Company's
achievement of specified interest coverage ratios, and matures on December 2,
2002. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
20
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "RSV." The Company's Common Stock was traded on the Nasdaq
National Market ("Nasdaq") from September 18, 1996 until May 21, 1997 under
the symbol "RSVC." The following table sets forth for each period indicated,
the high and low closing sales prices for the Common Stock as reported by the
NYSE or Nasdaq, as applicable.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE
----------------
HIGH LOW
------- --------
<S> <C> <C>
Year Ended December 31, 1996
Third quarter (from September 18, 1996)................. $23 1/4 $21 1/2
Fourth quarter.......................................... 28 1/2 20 3/8
Year Ended December 31, 1997
First quarter........................................... 27 1/4 18
Second quarter.......................................... 26 3/8 18
Third quarter........................................... 28 22 7/16
Fourth quarter (through December 12, 1997).............. 28 22 7/8
</TABLE>
On December 12, 1997, the last reported sale price for the Common Stock on
the NYSE was as set forth on the cover page of this Prospectus. As of December
12, 1997, there were approximately 47 holders of record of the Common Stock.
The Company believes that the number of beneficial owners is substantially
greater than the number of record holders because a large portion of the
Common Stock is held of record in broker "street names."
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 Bank 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."
21
<PAGE>
CAPITALIZATION
The following table sets forth the total debt and total capitalization of
the Company at September 30, 1997 on (i) an historical basis, (ii) a pro forma
combined basis to give effect to the Center Acquisition, the Valley
Acquisition and the Other Acquisitions as though such acquisitions were
consummated as of September 30, 1997 and (iii) a pro forma as adjusted basis
to give effect to the Center Acquisition, the Valley Acquisition and the Other
Acquisitions, the Bank Facility and the Offering (assuming an offering price
of $26.00 per share) and the application of the net proceeds therefrom to
repay indebtedness under the Revolver. This table should be read in
conjunction with "Use of Proceeds," "Unaudited Pro Forma Consolidated
Financial Data," "Selected Consolidated Financial and Operating Data" and the
Company's Consolidated Financial Statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------
PRO FORMA PRO FORMA
ACTUAL COMBINED AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Revolver(1)................................... $224,119 $483,479 $260,979
Term Loan(1).................................. -- -- 100,000
Notes payable................................. 293 293 293
Capital leases................................ 31 31 31
Equipment contracts payable................... 92 92 92
-------- -------- --------
Total debt.................................. 224,535 483,895 361,395
Common stockholders' equity:
Preferred stock, par value $.01 per share;
500,000 authorized and none outstanding,
actual, pro forma combined and pro forma as
adjusted..................................... -- -- --
Common stock, par value $.01 per share;
20,000,000 authorized and 14,930,784
outstanding, actual; 20,000,000 authorized
and 15,901,105 outstanding, pro forma
combined; 40,000,000 authorized and
20,901,105 outstanding, pro forma as
adjusted(2).................................. 149 159 209
Additional paid-in capital.................... 159,394 183,143 305,593
Common stock issuable(3)...................... 2,881 4,381 4,381
Retained earnings............................. 9,465 9,465 9,465
-------- -------- --------
Total Common stockholders' equity........... 171,889 197,148 319,648
-------- -------- --------
Total capitalization...................... $396,424 $681,043 $681,043
======== ======== ========
</TABLE>
- --------
(1) The total commitment of the Bank Facility is $600.0 million after giving
effect to the increase in the Revolver and the issuance of the Term Loan.
On a pro forma basis giving effect to the Offering, the repayment of
indebtedness under the Revolver with a portion of the net proceeds of the
Offering, the implementation of the Bank Facility and the completion of
the Center Acquisition, the Valley Acquisition and the Other Acquisitions,
the Company had borrowing availability of approximately $95.1 million
under the Bank Facility, after taking into account the restrictions under
the borrowing base, if any, and other customary restrictions.
(2) Excludes (i) 877,241 shares subject to options outstanding as of December
12, 1997 pursuant to the Company's Equity Participation Plans at a
weighted average exercise price of $18.57 per share, (ii) 364,298 shares
reserved for issuance pursuant to the Company's Equity Participation
Plans, (iii) 250,000 shares reserved for issuance pursuant to the
Company's QSP Plan and (iv) up to 829,395 shares reserved for issuance in
connection with certain pending and completed acquisitions. See
"Prospectus Summary--Recent Developments," "Management--Equity
Participation Plans," "--Employee Qualified Stock Purchase Plan," and
Notes 2 and 6 to the Company's Consolidated Financial Statements. Assumes
the increase of the number of authorized shares of the Company's Common
Stock from 20 million to 40 million. See "Description of Capital Stock."
(3) The common stock issuable is associated with the common stock relating to
the acquisitions of Foxx and Central States, and on a pro forma combined
and pro forma as adjusted basis also includes the Common Stock relating to
the Center Acquisition, which vests over future time periods. See Note 2
to the Company's Consolidated Financial Statements.
22
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data of the Company
presents the unaudited pro forma consolidated statements of operations for the
year ended December 31, 1996 and the nine months ended September 30, 1997, and
the unaudited pro forma consolidated balance sheet at September 30, 1997. The
pro forma combined consolidated statement of operations for the year ended
December 31, 1996 has been adjusted to give effect to the following: (i) the
Company's acquisitions of certain assets and liabilities of Sun Construction
Equipment, Inc. (completed in January 1996), Blanchard Machinery, Inc.
(completed in March 1996), B&S Rental Company, Inc. (completed in May 1996),
Equipment Rental & Supply Inc. (completed in June 1996), Hughes Rental and
Equipment Company, Inc. (completed in October 1996), AMKA, Inc. (completed in
October 1996), Performance Equipment Rental & Sales, Inc. (completed in
October 1996), Jones Tractor & Equipment Company, Inc. (completed in November
1996), Tool Shed Inc. (completed in November 1996) and City Sales, Inc.
(completed in November 1996) (collectively, the "1996 Acquisitions"), (ii) the
Company's acquisitions of certain assets and liabilities of 3 W Services, Inc.
(completed in January 1997), Holt Equipment Rental & Supply (completed in
February 1997), Crider Electric Motor & Tool Rental Service, Inc. (completed
in March 1997), United Rental & Sales (completed in March 1997), Kastner
Rentals (completed in March 1997), Stop Agan Rentals & Sales, Inc. (completed
in May 1997), D & D Rentals, Inc. (completed in May 1997), Brute Equipment Co.
d/b/a Foxx Hy-Reach Company ("Foxx") (completed in June 1997), Central States
Equipment, Inc. and Equipment Lessors, Inc. (collectively, "Central States")
(completed in June 1997), Carter Rental & Equipment, Inc. (completed in June
1997), Super Rent Enterprises, Inc. (completed in June 1997), Plateau Rental,
Inc. (completed in June 1997), AMCA Equipment Corp. (completed in September
1997) and the acquisition of all of the outstanding shares of Comtect, Inc.
and subsidiaries d/b/a Industrial Air Tool ("IAT") (effective March 1, 1997)
(the "IAT Acquisition") (collectively, the "1997 Completed Acquisitions"),
(iii) the Center Acquisition, including the pro forma effect of Center's
acquisition of Zuni Rental Enterprises, L.L.C. (completed in October 1996),
(iv) the pending Valley Acquisition and (v) the Company's acquisitions of
certain assets and liabilities of Kansas Enterprises, Inc. d/b/a AAA Rent-All
(completed in October 1997), Sunbelt Equipment & Rentals, Inc. (completed in
October 1997), Roesch Equipment Company (completed in October 1997), Allen
Equipment, Inc. (completed in October 1997), R&M Rentals, Inc. (completed in
December 1997), Siems Rental & Sales Co., Inc. (completed in December 1997),
and the Company's proposed acquisitions of four other equipment rental
businesses with a combined ten locations in four states (collectively, the
"Other Acquisitions") (all such acquisitions, the "Pro Forma Combined
Acquisitions"). Such statements have been adjusted in each case as if such
transactions had occurred on January 1, 1996. The pro forma adjustments
relating to the Pro Forma Combined Acquisitions are referred to herein
collectively as the "Pro Forma Acquisition Adjustments."
The pro forma combined consolidated statements of operations for the nine
months ended September 30, 1997 have been adjusted to give effect to the 1997
Completed Acquisitions, the Center Acquisition, the Valley Acquisition and the
Other Acquisitions as if these transactions had occurred on January 1, 1997.
The pro forma combined consolidated balance sheet gives effect to the Valley
Acquisition, the Center Acquisition and the Other Acquisitions as if they had
occurred on September 30, 1997. There can be no assurance that the Valley
Acquisition or any of the pending Other Acquisitions will be consummated.
In addition to the Pro Forma Combined Acquisitions, the pro forma as
adjusted consolidated statement of operations for the year ended December 31,
1996 gives effect to the following transactions, in each case as if such
transactions had occurred on the first day of the period presented: (i) the
Offering (assuming an offering price of $26.00 per share), (ii) the sale by
the Company of 6,027,813 shares of Common Stock in its September 1996 initial
public offering at a price of $16.00 per share and the sale by the Company of
3,000,000 shares of Common Stock in June 1997 at a price of $19.875 per share
(collectively, the "Completed Common Stock Offerings"); (iii) the redemption
of the Company's 6% Cumulative Redeemable Preferred Stock, par value $.01 per
share (the "Redeemable Preferred Stock"), with a portion of the net proceeds
from its initial public offering (and the related elimination of the
Redeemable Preferred Stock accretion), (iv) the repurchase of a warrant with a
portion of the net proceeds from its initial public offering, (v) a reduction
in interest expense as a result of reductions in indebtedness upon application
of a portion of the net proceeds from the Completed
23
<PAGE>
Common Stock Offerings and the Offering (assuming an offering price of $26.00
per share), (vi) the elimination of a $235,000 annual monitoring fee paid to
an affiliate of a stockholder of the Company and (vii) the reduction of
interest expense resulting from amendments and/or restatements to the Revolver
in September 1996, January 1997, June 1997 and December 1997 (collectively,
(i) through (vii) above, the "1996 Pro Forma Offering Adjustments"). In
addition to the 1997 Completed Acquisitions, the Valley Acquisition, the
Center Acquisition and the Other Acquisitions, the pro forma as adjusted
consolidated statements of operations for the nine months ended September 30,
1997 and the pro forma as adjusted balance sheet at September 30, 1997 give
additional effect to the following transactions, in the case of the statement
of operations as if such transactions had occurred on the first day of the
period presented, and in the case of the balance sheet as if they had occurred
at September 30, 1997: (i) the Offering (assuming an offering price of $26.00
per share), (ii) the sale by the Company of 3,000,000 shares of Common Stock
in June 1997 at a price of $19.875 per share (the "June Offering"), (iii) a
reduction in interest expense as a result of reductions in indebtedness upon
application of a portion of the net proceeds from the Offering (assuming an
offering price of $26.00 per share) and the June Offering, and (iv) the
reduction of interest expense resulting from amendments and/or restatements to
the Revolver in January 1997, June 1997 and December 1997 (collectively, (i)
through (iv) above, the "1997 Pro Forma Offering Adjustments"). The pro forma
adjustments relating to the transactions referred to in this paragraph are
referred to herein collectively as the "Pro Forma Offering Adjustments." See
"Use of Proceeds," "Capitalization," "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.
The Pro Forma Acquisition Adjustments and the Pro Forma Offering Adjustments
represent, in the opinion of management, 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 data
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 the Pro Forma Offering
Adjustments in fact occurred on the date or at the beginning of the periods
indicated or to project the Company's financial position or results of
operations for any future date or period.
The unaudited pro forma consolidated financial data should be read in
conjunction with the 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.
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 PRO FORMA
HISTORICAL 1996 COMPLETED CENTER VALLEY OTHER ACQUISITION
COMPANY ACQUISITIONS(1) ACQUISITIONS ACQUISITION ACQUISITION ACQUISITIONS ADJUSTMENTS
---------- --------------- ------------ ----------- ----------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment
rentals........... $ 94,218 $5,775 $44,183 $ 34,030 $27,720 $21,622 $ --
Sales of parts,
supplies and
equipment......... 34,136 3,213 59,340 11,772 5,048 20,487 --
-------- ------ ------- -------- ------- ------- --------
Total revenues..... 128,354 8,988 103,523 45,802 32,768 42,109 --
Cost of revenues:
Cost of equipment
rentals,
excluding
equipment rental
depreciation...... 55,202 4,591 19,415 14,844 13,778 7,092 --
Depreciation,
equipment
rentals........... 17,840 999 9,169 5,285 6,208 4,838 (2,182)(2)
Cost of sales of
parts, supplies
and equipment..... 24,070 1,403 46,440 10,236 3,504 14,199 --
-------- ------ ------- -------- ------- ------- --------
Total cost of
revenues........ 97,112 6,993 75,024 30,365 23,490 26,129 (2,182)
-------- ------ ------- -------- ------- ------- --------
Gross profit....... 31,242 1,995 28,499 15,437 9,278 15,980 2,182
Selling, general
and administrative
expense............ 12,254 1,280 20,636 7,101 3,650 12,385 (6,432)(3)
Depreciation and
amortization,
excluding equipment
rental
depreciation....... 2,835 87 787 503 550 514 --
Amortization of
intangibles........ 2,379 -- 61 30 20 4 6,849 (5)
-------- ------ ------- -------- ------- ------- --------
Operating income... 13,774 628 7,015 7,803 5,058 3,077 1,765
Non-operating
(income) expense... -- -- (373) 325 -- -- 48 (6)
Interest expense,
net................ 7,063 98 1,984 617 3,249 1,748 24,359 (7)
-------- ------ ------- -------- ------- ------- --------
Income (loss)
before income taxes
and extraordinary
items.............. 6,711 530 5,404 6,861 1,809 1,329 (22,642)
Provision (benefit)
for income taxes... 2,722 (60) 98 2,369 -- 314 (5,442)(9)
-------- ------ ------- -------- ------- ------- --------
Income (loss)
before
extraordinary items 3,989 590 5,306 4,492 1,809 1,015 (17,200)
Redeemable
preferred stock
accretion.......... 1,643 -- -- -- -- -- --
-------- ------ ------- -------- ------- ------- --------
Income (loss)
available to common
stockholders before
extraordinary
items.............. $ 2,346 $ 590 $ 5,306 $ 4,492 $ 1,809 $ 1,015 $(17,200)
======== ====== ======= ======== ======= ======= ========
Income before
extraordinary items
per common share... $ .33
Weighted average
common shares...... 7,218
<CAPTION>
PRO PRO FORMA
FORMA OFFERING PRO FORMA
COMBINED ADJUSTMENTS AS ADJUSTED
-------- ----------- ----------------
<S> <C> <C> <C>
Revenues:
Equipment
rentals........... $227,548 $ -- $ 227,548
Sales of parts,
supplies and
equipment......... 133,996 -- 133,996
-------- ------- ----------------
Total revenues..... 361,544 -- 361,544
Cost of revenues:
Cost of equipment
rentals,
excluding
equipment rental
depreciation...... 114,922 -- 114,922
Depreciation,
equipment
rentals........... ) 42,157 -- 42,157
Cost of sales of
parts, supplies
and equipment..... 99,852 -- 99,852
-------- ------- ----------------
Total cost of
revenues........ 256,931 -- 256,931
-------- ------- ----------------
Gross profit....... 104,613 -- 104,613
Selling, general
and administrative
expense............ ) 50,874 (235)(4) 50,639
Depreciation and
amortization,
excluding equipment
rental
depreciation....... 5,276 -- 5,276
Amortization of
intangibles........ ) 9,343 -- 9,343
-------- ------- ----------------
Operating income... 39,120 235 39,355
Non-operating
(income) expense... ) -- -- --
Interest expense,
net................ ) 39,118 (20,650)(8) 18,468
-------- ------- ----------------
Income (loss)
before income taxes
and extraordinary
items.............. 2 20,885 20,887
Provision (benefit)
for income taxes... ) 1 8,479 (9) 8,480
-------- ------- ----------------
Income (loss)
before
extraordinary items 1 12,406 12,407
Redeemable
preferred stock
accretion.......... 1,643 (1,643)(10) --
-------- ------- ----------------
Income (loss)
available to common
stockholders before
extraordinary
items.............. $ (1,642) $14,049 $ 12,407
======== ======= ================
Income before
extraordinary items
per common share... $ (.18) $ .58
Weighted average
common shares...... 8,931 21,260
(11)(12) (11)(12)(13)(14)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 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 Company's
historical results for 1996. See Note 1 to the Company's Consolidated
Financial Statements.
(2) Represents the elimination of the historical carrying value of rental
depreciation of $25,642,000 and the Company's estimate of $23,460,000 for
rental depreciation assuming the rental fleet acquired was adjusted to
fair market value at the beginning of the period. As a result, pro forma
depreciation decreased by $2,182,000.
(3) Represents the elimination of salaries and other payments to officers
and/or stockholders of certain acquired businesses, as such officers
and/or stockholders will either be employed at lower contractual rates or
will not be employed by the Company. Also, represents the elimination of
$2,320,000 of nonrecurring litigation judgment expense associated with
the acquisition of Foxx.
(4) Represents elimination of a $235,000 annual monitoring fee paid to an
affiliate of a stockholder of the Company.
(5) Represents the Company's estimate of amortization of goodwill and
covenants not to compete for the 1996 Acquisitions, the 1997 Completed
Acquisitions, the Center Acquisition, the Valley Acquisition and the
Other Acquisitions of $6,849,000, as if the acquisitions were consummated
at the beginning of the period presented.
(6) Represents the elimination of income earned on, or expenses associated
with, assets or liabilities not acquired or assumed in connection with
certain of the acquisitions.
(7) Represents the elimination of historical interest expense of $7,632,000
and the addition of $31,991,000 of interest expense on borrowings to fund
the above acquisitions as if the transactions were consummated at the
beginning of the period presented. As a result, pro forma interest
expense increased by $24,359,000.
(8) Represents the elimination of historical interest expense on the Bank
Note and a portion of the Revolver (after giving effect to the additional
borrowings resulting from the Pro Forma Combined Acquisitions) assuming
the repayment of such indebtedness at the beginning of the period
presented with a portion of the net proceeds from the Completed Common
Stock Offerings, this Offering (assuming an offering price of $26.00 per
share) and the Bank Facility, and the effect of the reduction of interest
expense resulting from the Company's amendments and restatements to the
Revolver, including the effect on capitalized debt issuance costs.
(9) Represents the adjustment to provide income taxes at the Company's 1996
effective tax rate of 40.6%.
(10) Represents the elimination of historical accretion of dividends on the
Redeemable Preferred Stock assuming the Redeemable Preferred Stock was
redeemed at the beginning of the period presented.
(11) The acquisition agreements for IAT and Foxx provide for the potential
issuance of up to 108,108 and 89,630 shares of Common Stock,
respectively, over three-year periods following the acquisitions if
certain performance objectives are met. The effects of the potential
issuance of these shares were not considered in the pro forma
consolidated financial statements. See Note 2 to the Company's
Consolidated Financial Statements.
(12) Weighted average common shares includes 1,713,171 shares of Common Stock
for the acquisitions of IAT, Foxx, Central States, Center, Valley and
several of the Other Acquisitions.
(13) Reflects the issuance of capital stock on January 4, 1996, as if such
stock was sold at the beginning of the period presented. See Note 1 to
the Company's Consolidated Financial Statements.
(14) Gives additional effect to the repurchase and elimination of a warrant
and the issuance of shares in the Completed Common Stock Offerings and
the Offering (assuming an offering price of $26.00 per share), as if such
transactions were consummated at the beginning of the period presented.
See Note 1 to the Company's Consolidated Financial Statements.
26
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1997 PRO FORMA PRO FORMA
HISTORICAL COMPLETED CENTER VALLEY OTHER ACQUISITION PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS(1) ACQUISITION ACQUISITION ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- --------------- ----------- ----------- ------------ ----------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment
rentals......... $111,549 $15,346 $25,593 $22,548 $16,749 $ -- $191,785 $ -- $191,785
Sales of parts,
supplies and
equipment....... 60,783 14,693 10,910 4,779 16,481 -- 107,646 -- 107,646
-------- ------- ------- ------- ------- ------- -------- ------ --------
Total revenues... 172,332 30,039 36,503 27,327 33,230 -- 299,431 -- 299,431
Cost of revenues:
Cost of
equipment
rentals,
excluding
equipment rental
depreciation.... 57,506 5,889 11,903 11,763 6,156 -- 93,217 -- 93,217
Depreciation,
equipment
rentals......... 24,493 3,768 4,771 5,010 4,135 (3,162)(2) 39,015 -- 39,015
Cost of sales of
parts, supplies
and equipment... 45,644 11,310 9,805 3,016 11,243 -- 81,018 -- 81,018
-------- ------- ------- ------- ------- ------- -------- ------ --------
Total cost of
revenues......... 127,643 20,967 26,479 19,789 21,534 (3,162) 213,250 -- 213,250
-------- ------- ------- ------- ------- ------- -------- ------ --------
Gross profit..... 44,689 9,072 10,024 7,538 11,696 3,162 86,181 -- 86,181
Selling, general
and
administrative
expense.......... 13,444 5,175 5,592 3,175 8,610 (1,531)(3) 34,465 -- 34,465
Depreciation and
amortization,
excluding
equipment rental
depreciation..... 3,789 272 656 533 347 -- 5,597 -- 5,597
Amortization of
intangibles...... 2,463 23 92 15 3 3,832 (4) 6,428 -- 6,428
-------- ------- ------- ------- ------- ------- -------- ------ --------
Operating income
(loss)........... 24,993 3,602 3,684 3,815 2,736 861 39,691 -- 39,691
Non-operating
(income) expense. -- (59) 7 -- -- 52 (5) -- -- --
Interest expense,
net.............. 8,863 814 1,157 2,383 1,387 11,812 (6) 26,416 (7,625)(7) 18,791
-------- ------- ------- ------- ------- ------- -------- ------ --------
Income (loss)
before income
taxes and
extraordinary
item............. 16,130 2,847 2,520 1,432 1,349 (11,003) 13,275 7,625 20,900
Provision
(benefit) for
income taxes..... 7,172 (12) 868 -- 297 (2,417)(8) 5,908 3,392 (8) 9,300
-------- ------- ------- ------- ------- ------- -------- ------ --------
Income (loss)
before
extraordinary
item............. $ 8,958 $ 2,859 $ 1,652 $ 1,432 $ 1,052 $(8,586) $ 7,367 $4,233 $ 11,600
======== ======= ======= ======= ======= ======= ======== ====== ========
Net income per
common share
before
extraordinary
item............. $ .68 $ .51 $ .55
Weighted average
common shares.... 13,150 14,553 21,256
(9)(10) (9)(10)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(1) Represents the results of the 1997 Completed Acquisitions prior to their
acquisition by the Company. Results of the 1997 Completed Acquisitions
subsequent to the dates of their acquisition are included in the
Company's historical results for the nine months ended September 30,
1997. See Note 1 to the Company's Consolidated Financial Statements.
(2) Represents the elimination of the historical carrying value of rental
depreciation of $17,483,000 and the Company's estimate of $14,321,000 for
rental depreciation assuming the rental fleet acquired was adjusted to
fair market value at the beginning of the period presented. As a result,
pro forma depreciation decreased by $3,162,000.
(3) Represents the elimination of salaries and other payments to officers
and/or stockholders of certain acquired businesses, as such officers
and/or stockholders will either be employed at lower contractual rates or
will not be employed by the Company.
(4) Represents the Company's estimate of amortization of goodwill and
covenants not to compete for the 1997 Completed Acquisitions, the Center
Acquisition, the Valley Acquisition and the Other Acquisitions of
$3,832,000, as if the acquisitions were consummated at the beginning of
the period presented.
(5) Represents the elimination of income earned on, or expenses associated
with, assets or liabilities not acquired or assumed in connection with
certain of the acquisitions.
(6) Represents the elimination of historical interest expense of $5,741,000
and the addition of $17,553,000 of interest expense on borrowings to fund
the above acquisitions as if the transactions were consummated at the
beginning of the period presented. As a result, pro forma interest
expense increased by $11,812,000.
(7) Represents the elimination of historical interest expense on a portion of
the Revolver (after giving effect to the additional borrowings resulting
from the Pro Forma Combined Acquisitions) assuming the repayment of such
indebtedness at the beginning of the period presented with a portion of
the net proceeds from the June Offering and the Offering (assuming an
offering price of $26.00 per share), and the effect of the reduction of
interest expense resulting from the Company's amendments and restatements
to the Revolver, including the effect on capitalized debt issuance costs.
(8) Represents the adjustment to provide income taxes at the Company's 1997
effective tax rate of 44.5%.
(9) The acquisition agreements for IAT and Foxx provide for the potential
issuance of up to 108,108 and 89,630 shares of Common Stock,
respectively, over three-year periods following the acquisitions if
certain performance objectives are met. The effects of the potential
issuance of these shares were not considered in the pro forma
consolidated financial statements. See Note 2 to the Company's
Consolidated Financial Statements.
(10) Weighted average common shares includes 1,713,171 shares of Common Stock
for the acquisitions of IAT, Foxx, Central States, Center, Valley and
several of the Other Acquisitions.
28
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997(1)
<TABLE>
<CAPTION>
PRO FORMA PRO PRO FORMA
HISTORICAL CENTER VALLEY OTHER ACQUISITION FORMA OFFERING PRO FORMA
COMPANY ACQUISITION ACQUISITION ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- ----------- ----------- ------------ ----------- -------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash
equivalents........... $ 4,887 $ 347 $ (119) $ 741 $ (969)(4) $ 4,887 $ -- $ 4,887
Accounts receivable,
net................... 43,694 4,971 8,917 5,582 -- 63,164 -- 63,164
Other receivables and
prepaid expense....... 3,941 511 1,287 154 (1,435)(4) 4,458 -- 4,458
Income tax receivable. 1,117 -- -- 15 (15)(4) 1,117 -- 1,117
Parts and supplies
inventories, net...... 20,701 2,977 3,060 5,653 -- 32,391 -- 32,391
Deferred taxes........ 8,787 99 -- 114 (15)(4) 8,985 -- 8,985
Rental equipment, net. 229,894 35,301 33,120 23,771 (3,597)(5) 318,489 -- 318,489
Operating property and
equipment, at cost,
net................... 30,640 4,848 8,625 3,167 (503)(5) 46,777 -- 46,777
Intangible assets,
net................... 115,279 1,474 62 2 158,398 (6) 275,215 -- 275,215
Other assets.......... 3,637 220 -- 531 (364)(4) 4,024 -- 4,024
-------- ------- ------- ------- -------- -------- -------- --------
$462,577 $50,748 $54,952 $39,730 $151,500 $759,507 $ -- $759,507
======== ======= ======= ======= ======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Accounts payable...... $ 16,168 $ 2,811 $ 1,864 $ 2,688 $ (3,354)(4) $ 20,177 $ -- $ 20,177
Payroll and other
accrued expenses...... 29,461 3,051 921 948 (1,550)(4) 32,831 -- 32,831
Accrued interest
payable............... 1,473 -- -- -- -- 1,473 -- 1,473
Income taxes payable.. 6,478 -- -- 271 -- 6,749 -- 6,749
Deferred taxes........ 12,573 3,931 -- 1,263 (533)(4) 17,234 -- 17,234
Bank debt and long
term obligations...... 224,504 18,068 41,705 24,778 174,809 (7) 483,864 (222,500)(8)(9) 261,364
Term Loan............. -- -- -- -- -- - 100,000 (9) 100,000
Obligations under
capital leases........ 31 -- 1,118 -- (1,118)(4) 31 -- 31
-------- ------- ------- ------- -------- -------- -------- --------
Total liabilities.. 290,688 27,861 45,608 29,948 168,254 562,359 (122,500) 439,859
Stockholders' equity:
Common stock(2)...... 149 12 600 -- (602)(10) 159 50 (8) 209
Additional paid-in
capital.............. 159,394 -- -- 745 23,004 (10) 183,143 122,450 (8) 305,593
Common stock
issuable(3).......... 2,881 -- -- -- 1,500 (3) 4,381 -- 4,381
Retained earnings.... 9,465 22,875 8,744 9,037 (40,656)(10) 9,465 -- 9,465
-------- ------- ------- ------- -------- -------- -------- --------
Total stockholders'
equity............. 171,889 22,887 9,344 9,782 (16,754) 197,148 122,500 319,648
-------- ------- ------- ------- -------- -------- -------- --------
$462,577 $50,748 $54,952 $39,730 $151,500 $759,507 $ -- $759,507
======== ======= ======= ======= ======== ======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(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 Center Acquisition, the Valley Acquisition and the Other
Acquisitions. Purchase accounting values have been assigned to the Center
Acquisition, the Valley Acquisition and the Other Acquisitions on a
preliminary basis and are subject to adjustment when final information as
to the fair values of the net assets acquired is available.
(2) The acquisition agreements for IAT and Foxx provide for the potential
issuance of up to 108,108 and 89,630 shares of Common Stock,
respectively, over three-year periods following the acquisitions if
certain performance objectives are met. The effects of the potential
issuance of these shares were not considered in the pro forma
consolidated financial statements. See Note 2 to the Company's
Consolidated Financial Statements.
(3) The Common Stock issuable is associated with Common Stock for the
acquisitions of Foxx, Central States and Center that vests over future
time periods. See Note 2 to the Company's Consolidated Financial
Statements.
(4) Represents assets not acquired or liabilities not assumed in the Center
Acquisition, the Valley Acquisition and the Other Acquisitions.
(5) Represents the Company's preliminary estimates of the adjustments
necessary to record the assets acquired at fair market value.
(6) 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 the net assets acquired.
(7) Represents borrowings under the Revolver to fund the Center Acquisition,
the Valley Acquisition and the Other Acquisitions.
(8) Represents the use of the net proceeds from the Offering (assuming an
offering price of $26.00 per share) to reduce the Company's outstanding
obligations under the Revolver.
(9) Represents the implementation of the Term Loan and the use of the net
proceeds therefrom to reduce the Company's outstanding obligations under
the Revolver.
(10) Represents the elimination of the equity accounts of the Center
Acquisition, the Valley Acquisition and the Other Acquisitions.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated statement of operations data for the
years ended December 31, 1994, 1995 and 1996, and selected consolidated
balance sheet data as of December 31, 1995 and 1996, have been derived from
the audited consolidated financial statements of the Company appearing
elsewhere in this Prospectus. The selected consolidated financial data with
respect to the Company's statement of operations for the period ended December
31, 1992 and for the year ended December 31, 1993, and with respect to the
balance sheet as of December 31, 1992, 1993 and 1994 has been derived from
audited financial statements of the Company not included in this Prospectus.
The selected consolidated financial data with respect to the Company's
statement of operations for the nine months ended September 30, 1996 and 1997,
and with respect to the balance sheet as of September 30, 1997, 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 nine months ended September 30, 1997 are not
necessarily indicative of the results which may be expected for future
periods, including for the year ending December 31, 1997. The selected
operating data presented has not been audited. The selected consolidated
financial and operating data presented 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.
31
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
JULY 17, 1992 ----------------------------------------------- ------------------------------
(INCEPTION) THROUGH PRO FORMA PRO FORMA
DECEMBER 31, AS ADJUSTED AS ADJUSTED
1992 1993 1994 1995 1996 1996(1) 1996 1997 1997(1)
------------------- ------- ------- ------- ------- ----------- ------- -------- -----------
(IN THOUSANDS, EXCEPT LOCATIONS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(2):
Revenues:
Equipment rentals..... $2,145 $17,238 $27,775 $47,170 $94,218 $227,548 $67,742 $111,549 $191,785
Sales of parts,
supplies and new
equipment............ 1,785 7,387 10,800 14,621 21,919 133,996 16,450 47,119 107,646
Sales of used
equipment(3)......... 257 1,007 3,240 4,126 12,217 N/A 8,903 13,664 N/A
------ ------- ------- ------- ------- -------- ------- -------- --------
Total revenues......... 4,187 25,632 41,815 65,917 128,354 361,544 93,095 172,332 299,431
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation......... 1,153 11,405 16,284 27,854 55,202 114,922 40,977 57,506 93,217
Depreciation,
equipment rentals.... 245 2,161 4,020 7,691 17,840 42,157 12,375 24,493 39,015
Cost of sales of
parts, supplies and
equipment............ 1,650 5,370 7,978 10,439 15,582 99,852 11,799 36,383 81,018
Cost of sales of used
equipment(3)......... 248 589 2,320 2,178 8,488 N/A 5,820 9,261 N/A
------ ------- ------- ------- ------- -------- ------- -------- --------
Total cost of revenues. 3,296 19,525 30,602 48,162 97,112 256,931 70,971 127,643 213,250
------ ------- ------- ------- ------- -------- ------- -------- --------
Gross profit........... 891 6,107 11,213 17,755 31,242 104,613 22,124 44,689 86,181
Selling, general and
administrative
expense............... 341 2,683 4,747 6,421 12,254 50,639 9,061 13,444 34,465
Depreciation and
amortization,
excluding equipment
rental depreciation... 11 211 504 1,186 2,835 5,276 1,829 3,789 5,597
Amortization of
intangibles(4)........ 321 2,635 2,078 718 2,379 9,343 1,825 2,463 6,428
------ ------- ------- ------- ------- -------- ------- -------- --------
Operating income....... 218 578 3,884 9,430 13,774 39,355 9,409 24,993 39,691
Interest expense, net.. 77 407 731 3,314 7,063 18,468 5,819 8,863 18,791
------ ------- ------- ------- ------- -------- ------- -------- --------
Income before income
taxes and
extraordinary items... 141 171 3,153 6,116 6,711 20,887 3,590 16,130 20,900
Provision for income
taxes................. 81 465 1,177 2,401 2,722 8,480 1,411 7,172 9,300
------ ------- ------- ------- ------- -------- ------- -------- --------
Income (loss) before
extraordinary items... 60 (294) 1,976 3,715 3,989 $ 12,407 2,179 8,958 $ 11,600
======== ========
Extraordinary items(5). -- -- -- (478) (1,269) (1,269) (534)
------ ------- ------- ------- ------- ------- --------
Net income (loss)...... 60 (294) 1,976 3,237 2,720 910 8,424
Redeemable preferred
stock accretion....... 133 1,013 1,646 1,717 1,643 1,643 --
------ ------- ------- ------- ------- ------- --------
Net income (loss)
available to common
stockholders.......... $ (73) $(1,307) $ 330 $ 1,520 $ 1,077 $ (733) $ 8,424
====== ======= ======= ======= ======= ======= ========
Income (loss) before
extraordinary items
per common share...... $ (.01) $ (.23) $ .06 $ .39 $ .33 $ .58 $ .09 $ .68 $ .55
======== ========
Extraordinary items per
common share(5)....... -- -- -- (.09) (.18) (.22) (.04)
------ ------- ------- ------- ------- ------- --------
Net income (loss) per
common share.......... $ (.01) $ (.23) $ .06 $ .30 $ .15 $ (.13) $ .64
====== ======= ======= ======= ======= ======= ========
Weighted average common
shares(6)............. 5,590 5,632 5,428 5,088 7,218 21,260 5,773 13,150 21,256
SELECTED OPERATING
DATA:
Beginning locations.... -- 11 21 25 50 50 94
Locations acquired..... 11 11 1 26 25 16 34
Locations opened....... -- -- 3 10 19 17 11
Locations closed, sold
or held for sale(7)... -- (1) -- (11) -- -- (5)
------ ------- ------- ------- ------- ------- --------
Ending locations....... 11 21 25 50 94 83 134
====== ======= ======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
AS OF DECEMBER 31, 1997
------------------------------------------- -----------------------
PRO FORMA
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(1)
------- ------- ------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net book value of rental
equipment.............. $ 8,591 $16,223 $24,138 $ 52,818 $116,921 $229,894 $318,489
Total assets............ 18,360 35,877 48,098 137,832 218,933 462,577 759,507
Total debt (including
capital leases)........ 5,024 4,411 12,752 68,555 68,594 224,535 361,395
Redeemable preferred
stock (net of treasury
stock)................. 10,144 25,956 26,684 28,401 -- -- --
Common stockholders'
equity (deficit)....... 24 (1,281) (1,474) 46 95,072 171,889 319,648
</TABLE>
32
<PAGE>
- --------
(1) The pro forma as adjusted consolidated statements of operations for the
year ended December 31, 1996 give effect to the Pro Forma Combined
Acquisitions, the Pro Forma Acquisition Adjustments and the 1996 Pro Forma
Offering Adjustments, as described in "Unaudited Pro Forma Consolidated
Financial Data" as if such transactions had occurred on the first day of
the period presented. The pro forma as adjusted consolidated statements of
operations for the nine months ended September 30, 1997 and the pro forma
as adjusted balance sheet at September 30, 1997 give effect to the 1997
Completed Acquisitions, the Center Acquisition, the Valley Acquisition,
the Other Acquisitions and the 1997 Pro Forma Offering Adjustments, in the
case of the statement of operations as if such transactions had occurred
on the first day of the period presented and in the case of the balance
sheet as if they had occurred at September 30, 1997. See "Unaudited Pro
Forma Consolidated Financial Data."
(2) The Company's acquisitions have been accounted for as purchases and,
accordingly, the operations of the acquired businesses are included in the
statements of operations data from the effective date of acquisition. On
April 25, 1997, the Company completed the IAT Acquisition, and pursuant to
the acquisition agreement, the Company assumed effective control of IAT's
operations on March 1, 1997. Accordingly, the Company has included IAT's
revenues, costs and expenses from March 1, 1997 in its consolidated
statements of operations, net of related imputed purchase price
adjustments, and has included IAT's balance sheet in its consolidated
balance sheets since April 25, 1997.
(3) Sales of used equipment and cost of sales of used equipment are included
with sales of parts supplies and new equipment and cost of sales of parts,
supplies and new equipment, respectively, on a pro forma as adjusted basis
for the year ended December 31, 1996 and the nine months ended
September 30, 1997.
(4) 1993 data includes $781,000 for the write-off of costs in excess of net
assets acquired.
(5) The extraordinary item in the year ended December 31, 1995 represents the
loss on extinguishment of debt related to the Old Revolver paid off
September 12, 1995. The extraordinary item in the year ended December 31,
1996 and nine months ended September 30, 1996 represents the loss on
extinguishment of debt related to the amendment to the Revolver in
September 1996. The extraordinary item in the nine months ended September
30, 1997 represents the loss on extinguishment of debt related to the
amendment and restatement of the Revolver in January 1997.
(6) See Note 1 to the Company's Consolidated Financial Statements.
(7) In 1996, the Company closed or disposed of its California locations, which
were previously classified as "assets held for sale" in the Company's
Consolidated Financial Statements.
33
<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 the notes
thereto appearing elsewhere in this Prospectus.
OVERVIEW
From its formation in 1992 through its initial public offering in September
1996, the Company acquired 16 businesses consisting of 65 locations and opened
30 start-up locations. Since the initial public offering, the Company has
completed 28 acquisitions consisting of 73 locations, has entered into letters
of intent to acquire an additional five companies consisting of 20 locations
and has opened 17 start-up locations. See "Prospectus Summary--Recent
Developments." The Company also focuses 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 has increased total
revenues from $41.8 million in the year ended December 31, 1994 to $128.4
million in the year ended December 31, 1996. Operating income has increased
from $3.9 million to $13.8 million during the same period. During the first
nine months of 1997, the Company generated revenues of $172.3 million with
operating income of $25.0 million, increases of 85.1% and 165.6%,
respectively, over the same period in 1996. Through the IAT Acquisition, the
Company has substantially increased its presence in the MRO supply business,
which has historically had lower gross margins than the Company's equipment
rental business.
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 prior to its redemption in September
1996. Because all of the acquisitions have been accounted for under the
purchase method of accounting, such acquisitions have increased the Company's
goodwill and other intangibles (including covenants not to compete). During
the initial phase of an acquisition or start-up location, the Company
typically incurs expenses related to completing acquisitions and opening
start-up locations, training employees, installing or converting information
systems, facility set-up and marketing expenses. As a result, the
profitability of a new location is generally expected to be lower in the
initial period of its operation than in subsequent periods. Integration of
acquisitions is generally completed within the first six months, while the
Company generally expects start-up locations to achieve normalized
profitability after one year. The Company anticipates that as it continues to
implement its growth strategy, new locations will continue to impact the
Company's margins until such locations achieve normalized profitability.
The Company is continually involved in the investigation and evaluation of
potential acquisitions and start-up locations. Acquisition 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, the target's competitive market position, management team,
growth position, and the demographic characteristics of the target market. At
any time, the Company may have one or more offers outstanding and may have
executed one or more letters of intent or binding acquisition agreements. The
Company has entered into letters of intent to acquire five equipment rental
businesses (including Valley) with a total of 20 locations for an aggregate
purchase price of $113.7 million. There can be no assurance, however, that
such letters of intent or discussions will result in any particular
transaction being consummated.
The Company's capital expenditures have principally been discretionary
expenditures to finance the growth of its rental equipment fleet; however, the
Company must continually reinvest in ongoing capital expenditures in order to
acquire and maintain a competitive, high quality rental equipment fleet. For
the years ended December 31, 1994, 1995 and 1996, and the nine months ended
September 30, 1996 and 1997 the Company's capital expenditures aggregated
$17.0 million, $23.6 million, $86.8 million, $60.6 million and $117.8 million,
respectively. The Company depreciates rental equipment over periods ranging
from three to seven years, which
34
<PAGE>
has resulted in equipment rental depreciation of $4.0 million, $7.7 million,
$17.8 million, $12.4 million and $24.5 million for the years ended December 31,
1994, 1995 and 1996, and the nine months ended September 30, 1996 and 1997,
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 its
information systems.
On September 18, 1996, the Company completed an initial public offering of
6,325,000 shares of its Common Stock, of which 6,027,813 shares were offered by
the Company, with the remainder offered by certain selling stockholders. Net
proceeds to the Company of approximately $87.9 million were utilized to redeem
all outstanding shares of its Redeemable Preferred Stock, repay in full a
senior secured term loan (the "Bank Note") and to repurchase the related
warrants, and reduce its outstanding obligations under the Revolver.
On June 4, 1997, the Company completed a public offering of 6,072,000 shares
of its Common Stock, of which 3,000,000 shares were sold by the Company, with
the remainder sold by certain selling stockholders. Net proceeds to the Company
of approximately $55.6 million were used to reduce the Company's indebtedness
under the Revolver in order to provide borrowing availability for general
corporate purposes, including acquisitions.
35
<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)
----------------------------------- -----------------------------------------
NINE MONTHS NINE MONTHS
YEARS ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------- -------------
1994 1995 1996 1996 1997 1995 VS. 1994 1996 VS. 1995 1997 VS. 1996
----- ----- ----- ------ ------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... 66.4% 71.6% 73.4% 72.8% 64.7% 69.8% 99.7% 64.7%
Sales of parts,
supplies and new
equipment............. 25.8 22.2 17.1 17.7 27.4 35.4 49.9 186.4
Sales of used
equipment............. 7.8 6.2 9.5 9.5 7.9 27.3 196.1 53.5
----- ----- ----- ------ ------
Total revenues....... 100.0 100.0 100.0 100.0 100.0 57.6 94.7 85.1
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 39.0 42.3 43.0 44.0 33.4 71.1 98.2 40.3
Depreciation,
equipment rentals..... 9.6 11.7 13.9 13.3 14.2 91.3 132.0 97.9
Cost of sales of
parts, supplies and
new equipment......... 19.1 15.8 12.2 12.7 21.1 30.8 49.3 208.4
Cost of sales of used
equipment............. 5.5 3.3 6.6 6.2 5.4 (6.1) 289.7 59.1
----- ----- ----- ------ ------
Total cost of
revenues............ 73.2 73.1 75.7 76.2 74.1 57.4 101.6 79.9
----- ----- ----- ------ ------
Gross profit............ 26.8 26.9 24.3 23.8 25.9 58.3 76.0 102.0
Selling, general and
administrative expense. 11.4 9.7 9.5 9.7 7.8 35.3 90.8 48.4
Depreciation and
amortization, excluding
equipment rental
depreciation........... 1.2 1.8 2.2 2.0 2.2 135.3 139.0 107.2
Amortization of
intangibles............ 4.9 1.1 1.9 2.0 1.4 (65.4) 231.3 35.0
----- ----- ----- ------ ------
Operating income........ 9.3 14.3 10.7 10.1 14.5 142.8 46.1 165.6
Interest expense, net... 1.8 5.0 5.5 6.2 5.1 353.4 113.1 52.3
----- ----- ----- ------ ------
Income before income
taxes and extraordinary
items.................. 7.5% 9.3% 5.2% 3.9% 9.4% 94.0 9.7 349.3
===== ===== ===== ====== ======
Other Data:
Rental gross profit.... 26.9% 24.6% 22.5% 21.2% 26.5% 55.6 82.2 105.4
Sales of parts,
supplies and new
equipment gross
profit................ 26.1 28.6 28.9 28.3 22.8 48.2 51.5 130.8
Sales of used
equipment gross
profit................ 28.4 47.2 30.5 34.6 32.2 111.7 91.4 42.8
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Revenues. Total revenues for the nine months ended September 30, 1997
increased 85.1% to $172.3 million from $93.1 million in the same period in
1996. This increase was primarily due to the inclusion of revenues from
acquisitions of 21 businesses (consisting of 43 locations) and the opening of
13 start-up locations since September 30, 1996. Also contributing to the
increased revenues was the larger rental fleet resulting from the Company's
significant investment in capital expenditures. Equipment rental revenues
increased 64.7% to $111.5 million from $67.7 million due to the larger rental
fleet resulting from acquisitions and capital expenditures. Sales of parts,
supplies and new equipment increased 186.4% to $47.1 million from
$16.4 million due primarily to the acquisition of IAT, effective in the
Company's results of operations from March 1, 1997, and the increased number
of rental locations selling these items. Sales of used equipment increased
53.5% to $13.7 million from $8.9 million due to the larger rental fleet and
the Company's continuing strategy of selling the older items in its fleet.
Gross Profit. Gross profit for the nine months ended September 30, 1997
increased to $44.7 million, or 25.9% of total revenues, from $22.1 million, or
23.8% of total revenues, in the same period in 1996. Gross margin on equipment
rentals increased to 26.5% of equipment rental revenues from 21.2% for the
nine months ended September 30, 1996, primarily due to the improved gross
profit resulting from the Company's cost controlling methods. Gross margin on
sales of parts, supplies and new equipment decreased to 22.8% of sales from
28.3%, due primarily to the acquisition of IAT, effective in the Company's
results of operations from March 1, 1997, and a change in the product mix of
parts, supplies and new equipment sales. Excluding the effect of the
acquisition of IAT, the Company's gross margin on sales of parts, supplies and
new equipment would have been 27.9% for the
36
<PAGE>
nine months ended September 30, 1997. The Company believes that the gross
margin on sales of parts, supplies and new equipment will likely remain at
this lower level due to the impact of IAT's product sales, which generally
have had lower gross margins than the parts, supplies and new equipment sold
by the Company prior to the acquisition of IAT. Gross margin on sales of used
equipment decreased to 32.2% of sales from 34.6%, due primarily to a change in
the mix and age of the equipment being sold.
Selling, General and Administrative Expenses. Selling, general and
administrative expense for the nine months ended September 30, 1997 was $13.4
million, or 7.8% of total revenues, compared to $9.1 million, or 9.7% of total
revenues in the same period in 1996. This percentage decrease is the result of
total revenues increasing at a faster rate than selling, general and
administrative expenses.
Depreciation and Amortization, excluding equipment rental
depreciation. Depreciation and amortization, excluding equipment rental
depreciation, for the nine months ended September 30, 1997 was $3.8 million,
or 2.2% of total revenues, compared to $1.8 million, or 2.0% of total revenues
in the same period in 1996. This increase is primarily attributable to the
larger fleet of service and delivery vehicles in 1997 versus 1996, which has
grown as a result of the Company's increased number of locations and larger
rental fleet.
Amortization of Intangibles. Amortization of intangibles for the nine months
ended September 30, 1997 was $2.5 million, or 1.4% of total revenues, compared
to $1.8 million, or 2.0% of total revenues in the same period in 1996. This
increase is due to the additional goodwill and covenants not-to-compete
associated with acquisitions completed since September 30, 1996.
Interest Expense, net. Interest expense, net, for the nine months ended
September 30, 1997 was $8.9 million, compared to $5.8 million for the same
period in 1996. This increase is the result of the Company's increased average
debt outstanding for the nine month period ended September 30, 1997, compared
to the same period in 1996. The increased debt has resulted from acquisitions,
capital expenditures and start-up locations financed under the Revolver.
Interest expense will increase in subsequent periods to the extent that the
Company borrows under the Bank Facility, or otherwise, to fund acquisitions.
Provision for Income Taxes. Provision for income taxes was $7.2 million for
the nine months ended September 30, 1997, compared to $1.4 million in the same
period in 1996. The Company's effective tax rate was 44.5% for the nine months
ended September 30, 1997, compared to 39.3% for the same period in 1996. The
increase in the Company's effective tax rate is a result of increased levels
of non-deductible items, primarily goodwill.
Extraordinary Item. In connection with the implementation of an amendment to
the Revolver in January 1997, the Company wrote off the related unamortized
deferred financing costs and recorded a loss on extinguishment of debt of
$920,000, which has been classified as an extraordinary item, net of income
taxes of $386,000, in the consolidated statement of operations for the nine
months ended September 30, 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Total revenues for the year ended December 31, 1996 increased
94.7% to $128.4 million compared to $65.9 million for the year ended December
31, 1995. This increase was primarily due to the full period impact of the
acquisition of RHI (consisting of 11 locations), the full period impact of ten
start-up locations opened in 1995 and the inclusion of revenues from 11
acquired businesses (consisting of 25 locations) and the opening of 19 start-
up locations during 1996. Equipment rental revenues increased 99.7% to
$94.2 million for the year ended December 31, 1996 from $47.2 million in the
same period in 1995 due to a larger rental equipment fleet as a result of
acquisitions, the partial year impact of $86.8 million in capital expenditures
in 1996 and the full year impact of 1995 capital expenditures of $23.6
million. Sales of parts, supplies and new equipment increased 49.9% to $21.9
million for the year ended December 31, 1996 from $14.6 million for the year
ended December 31, 1995 due primarily to the increased number of rental
locations selling
37
<PAGE>
these items. Sales of used equipment increased 196.1% to $12.2 million for the
year ended December 31, 1996 from $4.1 million for the year ended December 31,
1995 due to the larger rental equipment fleet resulting from acquisitions and
the Company's ongoing strategy of selling the older items in its fleet.
Gross Profit. Gross profit for the year ended December 31, 1996 increased to
$31.2 million, or 24.3% of total revenues, from $17.8 million, or 26.9% of
total revenues, for the year ended December 31, 1995. Gross margins on
equipment rentals decreased to 22.5% of equipment rental revenues from 24.6%
for the year ended December 31, 1995 primarily due to the impact of 44
location additions during the period. These new locations were comprised of 25
acquired locations and 19 start-ups, and operated for an average of seven
months during the period. Start-ups and acquisitions generally incur start-up
and integration expenses during their first nine months of operation resulting
in lower profit margins than the Company's more established locations. Gross
margin on sales of parts, supplies and new equipment increased slightly to
28.9% of sales from 28.6% for the year ended December 31, 1995. Gross margin
on sales of used equipment decreased to 30.5% of sales from 47.2% of sales for
the year ended December 31, 1995 due primarily to a change in the mix and age
of the equipment being sold.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased to $12.3 million, or 9.5% of total revenues,
for the year ended December 31, 1996, compared to $6.4 million, or 9.7% of
total revenues, for the year ended December 31, 1995. This increase is
attributable primarily to the increase in the number of locations from 1995.
Depreciation and Amortization, excluding equipment rental
depreciation. Depreciation and amortization, excluding equipment rental
depreciation, for the year ended December 31, 1996 was $2.8 million, or 2.2%
of total revenues, compared to $1.2 million, or 1.8% of total revenues, for
the same period in 1995. This increase is primarily attributable to the larger
fleet of service and delivery vehicles in 1996 versus 1995, as well as to
capital expenditures on rental locations in order to standardize their
appearance.
Amortization of Intangibles. Amortization of intangibles for the year ended
December 31, 1996 was $2.4 million, or 1.9% of total revenues, compared to
$718,000, or 1.1% of total revenues, for the same period in 1995. This
increase is due to the full year impact of additional goodwill and covenants
not-to-compete associated with 1995 acquisitions, the partial year impact of
additional goodwill and covenants not-to-compete associated with 1996
acquisitions and amortization of the capitalized costs associated with the
Revolver entered into in September 1995, amended in January 1996 and amended
and restated in September 1996.
Interest Expense, net. Interest expense, net, for the year ended December
31, 1996 was $7.1 million, compared to $3.3 million for the year ended
December 31, 1995. This increase was the result of the Company's increased
average debt outstanding for the year ended December 31, 1996 compared to the
year ended December 31, 1995, as well as amortization of mandatory increases
in the prepayment price of the Bank Note. The increased debt resulted from
start-up locations, acquisitions and capital expenditures financed under the
Company's Revolver. In September 1996, the Company utilized proceeds from its
initial public offering of $13.0 million to repay the Bank Note and $37.7
million to reduce its indebtedness under the Revolver.
Provision for Income Taxes. Provision for income taxes was $2.7 million for
the year ended December 31, 1996, compared to $2.4 million for the same period
in 1995. The Company's effective tax rate was 40.6% for 1996, as compared to
39.3% for 1995. The Company's effective tax rate for the fourth quarter of
1996 increased to 42.0% as a result of increased levels of non-deductible
items. This higher tax rate is expected to continue in future periods.
Extraordinary Items. In connection with the implementation of the amended
Revolver in September 1996, the Company wrote off the related unamortized
deferred financing costs and recorded a loss on extinguishment of debt of $2.5
million, which has been classified as an extraordinary item, net of income
taxes of $964,000. Additionally, in September 1996, the Company repaid the
Bank Note and repurchased the related warrants for $13 million, resulting in a
gain on extinguishment of debt of $362,000, which has been classified as an
38
<PAGE>
extraordinary item, net of income taxes of $142,000. In 1995, the Company paid
off the borrowings under the Old Revolver 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.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Total revenues for the year ended December 31, 1995 increased
57.6% to $65.9 million compared to $41.8 million for the year ended December
31, 1994. This increase was primarily due to the inclusion of revenues from
acquisitions of five businesses and the opening of ten start-up locations in
1995. Equipment rental revenues increased 69.8% to $47.2 million for the year
ended December 31, 1995 from $27.8 million in the same period in 1994. The
acquisition of RHI 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, 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 new equipment increased 35.4% to $14.6 million for the year ended December
31, 1995 from $10.8 million for the year ended December 31, 1994. The increase
was primarily due to an increase in the number of rental locations selling
these items. Sales of used equipment increased 27.3% to $4.1 million for the
year ended December 31, 1995 from $3.2 million for the year ended December 31,
1994 due to the larger rental fleet and the Company's ongoing strategy of
selling the older items in its fleet.
Gross Profit. Gross profit for the year ended December 31, 1995 increased to
$17.8 million, or 26.9% of total revenues, from $11.2 million, or 26.8% of
total revenues, for the year ended December 31, 1994. Gross margin on
equipment rentals decreased to 24.6% of rental revenues from 26.9% for the
year ended December 31, 1994 due primarily to an increase in rental
depreciation expense as a percentage of rental revenues from 14.5% to 16.3% as
a result of $23.6 million in capital expenditures in 1995, and a higher number
of acquisitions and start-ups in 1995, with correspondingly higher start-up
and acquisition expenses. Gross margin on sales of parts, supplies and new
equipment increased to 28.6% of sales from 26.1% for the year ended December
31, 1994 due to a favorable product mix among parts, supplies and equipment
sales. Gross margin on sales of used equipment increased to 47.2% of sales
from 28.4% for the year ended December 31, 1994 due primarily to the larger
rental fleet resulting from acquisitions and a change in the mix and age of
the equipment being sold.
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 Bank Note. 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 Revolver.
39
<PAGE>
Provision for Income Taxes. Provision for income taxes was $2.4 million for
the year ended December 31, 1995, as compared to $1.2 million for the year
ended December 31, 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 paid off the borrowings under the
Old Revolver 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.
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 $4.9 million at September 30, 1997 and $1.5 million at December
31, 1996.
The Company received net proceeds of approximately $55.6 million from the
sale of 3,000,000 shares of Common Stock in a public offering completed on
June 4, 1997. Through the application of these proceeds, the Company has
improved its liquidity and capital resources through the replacement of a
portion of its secured debt, as well as the related interest and debt
obligations, with Common Stock. Specifically, the Company used these proceeds
to reduce the indebtedness under its Revolver to provide borrowing
availability for general corporate purposes, including acquisitions.
During the nine months ended September 30, 1997, the Company's operating
activities provided net cash flow of $21.8 million, compared to $11.2 million
for the same period in the prior year. The principal causes for the variation
in cash flow between the periods were higher net income and increased
depreciation and amortization.
During the year ended December 31, 1996, the Company's operating activities
provided net cash flow of $23.5 million, as compared to $9.9 million for the
prior year. The principal causes for the variation in cash flow between the
periods were an increased profit level due to an increased number of
locations, increased depreciation and amortization and higher average accounts
payable.
Net cash used in investing activities was $226.8 million in the nine months
ended September 30, 1997, compared to $55.5 million in the same period for the
prior year. The increase was attributable to a higher combined level of
capital expenditures and acquisitions. Acquisition spending totaled $122.7
million and $19.9 million in the nine months ended September 30, 1997 and
1996, respectively. In addition, the Company had capital expenditures of
$117.8 million and $60.6 million in the nine months ended September 30, 1997
and 1996, respectively. Capital expenditures were primarily for purchases of
rental equipment. Included in investing activities were proceeds from the sale
of used equipment, which were $13.7 million for the nine months ended
September 30, 1997, compared to $8.9 million for the same period in the prior
year.
Net cash used in investing activities was $84.7 million for the year ended
December 31, 1996, as compared to $58.9 million for the prior year. The
increase was primarily attributable to a higher combined level of capital
expenditures and acquisitions. The Company had capital expenditures of $86.8
million and $23.6 million in the years ended December 31, 1996 and 1995,
respectively. Acquisition spending totaled $27.3 million and $42.1 million in
the years ended December 31, 1996 and 1995, respectively. Capital expenditures
were primarily for purchases of rental equipment. Included in investing
activities were proceeds from the sale of equipment, which were $12.7 million
for the year ended December 31, 1996, compared to $4.1 million in the prior
year. This increase was primarily the result of a larger fleet resulting from
acquisitions and fleet investments made for start-up locations. Also included
in investing activities in the year ended December 31, 1996 were $16.7 million
of proceeds from assets held for sale.
40
<PAGE>
Net cash provided by financing activities was $208.5 million for the nine
months ended September 30, 1997, compared to $44.7 million in the same period
for the prior year. The net cash provided by financing activities was
primarily due to issuances of Common Stock, specifically from the public
offering completed on June 4, 1997, and from borrowings under the Revolver.
Net cash provided by financing activities was $61.3 million for the year
ended December 31, 1996, as compared to $49.8 million for the prior year. The
net cash provided by financing activities was primarily due to issuances of
capital stock, specifically from the Company's initial public offering, and
borrowings under the Revolver.
Since December 2, 1997, the Company's principal source of liquidity has been
the Bank Facility, which consists of the Revolver and the Term Loan. Prior to
December 2, 1997, the Company's principal source of liquidity was the
Revolver, which consisted of a revolving line of credit and availability of
letters of credit. On January 31, 1997, the Company amended the Revolver to,
among other things, increase the availability to $200.0 million, increase the
advance rates on eligible rental equipment to 100%, decrease the interest rate
margins by 0.50% and extend the maturity date to January 31, 2002. On June 4,
1997, the Company again amended the Revolver to, among other things, increase
the availability to $300.0 million, decrease the interest rate margins by
0.25% with further reductions if certain interest coverage ratios are met and
to reduce the unused line fee to 0.25% of the unused commitment. This
amendment increased the allowed level of investments and capital expenditures
to $90.0 million in 1997, $105.0 million in each of 1998 and 1999, $115.0
million in 2000 and $105.0 million in 2001 (plus amounts reinvested from asset
sales). Effective June 30, 1997, the Company further amended the Revolver to
increase the allowed level of investments and capital expenditures for 1997 to
$138.0 million and to increase the maximum allowed total indebtedness to
trailing EBITDA ratio for each of the last three quarters of 1997. In
connection with the implementation of the January 1997 amendment, the Company
recorded an extraordinary loss on extinguishment of debt of $920,000, net of
income taxes of $386,000, associated with the write-off of unamortized debt
issuance costs.
On December 2, 1997, the Company amended and restated the Revolver to
increase its total available financing to $600.0 million. This increase
consisted of an increase in the availability under the Revolver from $300.0
million to $500.0 million and a new $100.0 million seven-year term loan
facility. In addition, this new financing package extended the maturity date
of the Revolver to December 2, 2002; changed the methodology for determining
the interest rate margins; increased the allowed levels of capital
expenditures and investments to $160.0 million in 1997, $150 million in each
of 1998, 1999 and 2000, $160.0 million in 2001, $180.0 million in 2002, $225.0
million in 2003 and $240.0 million in 2004 (plus amounts reinvested from asset
sales); and amended several covenants, including the computation methodology
of certain financial covenants.
The amended and restated Revolver contains provisions to periodically adjust
the prime and Eurodollar interest rate margins based on the Company's
achievement of specified total debt to EBITDA ratios. 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) 100% of the value (lower of net book value or market) of
eligible rental equipment through December 31, 1998; 90% of the value of
eligible rental equipment from January 1, 1999 through December 31, 1999; 85%
of the value of eligible rental equipment from January 1, 2000 through
December 31, 2000; and 80% of the value of eligible rental equipment from
January 1, 2001 through the expiration date of the Revolver. The Revolver
expires December 2, 2002. The obligation of the lenders to make 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 expenditures and
investments (including acquisitions), rental equipment utilization and minimum
EBITDA levels. The Revolver also contains covenants and provisions that
restrict, among other things, the ability of the Company and its subsidiaries
to: (i) incur additional indebtedness; (ii) incur liens on their 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. As
41
<PAGE>
of September 30, 1997, the Company was in compliance with all covenants of the
Revolver, and substantially all of the net consolidated assets of the Company
were restricted under the terms of the Revolver.
The Term Loan portion of the Bank Facility consists of a $100.0 million
seven-year term loan facility. The Term Loan requires mandatory principal
payments of $1.0 million on each of its first six anniversaries, with the
remaining principal amount due at maturity. The Term Loan matures on December
2, 2004. Interest on the Term Loan is payable monthly at either the prime rate
plus 1.0% or the Eurodollar rate plus 2.5% (at the Company's option). The Term
Loan contains the same conditions, covenants and restrictions as the Revolver.
Borrowings under the Bank Facility 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. RSC is a guarantor
of the obligations of its subsidiaries under the Bank Facility, and has
granted liens on substantially all of its assets (including the stock of its
subsidiaries) to secure such guaranty. The Bank Facility also restricts the
Company from declaring or paying dividends on its Common Stock. In addition,
the Company's subsidiaries are guarantors of the obligations of the other
subsidiaries under the Bank Facility. The Bank Facility includes a
$2.0 million letter of credit facility, with a fee equal to the applicable
margin on Eurodollar Rate loans under the Revolver (1.75% at December 12,
1997) multiplied by 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 0.25% of the unused commitment, excluding
the face amount of all outstanding and undrawn letters of credit, is also
payable monthly in arrears.
At December 12, 1997, the principal amount outstanding under the Revolver
was $299.1 million, the average interest rate on such borrowings was 7.9%, and
an additional $27.3 million was available to the Company under the Revolver.
Additionally, $100.0 million was outstanding under the Term Loan at an
interest rate of 8.5% at December 12, 1997. Outstanding letters of credit
totaled $200,000 at December 12, 1997.
As part of its growth strategy, the Company is continually involved in the
investigation and evaluation of potential acquisitions and start-up locations.
The Company is currently evaluating a number of acquisition opportunities and
start-up locations and may at any time be a party to one or more letters of
intent or acquisition agreements. Since December 31, 1996, the Company has
completed 22 acquisitions of rental equipment businesses with an aggregate of
64 locations and has opened 15 new start-up locations. Additionally, the
Company has consolidated two of the locations acquired in the acquisition of
IAT with the Company's existing locations, has consolidated three additional
acquired locations and has closed two other locations. At December 12, 1997,
the Company operated 166 locations throughout the United States. The Company's
liquidity and capital resources have been and will continue to be
significantly impacted by the Company's growth strategy and by the need to
offer customers a modern and well-maintained rental equipment fleet. To pursue
its growth strategy, the Company must be able to complete acquisitions, open
start-up locations and make the capital expenditures necessary to acquire and
maintain its rental fleet. At December 12, 1997, the Company was obligated,
under noncancellable purchase commitments, to purchase approximately $19.3
million of equipment. Such purchases are expected to be financed with cash
flows from operations and through borrowings under the Revolver.
On December 2, 1997, the Company acquired Center for approximately $100.9
million in cash, 482,315 shares of RSC common stock (of which 64,544 shares
will be issued within seven years, subject to earlier issuance over three
years if certain performance objectives are achieved) and the assumption of
approximately $16.0 million of Center's debt. Center is a leading independent
rental company and also sells a variety of equipment ranging from small tools
to heavy equipment, including related commodity supplies. Center operates a
total of 14 locations in Colorado, New Mexico, Texas, Kansas, Missouri and
Nebraska, and had combined revenues of approximately $49.8 million for its
fiscal year ended October 31, 1997. Center's balance sheet is consolidated
with the Company's under the purchase method of accounting as of December 2,
1997. Pursuant to the acquisition agreements, the Company assumed effective
control of Center's operations on November 1, 1997 and has included Center's
revenues, costs and expenses from such date in its consolidated statements of
operations, net of related imputed purchase price adjustments.
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<PAGE>
On October 28, 1997, the Company signed a letter of intent to acquire
substantially all of the assets of Valley for a total purchase price of $104.0
million, consisting of $93.6 million of cash and $10.4 million of RSC common
stock. The purchase price is subject to adjustment based on levels of accounts
receivable, inventory and equipment. Valley is a leading independent rental
company in the Southwest, operates a total of ten locations in Arizona and New
Mexico, and had trailing twelve months revenues of $36.2 million as of
September 30, 1997. The transaction is anticipated to close by January 31,
1998, and will be recorded under the purchase method of accounting. The
closing is subject to a number of closing conditions, including the execution
of a definitive purchase agreement, RSC board and bank approval and early
termination or expiration of the waiting period under the HSR Act.
On December 12, 1997, the Company acquired all of the outstanding capital
stock of Siems for $8.0 million in cash, 126,315 shares of RSC common stock
and the assumption of approximately $13.5 million of Siems' debt. Siems is a
leading independent rental company engaged in the rental, sales and service of
various types of construction and industrial equipment. Siems operates a total
of six locations in Maryland, Delaware, Pennsylvania and Virginia, and had
trailing twelve months revenues of approximately $21.0 million as of September
30, 1997. Siems' balance sheet is consolidated with the Company's under the
purchase method of accounting as of December 12, 1997. Pursuant to the
acquisition agreement, the Company assumed effective control of Siems'
operations on November 1, 1997 and has included Siems' revenues, costs and
expenses from such date in its consolidated statements of operations, net of
related imputed purchase price adjustments.
Subsequent to September 30, 1997, the Company completed the acquisitions of
substantially all of the assets of Kansas Enterprises, Inc. d/b/a AAA Rent-
All; Sunbelt Equipment & Rentals, Inc.; Roesch Equipment Company; Allen
Equipment, Inc. and R&M Rentals, Inc. for a total combined purchase price of
approximately $16.5 million. These acquisitions have a combined ten locations
in Arkansas, Florida, Illinois, Kansas and Missouri.
As of December 12, 1997, the Company is party to additional letters of
intent to acquire four businesses for a total combined purchase price of
approximately $9.7 million and having a combined ten locations in Florida,
Georgia, South Carolina and Tennessee. Each of these acquisitions is subject
to a number of closing conditions, including the execution of definitive
purchase agreements and RSC board approval.
The Company believes that cash flow from operations, together with
availability under the Revolver, and vendor financing in appropriate cases,
will be sufficient to support its current operations for at least the next 12
months. However, to complete the Valley Acquisition and certain other pending
acquisitions and if significant additional acquisition opportunities arise,
the Company will need to seek additional capital to complete them. Such
acquisitions could be financed through the incurrence of additional
indebtedness, including convertible debt, or the issuance of common or
preferred stock (which may be issued to third parties or to sellers of
acquired businesses), depending on market conditions. If such financing were
not available, the Company's growth strategy could be hampered and its cash
flow from operations reduced, thereby constraining funds available for growth
and acquisitions. Further, additional indebtedness would increase RSC's
leverage and may make the Company more vulnerable to economic downturns and
may limit its ability to withstand competitive pressures. However, there can
be no assurance that the Company's business will generate sufficient cash flow
or that future borrowings or additional capital, if and when required, will be
available on terms acceptable to the Company, or at all.
On November 3, 1997, the Company began soliciting written consent of its
stockholders for the approval of an increase in the number of authorized
shares of its Common Stock, par value $.01 per share, from 20 million to 40
million shares. Stockholder approval of the increase became effective on
November 28, 1997. On December 11, 1997, the Company amended its Certificate
of Incorporation to effect such increase.
REDEEMABLE PREFERRED STOCK AND ACCRETION
Between July 1992 and January 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 accrued dividends at the rate of
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6% per annum, compounded quarterly. The dividends accrued were $1.6 million,
$1.7 million and $1.6 million for the years ended December 31, 1994, 1995 and
1996, respectively. In September 1996, the Company utilized $37.9 million of
the proceeds from its initial public offering to redeem all outstanding shares
of its Redeemable Preferred Stock.
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 other
activities to come into compliance with environmental laws, and the
performance of appropriate remediation at certain locations. The Company has
accrued $763,000 at December 31, 1996 and September 30, 1997 related to the
removal of underground tanks and remediation expenses. The Company believes
that the impact of the cost of such remediation on its financial position,
results of operations and cash flows will not be material. See "Business--
Government and Environmental Regulation."
ASSETS HELD FOR SALE
In connection with the acquisition of RHI, the Company decided to sell,
close or dispose of RHI's rental locations in California, as they did not meet
the Company's financial performance criteria and were not part of the
Company's strategic plans. The assets related to those rental locations,
consisting primarily of rental equipment and accounts receivable, were
classified as assets held for sale in the Company's Consolidated Financial
Statements at December 31, 1995. 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. The initial accrual
of $2,492,000 included $1,404,000 of allocated interest expense. 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 a gain on
disposal of assets of $649,000, and was credited to the accrual. The pre-tax
loss during the year ended December 31, 1996 was $3,380,000, which included
allocated interest expense of $751,000 and a gain on disposal of assets of
$513,000, and was charged to the accrual. In 1996, the Company revised its
estimates of the operating cash outflows expected to be incurred as part of
the disposal of the California locations and accrued an additional $1,292,000,
which was recorded as an adjustment to goodwill. During 1996, the Company sold
or closed all of the California locations, and has a remaining balance in the
accrual of $912,000 at December 31, 1996. During the nine months ended
September 30, 1997, $362,000 was charged to the accrual, leaving a remaining
balance of $550,000 at September 30, 1997.
COMMITMENTS TO PURCHASE EQUIPMENT
At December 12, 1997, the Company was obligated, under noncancellable
purchase commitments, to purchase approximately $19.3 million of equipment.
Such purchases are expected to be financed with cash flows from operations and
through borrowings under the Revolver.
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<PAGE>
SEASONALITY AND SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth unaudited quarterly consolidated statement of
operations data for the eight consecutive quarters through the quarter ended
September 30, 1997. The unaudited quarterly data has been prepared on the same
basis as the Company's annual financial statements and, in the opinion of
management, includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the data 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 the results which may be expected
for any future period. See "Risk Factors--Seasonality and Quarterly
Fluctuations."
<TABLE>
<CAPTION>
1996 QUARTERS ENDED 1997 QUARTERS ENDED
1995 QUARTER ---------------------------------- -------------------------
ENDED SEPT. SEPT.
DECEMBER 31, MARCH 31 JUNE 30 30 DEC. 31 MARCH 31 JUNE 30 30
------------ -------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT LOCATIONS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Equipment rentals....... $18,689 $19,656 $22,874 $25,212 $26,476 $27,527 $36,800 $47,222
Sales of parts, supplies
and new equipment...... 5,091 4,838 5,722 5,890 5,469 9,165 17,787 20,167
Sales of used equipment. 1,141 2,703 2,671 3,529 3,314 4,617 3,967 5,080
------- ------- ------- ------- ------- ------- ------- -------
Total revenues.......... 24,921 27,197 31,267 34,631 35,259 41,309 58,554 72,469
COST OF REVENUES:
Cost of equipment
rentals, excluding
equipment rental
deprecation............ 11,122 12,449 13,551 14,977 14,225 14,316 19,361 23,829
Depreciation, equipment
rentals................ 2,935 3,633 4,156 4,586 5,465 6,306 7,730 10,457
Cost of sales of parts,
supplies and new
equipment.............. 3,673 3,453 4,121 4,225 3,783 6,737 13,869 15,777
Cost of sales of used
equipment.............. 554 1,614 1,681 2,525 2,668 2,972 2,724 3,565
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues.. 18,284 21,149 23,509 26,313 26,141 30,331 43,684 53,628
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 6,637 6,048 7,758 8,318 9,118 10,978 14,870 18,841
Selling, general and
administrative expense. 2,752 2,734 3,028 3,299 3,193 3,784 4,685 4,975
Depreciation and
amortization, excluding
equipment rental
depreciation........... 597 571 607 651 1,006 1,068 1,219 1,502
Amortization of
intangibles............ 392 561 600 664 554 624 745 1,094
------- ------- ------- ------- ------- ------- ------- -------
Operating income........ 2,896 2,182 3,523 3,704 4,365 5,502 8,221 11,270
Interest expense, net... 1,613 1,639 2,045 2,135 1,244 1,597 3,030 4,236
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes and extraordinary
items.................. 1,283 543 1,478 1,569 3,121 3,905 5,191 7,034
Provision for income
taxes.................. 507 213 581 617 1,311 1,722 2,336 3,114
------- ------- ------- ------- ------- ------- ------- -------
Income before
extraordinary items.... 776 330 897 952 1,810 2,183 2,855 3,920
Extraordinary items, net
of income tax benefit
of $822 in 1996 and
$386 in 1997 .......... -- -- -- (1,269) -- (534) -- --
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. 776 330 897 (317) 1,810 1,649 2,855 3,920
Redeemable preferred
stock accretion........ 439 554 565 524 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)
available to common
stockholders........... $ 337 $ (224) $ 332 $ (841) $ 1,810 $ 1,649 $ 2,855 $ 3,920
======= ======= ======= ======= ======= ======= ======= =======
Weighted average common
and common equivalent
shares................. 5,081 5,507 5,511 6,289 11,508 11,493 12,598 15,319
Income (loss) before
extraordinary items per
common share........... $ .07 $ (.04) $ .06 $ .07 $ .16 $ .19 $ .23 $ .26
Extraordinary items per
common share........... -- -- -- (.20) -- (.05) -- --
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) per
common share........... $ .07 $ (.04) $ .06 $ (.13) $ .16 $ .14 $ .23 $ .26
======= ======= ======= ======= ======= ======= ======= =======
Net increase in
locations at period
end.................... 7 13 17 3 11 12 25 3
</TABLE>
45
<PAGE>
INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $14.1 million that expire in
years 2005 through 2011. In addition, the Company had combined state income
tax net operating loss carryforwards of approximately $11.3 million that
expire in years 1997 through 2011. Approximately $8.5 million of the federal
carryforwards and $1.1 million of the state carryforwards are attributable to
the Company's September 12, 1995 acquisition of RHI. For financial reporting
purposes a valuation allowance of $4.0 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 RHI.
The Company also has alternative minimum tax credit carryovers of
approximately $1.4 million 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, of which
$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 RHI.
For financial reporting purposes a valuation allowance of $754,000 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.
The valuation allowance decreased $3.1 million in 1996. This decrease is
principally due to a $9.5 million decrease in the estimated net operating loss
that is not expected to be realized from the Company's discontinued California
operations.
Any tax benefit resulting from the utilization of the net operating loss
carryforwards or the tax credit carryovers obtained in the acquisition of RHI
are accounted for as a reduction of the purchase price in the periods they are
realized.
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.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer and software systems as the millennium ("Year 2000")
approaches. The Year 2000 problem is pervasive and complex, as virtually every
computer operation could be affected in some way by the rollover of the two-
digit year value to "00". The issue is whether systems will properly recognize
date sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause
complete system failures. The Company has received confirmation from all of
its current systems' vendors that each of their systems will properly handle
the rollover to the Year 2000. Although there can be no assurance, management
believes the Year 2000 problem will not have a material effect on the
financial position, results of operations or cash flows of the Company.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
per Share, which is required to be adopted on December 31, 1997. At that time,
the Company will be required to change the method currently used to compute
earnings per
46
<PAGE>
share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded. The impact is expected to result in no material change in
earnings per share (before or after extraordinary items) for the three and
nine month periods ended September 30, 1997 and 1996.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which is required to be adopted in the first quarter of 1998. SFAS No. 130
established standards for the reporting and display of comprehensive income
and its components. Comprehensive income includes certain non-owner changes in
equity that are currently excluded from net income. Because the Company
historically has not experienced transactions which would be included in
comprehensive income, adoption of SFAS No. 130 is not expected to have a
material effect on the consolidated financial position, results of operations
or cash flows of the Company.
47
<PAGE>
BUSINESS
GENERAL
The Company is a leading consolidator in the rapidly-growing equipment
rental industry, serving the needs of a wide variety of industrial,
manufacturing, construction, government and homeowner markets. As of December
12, 1997, RSC operated the largest rental network in the United States with
166 rental locations. 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 MRO
supplies, small tools, contractor supplies, parts 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 44 businesses comprised of 138 locations and has
opened 47 start-up locations through December 12, 1997. 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 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
rental equipment 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 estimates that industry rental revenues were
approximately $13 billion in 1993, which the author of the survey estimated
would increase to $15 billion in 1995. The Company's management estimates that
1996 industry rental revenues were approximately $20 billion.
Management believes 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 ongoing comprehensive
supply of equipment which can enable customers to benefit from the economic
advantages and convenience of rental. Many of the businesses that rent
equipment also purchase complementary tools and supplies from MRO
distributors. The Company believes such customers would be interested in a
one-stop solution consisting of both equipment rental and MRO supplies.
The equipment rental industry is highly fragmented and primarily consists of
a large number of relatively small, independent businesses typically serving
discrete local markets within 30 to 50 miles of the store location, and a
small number of multi-location regional or national operators. Traditionally,
large equipment rental companies have focused their operations on serving
relatively large customers, primarily in medium to large metropolitan markets,
while generally serving smaller markets through delivery from distant major
markets without establishing a local presence. In such smaller markets, the
primary source of rental equipment has traditionally been relatively small,
local equipment rental businesses and equipment dealers with product offerings
typically limited in both depth and breadth.
The Company believes the equipment rental industry offers substantial
consolidation opportunities for large, well capitalized equipment rental
companies such as RSC. Relative to smaller companies with only one or two
48
<PAGE>
rental locations, the Company believes RSC benefits from several competitive
advantages, including sophisticated management information systems, volume
purchasing discounts, professional management, a diverse customer base, a
modern and well maintained rental fleet, the ability to transfer equipment
among rental locations to satisfy customer demand and national brand identity.
In addition, the Company believes 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, 1996 rental revenues of the top 100 rental equipment
companies increased over 1995 rental revenues by approximately 24%, to $3.1
billion in 1996, according to estimates by the RER. In spite of this growth,
these top 100 companies represented only a small percentage of the estimated
$20 billion in industry rental revenues in 1996. 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 small- to medium-sized
markets provide an extensive selection of acquisition candidates and
attractive start-up locations. The Company believes future acquisitions and
start-up locations will provide opportunities to achieve greater geographic
and customer diversification. Through its geographic diversification, the
Company believes it can more effectively manage economic fluctuations than
single-location businesses by transferring equipment to regions with higher
demand. 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
150 miles away, which draw on this equipment pool to serve local customers'
needs. The hub locations provide full-service rental fleet maintenance and
repair operations for the satellite locations. The Company believes 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 management information systems in order to improve asset utilization
and financial performance. Every rental location has on-line access to a
centralized computer system that provides real-time transaction processing,
extensive fleet management tools and 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.
With the acquisition of Center, the Company obtained Center's proprietary
information system, which, among other enhancements, automatically prioritizes
equipment for maintenance based on type, age and recent use. The Company
believes Center's system is scaleable over a large number of locations, and
expects to add it to the Company's existing systems. See "--Fleet Management,"
"--Information Systems" and "Prospectus Summary--Recent Developments--
Acquisition of Center Rental."
Decentralized Management. Under the Company's decentralized management
structure, RSC's region vice presidents and district managers, who currently
average over 20 years of rental experience, are responsible for management,
customer service, marketing strategies and business growth, including pursuing
acquisitions and start-up locations, in their regions. Each region vice
president and district manager is compensated through a stock option program
and cash bonus plan tied directly to the region's performance. A small
corporate staff at the Company's headquarters focuses on corporate planning,
financial reporting and analysis and overseeing
49
<PAGE>
execution of the Company's growth strategy. The Company has also centralized
its purchasing and equipment disposal functions in order to maximize purchase
discounts sale prices for used rental equipment.
Superior Customer Service. The Company believes 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 supplies, tools, parts and equipment. Depending upon market needs,
RSC also offers value-added services to its customers such as a radio-
dispatched transportation fleet and 24 hours-a-day, seven days-a-week support
services, including on-site maintenance and repair. The Company believes 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, RSU, which provides
formal training to 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 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 more
than 25 demographic characteristics found in the Company's most successful
geographic markets. The Company also seeks to increase revenues at new and
existing locations through fleet expansion, improved asset utilization and
targeted marketing efforts. Following the IAT Acquisition, the Company also
has begun to increase revenues across existing locations by cross-selling both
equipment rental services and MRO tools and supplies to its industrial
customers.
Acquisitions. RSC's acquisition efforts focus on acquiring stable, respected
businesses in markets the Company believes offer opportunities for additional
growth. The Company primarily targets acquisitions of 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. The Company believes it can capitalize in such markets
on its competitive advantages relative to the small, local equipment rental
businesses and equipment dealers who have traditionally served such markets.
Immediately after completing an acquisition, the Company generally 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 seeking to provide consistent, high-
quality service to the acquired business' customers. The Company has a proven
track record in completing and integrating acquisitions. Proprietors of
smaller businesses often place significant emphasis on the Company's
reputation in these areas, and the Company believes this reputation provides
it access to additional acquisition opportunities. Since its formation in
1992, RSC has acquired 44 businesses consisting of 138 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 enhances 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 the Company opened its first start-up location in
October 1994, the Company has opened 46 additional 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 replace assets in,
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and increase the breadth and depth of, its existing rental equipment fleet
through capital expenditures. In addition, RSC's information systems provide
the data necessary to improve asset deployment based upon such factors as
price realization, time utilization and individual asset return on investment.
Through its national accounts marketing program, the Company targets large
petrochemical, industrial and commercial customers. The Company offers these
customers IPM services whereby RSC locates equipment at a customer's facility
and assumes 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 to improve asset utilization rates.
In addition, through the IAT Acquisition, the Company has increased its MRO
supply business and its tool room management and small tool trailer business.
The Company has also created an Industrial Division, with a dedicated and
specially trained sales force focusing exclusively on industrial customers.
See "--Fleet Management," "--Information Systems" and "--Sales and Marketing."
PRODUCTS
The Company believes it has one of the most comprehensive and well-
maintained rental equipment fleets in the industry. The Company 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 43,000 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.
Sales of Parts, Supplies and Equipment. In addition to rental equipment,
most RSC locations carry a wide range of parts and supplies, including
"convenience consumables" used in conjunction with 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 Black & Decker,
Genie, Honda, JLG, Lull, Multiquip, Norton, Sky-Jack, Sky Trak, Snorkel,
Terramite and Wacker; and as a result of the IAT Acquisition, Ingersoll-Rand,
Stanley Proto and Weldon Pumps. In connection with the Center Acquisition and
the Valley Acquisition, the Company will become a dealer for Kobelco. In
connection with the IAT Acquisition, the Company also began to offer its
customers a one-source catalog for a variety of equipment, tools and supplies.
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, which is designed to determine the optimal
timing for the sale and replacement 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 markets its used rental equipment via the Internet, and
is also currently evaluating additional disposal alternatives.
FLEET MANAGEMENT
The Company believes 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
51
<PAGE>
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 that
had an unacceptable utilization rate for the most recent 90-day period. Region
managers have 30 days to correct the problem or the asset may be redeployed to
another region where demand exceeds supply or sold, depending on the age of
the asset. The Company's information systems also track each individual rental
asset and automatically schedule preventative maintenance, frequently in
advance of that suggested by the manufacturer. As a result, the Company
believes 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 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. As a result of
the IAT Acquisition, the Company also has a proprietary tool management
software system which controls the issuance, return and management of tools
and equipment used by plant personnel and contractors. With the acquisition of
Center, the Company obtained Center's proprietary information system, which
allows Center to operate on a nearly paperless basis. This system
automatically prioritizes equipment for maintenance based on the type, age and
recent use. Repair personnel merely log on to the system to get their
assignments. Simultaneously, the system forwards a list of the required parts
and supplies to the parts department at each Center location, so those parts
and supplies can be waiting for the repair personnel to pick them up. The
Company believes Center's system is scaleable over a large number of
locations, and expects to add it to the Company's existing systems. The
Company believes its use of advanced information technology will continue to
create profit improvement opportunities and improve equipment utilization. The
Company believes that the Year 2000 will not be a material issue with respect
to the Company's information systems. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000."
CUSTOMERS
In 1996, the Company rented equipment to over 20,000 customers, with no one
customer accounting for more than 3% of the Company's total revenues, and the
top ten customers representing less than 8% 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 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. Due to the IAT Acquisition and the formation by the Company of its
Industrial Division, the Company believes industrial customers will account
for an increased portion of the Company's total revenues in the future. See
"--Growth Strategy--Internal Growth."
52
<PAGE>
SALES AND MARKETING
The Company markets its products and services through a sales force of
approximately 375 salespeople as of December 12, 1997 (excluding the employees
of Center and Siems). The Company's 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 and supply 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 and supplies to meet their needs. In addition,
through its national accounts program, the Company targets large
petrochemical, industrial and commercial customers in order to develop
national relationships and increase awareness of its IPM program. The
Company's sales force attends RSU in order to develop extensive product
knowledge and refine their customer service skills. See "--Business Strategy--
Superior Customer Service."
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 maintains 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." The Company also maintains a Website on the
Internet describing the products and services of IAT at
"http://www.industrial.air.tool.mrop.net."
LOCATIONS
At December 12, 1997, the Company operated 166 rental locations in the
following 21 states: Alabama (12), Arkansas (15), Colorado (6), Delaware (1),
Florida (23), Georgia (21), Illinois (5), Iowa (4), Kansas (4), Louisiana (6),
Maryland (3), Mississippi (11), Missouri (6), Nebraska (1), New Mexico (3),
Oklahoma (1), Pennsylvania (1), South Carolina (5), Tennessee (10), Texas (26)
and Virginia (2). Through the completion of the Valley Acquisition and the
pending Other Acquisitions, the Company will add 20 locations in the following
six states: Arizona (8), Florida (1), Georgia (4), New Mexico (2),
South Carolina (3) and Tennessee (2).
The Company's locations are generally situated in industrial, commercial or
mixed-use zones. The buildings range from approximately 1,500 to 47,000 square
feet, consist of a customer showroom, an equipment service area and storage
facilities, and are located on parcels of one to seven acres of land. Eight of
the Company's rental locations are owned, with the remaining locations subject
to leases with terms expiring from 1997 to 2005, 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 Service, Inc., U.S. Rentals, Inc. and BET
Plant Services U.S.A.); regional competitors that operate in a few states;
small, independent businesses with one or two rental locations; and equipment
vendors and dealers who both sell and rent equipment directly to customers.
The industry's fragmented nature has attracted new competitors. Through its
acquisition of Prime Service, Inc., Atlas Copco has entered into the equipment
rental business, and the Company believes equipment manufacturers, such as
Caterpillar and John Deere, and equipment dealers such as Neff, have entered
or may enter equipment rental business as well. The Company also competes
against MRO suppliers, including large companies (such as W.W. Grainger and
McMaster Carr), as well as regional and independent competitors. Certain
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.
53
<PAGE>
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.
Management believes such competition has already increased the prices obtained
by businesses acquired by the Company and its competitors. In addition, such
competitors may also compete with the Company for start-up locations, thereby
limiting the number of attractive locations for expansion. Competition in the
rental or MRO business and competition in making acquisitions could have a
material adverse effect on the Company. 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 it competes in the markets it serves primarily on the basis
of responsive customer service, a broad selection of high-quality rental
equipment and supplies, and competitive prices. Relative to smaller companies
with only one or two rental locations, the Company believes RSC benefits from
several competitive advantages, including sophisticated management information
systems, volume purchasing discounts, professional management, a diverse
customer base, a modern and well maintained rental fleet, 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 national operators are less sensitive to localized
cyclical downturns and can justify significant investments in professional
management and information systems.
GOVERNMENT AND ENVIRONMENTAL REGULATION
The Company and its operations are subject to a variety of federal, state
and local laws and regulations governing, among other things, worker safety,
air emissions, water discharge and the generation, handling, 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 other
activities to come into compliance with environmental laws, and the
performance of appropriate remediation at certain locations. The Company does
not believe 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 it
54
<PAGE>
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.
TRADE NAMES
The Company currently does business under the name Rental Service
Corporation(SM). The Company believes this brand name identity enables it to
more effectively target national accounts. 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 December 12, 1997, the Company employed 1,813 people, including 375
salespeople, 1,355 operational employees and 83 corporate and regional
management employees. With the acquisitions of Center and Siems, the Company
added approximately 440 employees, which are not included in the above totals.
The Company's employees generally are not represented by a union or a
collective bargaining agreement; however, approximately 20 of the Company's
employees are represented by a union. 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 its business or financial
condition.
55
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth certain information with respect to the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<C> <C> <S>
Martin R. Reid.......... 54 Chairman of the Board and Chief Executive
Officer
Ronald Halchishak....... 50 Senior Vice President of Operations
David P. Lanoha......... 46 Senior Vice President of Operations
David G. Ledlow......... 38 Senior Vice President of Operations
Douglas A. Waugaman..... 39 Senior Vice President of Operations
Robert M. Wilson........ 40 Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
David B. Harrington..... 43 Senior Vice President of Human Resources
Bruce A. Lisanti........ 47 Senior Vice President of Marketing
William M. Barnum, Jr. . 43 Director
James R. Buch........... 44 Director
Christopher A. Laurence. 30 Director
Eric L. Mattson......... 46 Director
Britton H. Murdoch...... 40 Director
John M. Sullivan........ 62 Director
</TABLE>
MARTIN R. REID was elected as a director and Chief Executive Officer of the
Company in June 1994 and became Chairman of the Board in October 1995. Mr.
Reid is a director of Tuboscope Vetco International Corporation ("Tuboscope"),
a provider of oilfield-related inspection and coating services. Mr. Reid
served as Chief Executive Officer of Tuboscope from May 1991 to October 1993
and as Chairman of the Board of Directors from October 1990 to April 1996.
From September 1986 to June 1990, Mr. Reid was Chief Executive Officer of
Eastman Christensen Co., a provider of oil and gas drilling systems. Mr. Reid
was also Vice Chairman of Eastman Christensen Co. from August 1989 to June
1990. Mr. Reid is a director of Cobblestone Holdings, Inc. and Cobblestone
Golf Group, Inc.
RONALD HALCHISHAK joined the Company in October 1991 as Vice President of
Purchasing and Director of Safety and became Region Manager for California in
1994. He was appointed Regional Vice President of Operations in January 1995
and was promoted to Senior Vice President of Operations in December 1996.
Prior to joining the Company, 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 P. LANOHA joined the Company as Senior Vice President of Operations in
conjunction with the Center Acquisition. Prior to joining the Company, Mr.
Lanoha served in various capacities at Center, most recently as Chairman of
the Board from October 1989 to December 1997 and President from May 1984 to
October 1989.
DAVID G. LEDLOW joined the Company in conjunction with the acquisition of
Walker Jones Equipment, Inc. ("Walker Jones") in 1992. Mr. Ledlow had been
employed by Walker Jones 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 and to Senior Vice President of
Operations in December 1996.
DOUGLAS A. WAUGAMAN has served as Senior Vice President of Operations of the
Company since April 1997. From January 1994 through April 1997, Mr. Waugaman
served as Vice President, Chief Financial Officer, Secretary and Treasurer of
the Company. 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 is a
Certified Public Accountant and has public accounting experience with Arthur
Andersen and Co.
56
<PAGE>
ROBERT M. WILSON joined the Company in April 1997 as Senior Vice President,
Chief Financial Officer, Secretary and Treasurer. From October 1994 until
joining the Company, Mr. Wilson served as Senior Vice President of Operations,
Finance and Administration for Shade/Allied Inc. From September 1989 through
October 1994, Mr. Wilson served in various positions at Simon Engineering plc,
including Vice President of Finance for the United States holding company and
President of Simon LGI. Mr. Wilson is a Certified Public Accountant and has
public accounting experience with Arthur Andersen and Co.
DAVID B. HARRINGTON joined the Company in June 1997 as Senior Vice President
of Human Resources. Prior to joining the Company, Mr. Harrington worked for 19
years at General Electric ("GE") in various positions, including the most
recent six years as Senior Vice President of Human Resources for GE Capital
Technology Management Services. Mr. Harrington serves on the board of the
Atlanta chapter of the Human Resources Planning Society.
BRUCE A. LISANTI joined the Company in April 1997 as Senior Vice President
of Marketing. From March 1992 until joining the Company, Mr. Lisanti served as
Vice President, Sales and Marketing for Petroleum Information Corporation.
Prior thereto, he served as Vice President, Sales and Marketing for Corporate
Express, National Sales Manager for General Electric Computer Services and in
various positions at Electronic Data Systems.
WILLIAM M. BARNUM, JR. has served as a director of the Company since its
formation in 1992 and served as Chairman of the Board from June 1993 through
October 1995. Mr. Barnum is a general partner of Brentwood Buyout Partners,
L.P. ("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 Stockholders." Mr. Barnum was an associate at Morgan
Stanley & Co. Incorporated from October 1981 until joining Brentwood
Associates, an affiliate of Brentwood RSC Partners, in July 1984. Mr. Barnum
is a director of Quiksilver, Inc., and several privately held companies.
JAMES R. BUCH has served as a director of the Company since October 1995.
From October 1990 through May 1996, Mr. Buch served as President and Chief
Executive Officer of Evans Rents, Inc. Since April 1997, Mr. Buch has been
Chief Executive Officer of Classroom Holdings, Inc. Previously, he served as
Director of U.S. Operations for Brittania Security Group.
CHRISTOPHER A. LAURENCE has served as a director of the Company since
October 1995. Mr. Laurence is a General Partner of Brentwood Associates and a
member of Brentwood Private Equity LLC. Prior to joining Brentwood Associates
in 1991, Mr. Laurence was an analyst at Morgan Stanley & Co. Incorporated.
ERIC L. MATTSON has served as a director of the Company since December 1996.
Mr. Mattson is and has been Vice President and Chief Financial Officer of
Baker Hughes Incorporated ("BHI") since July 1993. For more than five years
prior to 1993, Mr. Mattson was Vice President and Treasurer of BHI. Mr.
Mattson is also a director of Tuboscope.
BRITTON H. MURDOCH has served as a director of the Company since January
1997. Mr. Murdoch is and has been Managing Director of Wendover Corp., a
privately held company, since October 1996. From 1990 to 1996, Mr. Murdoch was
Vice President and Chief Financial Officer of Airgas, Inc., an industrial gas
distribution and manufacturing company, and from 1987 to 1990, he was Vice
President of Corporate Development of Airgas, Inc.
JOHN M. SULLIVAN has served as a director of the Company since July 1997. He
is presently a director of The Scotts Company, Cardinal Business Media
Holdings, Inc. and Cobblestone Holdings, Inc. From October 1987 to January
1993, Mr. Sullivan was Chairman of the Board and Chief Executive Officer of
Prince Holdings, Inc. ("Prince"). Prior to that and since September 1984, Mr.
Sullivan was President of Prince and Vice President of Chesebrough-Pond's,
Inc.
57
<PAGE>
Messrs. Reid, Waugaman and Barnum were also directors and/or executive
officers of RHI at the time RHI filed its prepackaged bankruptcy plan under
Chapter 11 of the United States Bankruptcy Code. See "Risk Factors--RHI's
Bankruptcy; Increase in Indebtedness."
The Board of Directors presently consists of seven members, including four
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
The Board has the following standing committees: the Audit Committee, the
Compensation Committee and the Acquisition Committee. The Audit Committee was
established on August 20, 1996 to make recommendations concerning the
engagement of independent public accountants, review with the independent
public accountants the scope and results of the audit engagement, approve
professional services provided by the independent public accountants, review
the independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's internal
accounting controls. The Audit Committee consists of Messrs. Buch and Murdoch.
The Compensation Committee was established on December 5, 1996 to establish
remuneration levels for executive officers of the Company and implement the
Company's stock option plans and any other incentive programs. The
Compensation Committee consists of Messrs. Mattson and Murdoch. The Audit
Committee and the Compensation Committee each met one time during 1996. The
Acquisition Committee was established on September 30, 1997 to approve
acquisitions by the Company in which the consideration to be paid by the
Company is $10 million or less. The Acquisition Committee consists of Messrs.
Reid and Laurence. As of the date of this Prospectus, the Company does not
have a committee responsible for reviewing and recommending candidates for
nomination to the Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to December 5, 1996, the Company had no compensation committee or
other committee of the Board performing similar functions. Accordingly,
decisions concerning compensation of executive officers were made by the
entire Board. Other than Martin R. Reid, there were no officers or employees
of the Company who participated in deliberations concerning such compensation
matters. Mr. Reid was, until April 1996, an executive officer of Tuboscope,
and he currently serves on the Executive Committee of the Board of Directors
of Tuboscope, which is responsible for Tuboscope's compensation policies. Eric
L. Mattson, a director of the Company, is a director of Tuboscope.
COMPENSATION OF DIRECTORS
The Company did not pay any fees or remuneration to directors for their
service on the Board or any Board committee in 1996; however, the Company
reimbursed directors for their out-of-pocket expenses incurred in connection
with attending meetings of the Board. In addition, during 1996, Mr. Buch was
granted stock options under the 1995 Plan (as defined) in connection with his
election to the Board.
Effective January 1, 1997, in addition to reimbursement for out-of-pocket
expenses, all non-employee members of the Board will receive $10,000 per year
(payable $2,500 per quarter) as compensation for serving on the Board, plus
$1,500 for attendance at each Board meeting and $500 for attendance at each
committee meeting. Each committee chairman will receive an additional $1,500
per year. All non-employee directors receive non-qualified stock options under
the 1996 Plan (as defined) as described under "Equity Participation Plans."
58
<PAGE>
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's 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 General Corporation Law of
the State of Delaware. 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 such
person in connection with such Proceeding. The Company has entered into, or
intends to enter into, agreements to provide indemnification for its 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 persons arising out of or in connection with their
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 whose salary and bonus amounts exceeded
$100,000 (collectively, the "Named Executive Officers") for all services
rendered in all capacities to the Company during the fiscal year ended
December 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------- LONG-TERM
NAME AND PRINCIPAL ALL OTHER COMPENSATION
POSITION SALARY ($) BONUS ($)(1) COMPENSATION ($) OPTIONS (#)
------------------ ---------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Martin R. Reid......... 294,231 84,375 5,641(2) --
Chairman and Chief
Executive Officer
Douglas A. Waugaman.... 155,923 42,900 7,149(3) --
Senior Vice President
of Operations
Ronald Halchishak...... 150,000 100,000 920(2) 71,250
Senior Vice President
of Operations
David G. Ledlow........ 117,692 36,709 4,200(4) 71,250
Senior Vice President
of Operations
</TABLE>
- --------
(1) The amount of bonus presented in this table for 1996 represents the bonus
earned in 1995, which was paid during 1996. Bonuses earned with respect to
1996 were as follows: Mr. Reid, $300,000; Mr. Waugaman, $200,000; Mr.
Halchishak, $75,000 and Mr. Ledlow, $75,000. Such 1996 bonuses were paid
during March 1997.
(2) Consists of an automobile allowance.
(3) Consists of an automobile allowance ($2,175) and insurance premiums paid
by the Company ($4,974) for life insurance and disability policies
covering Mr. Waugaman.
(4) Consists of relocation expenses reimbursed by the Company.
59
<PAGE>
Stock Options Granted in Fiscal 1996. The following table sets forth
information concerning individual grants of stock options made by the Company
during the fiscal year ended December 31, 1996 to each of the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES STOCK PRICE
UNDERLYING PERCENT OF TOTAL APPRECIATION FOR
OPTIONS OPTIONS GRANTED EXERCISE OR OPTION TERM
GRANTED TO EMPLOYEES BASE PRICE ---------------------
NAME (#) IN FISCAL YEAR ($/SH) EXP. DATE 5% ($) 10% ($)
---- ---------- ---------------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Martin R. Reid.......... -- -- -- -- -- --
Chairman and Chief
Executive Officer
Douglas A. Waugaman..... -- -- -- -- -- --
Senior Vice President
of Operations
Ronald Halchishak....... 11,250(1) 5.4% $14.11 2006 $ 99,829 $ 252,987
Senior Vice President 60,000(2) 28.7% $21.00 2006 $ 792,407 $ 2,008,115
of Operations
David G. Ledlow......... 11,250(1) 5.4% $14.11 2006 $ 99,829 $ 252,987
Senior Vice President 60,000(2) 28.7% $21.00 2006 $ 792,407 $ 2,008,115
of Operations
</TABLE>
- --------
(1) Such options vest equally over three years on April 1, 1997, 1998 and 1999.
(2) Such options vest equally over four years on October 22, 1997, 1998, 1999
and 2000.
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, 1996 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..... -- -- -- -- -- --
Senior Vice President
of Operations
Ronald Halchishak....... 5,580 -- -- 82,410 -- $847,426
Senior Vice President
of Operations
David G. Ledlow......... 4,725 -- 855 82,410 $23,504 $847,426
Senior Vice President
of Operations
</TABLE>
- --------
(1) Options are "in-the-money" at the fiscal year end if the fair market value
(based on the closing price of the Company's Common Stock on Nasdaq on
December 31, 1996 of $27.50 per share, less the exercise price) of the
underlying securities on such date exceeds the exercise or base price of
the option.
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<PAGE>
401(K) PLAN
The Company maintains a 401(k) Retirement Savings Plan (the "401(k) Plan")
to provide retirement and other benefits to employees of the Company and to
permit employees a means to save for their retirement. The 401(k) Plan is
intended to be a tax-qualified plan under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
Employees of the Company become eligible to participate in the 401(k) Plan
and to have salary deferral contributions made on their behalf after they
complete six months of service and attain the age of 18.
Subject to legal limitations, participants may elect, by salary reduction,
to have 401(k) Plan contributions of 2% to 16% of their compensation made to
their accounts. Under the 401(k) Plan, the Company may make discretionary
profit sharing contributions on behalf of participants who have completed
1,000 hours of service during the plan year or six months of continuous
employment 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.
EQUITY PARTICIPATION PLANS
The Company currently maintains two plans, the Stock Option Plan for Key
Employees (the "1995 Plan") and the 1996 Equity Participation Plan (the "1996
Plan"), pursuant to which certain employees or directors may obtain options or
other awards that enable them to participate in the Company's equity. The
Board adopted the 1996 Plan on December 5, 1996, and the 1996 Plan was
approved by the Company's stockholders on February 5, 1997. The principal
purposes of the 1996 Plan are to provide incentives for officers, directors,
key employees and consultants of the Company and its subsidiaries through
granting options, restricted stock and other awards that stimulate the
personal and active interest of such persons in the Company's development and
financial success and induce them to remain in the Company's service. In
addition to awards made to officers, key employees or consultants, the 1996
Plan provides for the granting of options ("Director Options") to the
Company's independent non-employee directors pursuant to a formula. The 1995
Plan is maintained for the benefit of certain employees of the Company for
similar purposes.
The 1995 Plan provides that the Board or a committee appointed by the Board
(in either case, the "1995 Plan Committee") may grant non-transferable
incentive stock options ("ISOs") and non-qualified stock options ("NQSOs") to
key employees. The 1995 Plan Committee has the full authority and discretion,
subject to the terms of the 1995 Plan, to determine those individuals who are
eligible to be granted options and the amount and type of such options. Terms
and conditions of options are set forth in written option agreements. An
aggregate of up to 324,000 shares of Common Stock are issuable under the 1995
Plan, however, as of November 30, 1997, only 1,860 of these shares were
available for future stock option grants.
The 1996 Plan is administered by the Compensation Committee or a
subcommittee thereof (the "Committee") with respect to grants to employees or
consultants of the Company and by the full Board with respect to Director
Options. Subject to the terms and conditions of the 1996 Plan, the Committee
or the Board, as applicable, has the authority to select the persons to whom
awards are to be made, to determine the number of shares to be subject thereto
and the terms and conditions thereof, and to make all other determinations and
to take all other actions necessary or advisable for the administration of the
1996 Plan.
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<PAGE>
The 1996 Plan provides that the Committee may grant or issue stock options,
stock appreciation rights ("SARs"), restricted stock, deferred stock, dividend
equivalents, performance awards, stock payments, other stock related benefits
and other awards (collectively, "Awards"), or any combination thereof. Each
Award will be set forth in a separate agreement with the person receiving the
Award. Under the 1996 Plan, not more than 1,000,000 shares of Common Stock (or
the equivalent in other equity securities) are authorized for issuance upon
exercise or vesting of any Awards. Furthermore, the maximum number of shares
which may be subject to options or SARs granted under the 1996 Plan to any
individual in any calendar year cannot exceed 200,000. As of November 30,
1997, 362,438 shares of Common Stock were available for future Awards under
the 1996 Plan.
Awards under the 1996 Plan may be granted to (i) individuals who are then
officers or other employees of the Company or any of its present or future
subsidiaries who are determined by the Committee to be key employees and (ii)
consultants of the Company selected by the Committee for participation in the
1996 Plan. Approximately 60 officers and other employees are currently
eligible to participate in the 1996 Plan. On February 26, 1997, Martin R. Reid
was granted options to purchase 200,000 shares and Douglas A. Waugaman was
granted options to purchase 100,000 shares. In addition, non-employee
directors of the Company are granted NQSOs by the Board under the 1996 Plan.
On February 26, 1997, Director Options to purchase an aggregate of 61,000
shares were granted to the Company's non-employee directors. During the term
of the 1996 Plan and pursuant to a formula, (a) each non-employee director is
automatically granted an option to purchase 10,000 shares of Common Stock on
the date of his initial election and (b) each then-current non-employee
director is automatically granted a NQSO to purchase 2,500 shares of Common
Stock at each subsequent annual meeting at which he is reelected to the Board.
On April 28, 1997, Robert M. Wilson and Bruce A. Lisanti were each granted
options to purchase 75,000 shares. On June 30, 1997, David B. Harrington was
granted options to purchase 25,000 shares.
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 earnings per share
objectives. Each participant's bonus award is calculated as a percentage of
base salary, and generally ranges from 20% to 30% 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 generally range from 20% 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.
EMPLOYEE QUALIFIED STOCK PURCHASE PLAN
In 1997, the Company adopted its Employee Qualified Stock Purchase Plan (the
"QSP Plan"). In general, the QSP Plan authorizes employees of the Company and
its subsidiaries to purchase shares of the Company's Common Stock, through
payroll deductions, at a purchase price of 85% of the fair market value of
such shares.
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<PAGE>
The QSP Plan is intended to help the Company attract and retain experienced and
capable persons who can make significant contributions to the further growth
and success of the Company and to align further the interests of such persons
with those of the Company's stockholders.
The QSP Plan provides that an aggregate of up to 250,000 shares of the
Company's Common Stock may be issued thereunder. The QSP Plan also provides for
appropriate adjustments in the number and kind of shares subject to the plan
and to outstanding purchase rights in the event of a stock split, stock
dividend or certain other similar changes in the Company's Common Stock and in
the event of a merger, reorganization, consolidation or certain other types of
recapitalizations of the Company.
Each employee of the Company who has been employed by the Company for not
less than one year and who is customarily employed by the Company for more than
20 hours per week and more than five months per calendar year is eligible to
participate in the QSP Plan. The Company presently has approximately 700
employees who are eligible to participate in the QSP Plan.
The per share exercise price of each purchase right shall be an amount equal
to the lesser of 85% of the fair market value of a share of Common Stock on the
first day of the Offering Period in which the eligible employee began
participating in the QSP Plan or 85% of the fair market value of a share of
Common Stock on the date of exercise of an installment of the purchase right.
The QSP Plan commenced on July 1, 1997.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock outstanding as of November 30, 1997
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; and (iii) 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 AFTER
SHARES BENEFICIALLY THE FULL EXERCISE
OWNED PRIOR TO THE PERCENTAGE OF THE OVER-
OFFERING(1) BENEFICIALLY ALLOTMENT OPTION(1)(3)
--------------------- OWNED AFTER --------------------------
NAME NUMBER PERCENT OFFERING(1)(2) NUMBER PERCENT
- ---- ----------- --------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Brentwood RSC Partners,
L.P.(4).................... 1,235,945 8.2% 6.2% 1,235,945 6.0%
William M. Barnum,
Jr.(4)(5).................. 1,235,945 8.2 6.2 1,235,945 6.0
Frederick J. Warren(4)...... 1,235,945 8.2 6.2 1,235,945 6.0
David H. Wong(4)............ 1,235,945 8.2 6.2 1,235,945 6.0
Denver Investment Advisors
LLC(6)..................... 892,100 5.9 4.5 892,100 4.3
Thomas Foster............... 233,034 1.6 1.2 163,124 *
Equipment Lessors Inc. ..... 102,432 * * 71,702 *
UST Private Equity Investors
Fund Inc. ................. 47,097 * * 32,968 *
Martin R. Reid(5)(7)(8)..... 148,022 1.0 * 103,615 *
Douglas A.
Waugaman(5)(7)(8).......... 58,806 * * 58,806 *
Ronald Halchishak(5)(7)..... 32,800 * * 32,800 *
David G. Ledlow(5)(7)....... 27,778 * * 27,778 *
James R. Buch(5)(7)......... 3,600 * * 3,600 *
Britton H. Murdoch(5)(9).... 1,000 * * 1,000 *
David B. Harrington(5)(7)... -- -- -- -- --
David P. Lanoha(10)......... -- -- -- -- --
Christopher A.
Laurence(4)(5)............. -- -- -- -- --
Bruce A. Lisanti(5)(7)...... -- -- -- -- --
Eric L. Mattson(5)(11)...... -- -- -- -- --
John M. Sullivan(5)(7)...... -- -- -- -- --
Robert M. Wilson(5)(7)...... -- -- -- -- --
All directors and executive
officers as a group (13
persons)(4)(5)(7)(8)(9)(11). 1,507,951 10.1 7.6 1,463,544 7.1
</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 that 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) Assumes (i) the persons in the table do not purchase shares in the
Offering and (ii) no exercise of the U.S. Underwriters' overallotment
option.
(3) The Common Stock to be sold pursuant to the exercise of the U.S.
Underwriters' overallotment option consists of: 590,824 shares to be
issued and sold by the Company, 44,407 shares to be sold by Martin R.
Reid, 69,910 shares to be sold by Thomas Foster, 30,730 shares to be sold
by Equipment Lessors Inc. and 14,129 shares to be sold by UST Private
Equity Investors Fund Inc. If the U.S. Underwriters' overallotment option
is not exercised, the Selling Stockholders will beneficially own the same
number of shares before and after the Offering.
(4) Mr. Barnum, a director of the Company, and Messrs. Warren and Wong are
general partners of BBP, the general partner of Brentwood RSC Partners;
accordingly, Messrs. Barnum, Warren and Wong may be deemed to be the
beneficial owners of the shares owned by BBP and for purposes of this
table they are included. Messrs. Barnum,
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<PAGE>
Warren and Wong disclaim beneficial ownership of such shares. The address
of Brentwood RSC Partners, Mr. Barnum, Mr. Warren, Mr. Wong and Mr.
Laurence is 11150 Santa Monica Boulevard, Suite 1200, Los Angeles,
California 90025.
(5) Excludes shares issuable upon exercise of options that are not
exercisable within 60 days of the date of the table set forth above, as
follows: Mr. Barnum--10,000 shares; Mr. Reid--200,000 shares; Mr.
Waugaman--100,000 shares; Mr. Halchishak--55,290 shares; Mr. Ledlow--
55,503 shares; Mr. Buch--6,400 shares; Mr. Murdoch--10,000 shares; Mr.
Harrington--25,000 shares; Mr. Laurence--10,000 shares; Mr. Lisanti--
75,000 shares; Mr. Mattson--10,000 shares; Mr. Sullivan--10,000 shares;
and Mr. Wilson--75,000 shares.
(6) Based on a Form 13F filed on August 8, 1997. In such Form 13F, Denver
Investment Advisors LLC reported that it owned a total of 892,100 shares,
that it had sole investment discretion with respect to 880,800 shares,
that it shared investment discretion with respect to 7,300 shares, that
it had sole voting authority with respect to 582,200 shares and that it
had no voting authority with respect to 305,900 shares. The address of
Denver Investment Advisors is 1225 17th Street, 26th Floor, Denver,
Colorado 80202.
(7) The address of such person is c/o Rental Service Corporation, 14505 N.
Hayden Road, Suite 322, Scottsdale, Arizona 85260.
(8) Includes shares subject to vesting that may be repurchased by the Company
if they fail to vest.
(9) The address of such person is c/o Wendover Corporation, 354 W. Lancaster
Avenue, Haverford, PA 19041.
(10) Mr. Lanoha did not become an officer of the Company until December 2,
1997. His address is c/o Center Rental & Sales, 11250 East 40th Avenue,
Denver, Colorado 60239.
(11) The address of such person is c/o Baker Hughes Incorporated, 3900 Essex
Lane, Suite 1200, Houston, Texas 77027.
65
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
Pursuant to a Corporate Development and Administrative Services Agreement
(the "Services Agreement"), the Company, prior to its initial public offering
in September 1996, 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 1996, 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 totaled $388,000 during 1996 and $0 for
the nine months ended September 30, 1997. The Company's obligation to pay such
monitoring and investment banking fees terminated upon completion of its
initial public offering. Mr. Barnum, a general partner of BBP, who also serves
as a director of the Company, does not receive additional compensation for
service as a director.
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 with a
successor entity following a change of control, he will be entitled to
severance pay equal to nine months base salary. Mr. Waugaman has agreed that
in consideration of such severance benefits, he will not compete with the
Company for a period of nine months if his employment is terminated other than
for cause. In addition, pursuant to an oral arrangement supplementing the
Waugaman Purchase Agreement, RSC has purchased a $500,000 life insurance
policy under which Mr. Waugaman's wife is the beneficiary and a disability
policy for Mr. Waugaman.
The Company has entered into a severance agreement with each of Messrs.
Halchishak, Harrington, Ledlow, Lisanti and Wilson providing for certain
benefits upon termination of employment either by the Company without cause or
by such named executive officer due to a reduction in base salary and benefits
(other than across the board salary cuts for employees at such named executive
officer's level or changes in benefits). These benefits include a lump sum
severance payment equal to 100% of such named executive officer's base salary,
plus a pro rata portion of the current-year bonus opportunity, plus life,
disability, accident and group health insurance benefits substantially similar
to those received by such named executive officer immediately prior to
termination for a twelve (12) month period. In addition, all stock options
granted prior to 1996, all stock options that are scheduled to vest in the
year of termination and one-third of all other stock options held by him, if
any, shall become vested and exercisable effective as of the day immediately
prior to the date of termination of such named executive officer. As
consideration for these benefits, each of Messrs. Halchishak and Ledlow agreed
that during the term of the severance agreement and for twenty-four (24)
months after termination of employment for any reason they would not solicit
any customers of the Company or hire or offer employment to any employee of
the Company. Messrs. Harrington, Lisanti and Wilson agreed that during the
term of the severance agreement and for twelve (12) months after termination
of employment for any reason they would not solicit any customers of the
Company or hire or offer employment to any employee of the Company. The
severance agreements with Messrs. Halchishak and Ledlow will continue in
effect through December 31, 2001, those with Messrs. Lisanti and Wilson will
continue in effect through April 2000 and that with Mr. Harrington will
continue in effect through June 2000.
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<PAGE>
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 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 40,000,000 shares of Common
Stock, par value $.01 per share, and 500,000 shares of Preferred Stock, par
value $.01 per share. As of December 12, 1997, no shares of Preferred Stock
and 15,488,153 shares of Common Stock were issued and outstanding, 877,241
shares of Common Stock were issuable upon exercise of outstanding options,
614,298 shares of Common Stock were reserved for issuance pursuant to the
Company's stock option and stock purchase plans and up to 415,933 shares of
Common Stock were reserved for issuance in connection with the Company's
acquisitions of IAT, Foxx, Central States and Center. In addition, upon
completion of the Valley Acquisition and the pending Other Acquisitions, the
Company expects to issue up to 413,462 additional shares of Common Stock.
The discussion below describes the capital stock of the Company as it will
exist upon the closing of this Offering, 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.
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
67
<PAGE>
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.
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 two-thirds
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 ChaseMellon
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have outstanding an
aggregate of 20,488,153 shares of Common Stock (21,078,977 shares if the U.S.
Underwriters' overallotment option is exercised in full). All of the shares
sold in the Offering will be freely tradable 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, certain of the Company's
stockholders have been granted piggyback registration rights with respect to
Common Stock owned by such stockholders. Such piggyback registration rights
may be exercised by such stockholders, subject to the 90-day lock-up period
described under "Underwriters," on each occasion after the Offering that the
Company proposes to register any public offering
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<PAGE>
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, the Company has granted similar
piggyback registration rights with respect to shares issued as a portion of
the consideration for certain pending and completed acquisitions.
Upon the consummation of the Offering, there will be 3,028,432 shares of
Common Stock (2,869,256 shares if the U.S. Underwriters' overallotment option
is exercised in full) 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 1,574,000 shares of Common Stock for issuance
pursuant to the 1995 Plan, the 1996 Plan and the QSP Plan (collectively, the
"Plans"). As of the date hereof, the Company has issued options to purchase an
aggregate of 941,792 shares of Common Stock (excluding options which have been
cancelled) under the 1995 Plan and the 1996 Plan, of which options for 64,551
shares have been exercised. To the extent not held by affiliates or subject to
a lock-up agreement, shares of Common Stock issued under the Plans will be
available for sale in the public market without restriction. See "Management."
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 one year 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 two years, would be entitled to sell such shares under Rule 144(k)
without regard to volume limitations, manner-of-sale provisions, notice
requirements or the availability of current public information about the
Company. The Company, the Selling Stockholders, the Company's directors and
executive officers and certain of the Company's other present stockholders
have, subject to certain exceptions in the case of the Company, agreed that
they will not, directly or indirectly, offer, sell, contract to sell or
otherwise dispose of or transfer any shares of capital stock of the Company,
or any security convertible into, or exercisable or exchangeable for, such
capital stock, for a period of 90 days after the date of this Prospectus,
without the prior written consent of Morgan Stanley & Co. Incorporated. See
"Underwriters."
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."
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UNDERWRITERS
Under the terms and subject to the conditions contained in the Underwriting
Agreement, dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below (the "Underwriters"), for whom Morgan Stanley & Co.
Incorporated and William Blair & Company, L.L.C. are acting as U.S.
Representatives, and the International Underwriters, for whom Morgan Stanley &
Co. International Limited and William Blair & Company, L.L.C. are acting as
International Representatives, have severally agreed to purchase, and the
Company has agreed to sell to them severally, the respective number of shares
of Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..............................
William Blair & Company, L.L.C. ...............................
----------
Subtotal....................................................... 4,000,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited.....................
William Blair & Company, L.L.C. ...............................
----------
Subtotal....................................................... 1,000,000
----------
Total........................................................ 5,000,000
==========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the Underwriters' overallotment option described below) if
any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly,
any Shares or distribute any prospectus relating to the Shares outside the
United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States
or Canadian Person. With respect to any Underwriter that is a U.S. Underwriter
and an International Underwriter, the foregoing representations and agreements
(i) made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement
between U.S. and International Underwriters. As used herein, "United States or
Canadian Person" means any national or resident of the United States or
Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
Underwriters under the Underwriting Agreement are referred to herein as the
"Shares."
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<PAGE>
Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of Shares as may be mutually agreed. The per share price of any
Shares sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing
such Shares, such dealer represents and agrees that it has not offered or
sold, and will not offer or sell, directly or indirectly, any of such Shares
in any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made,
and that such dealer will deliver to any other dealer to whom it sells any of
such Shares a notice containing substantially the same statement as is
contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of the Shares to the International Underwriters, will not offer or
sell, any Shares to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Shares in, from, or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it
in connection with the offering of the Shares to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or
sales to Japanese International Underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and
Exchange Law and otherwise in compliance with applicable provisions of
Japanese law. Each International Underwriter has further agreed to send to any
dealer who purchases from it any of the Shares a notice stating in substance
that, by purchasing such Shares, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, any of such Shares, directly
or indirectly, in Japan or to or for the account of any resident thereof
except for offers or sales to Japanese International Underwriters or dealers
and except pursuant to any exemption from the registration requirements of the
Securities and Exchange Law and otherwise in compliance with applicable
provisions of Japanese law, and that such dealer will send to any other dealer
to whom it sells any of such Shares a notice containing substantially the same
statement as is contained in this sentence.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the price to public set forth on the cover
page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering
price. Any Underwriter may allow, and such dealers may reallow, a concession
not in excess of $ a share to other Underwriters or to certain dealers.
After the initial offering of the shares of Common Stock, the offering price
and other selling terms may from time to time be varied by the
Representatives.
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<PAGE>
The Company and certain Selling Stockholders have granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 750,000 additional shares of Common Stock at the
public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The Underwriters may exercise such option solely
for the purpose of covering overallotments, if any, made in connection with
the offering of the shares of Common Stock offered hereby. To the extent such
option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the number set forth opposite to such
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock set forth opposite to the names of all Underwriters in the
preceding table.
The Company, its executive officers and directors and certain Selling
Stockholders have agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated, they will not (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common
Stock (provided that such shares or securities are either currently owned by
such person or are acquired in connection with the Offering) or (ii) enter
into any swap or other arrangement that transfers, in whole or in part, any of
the economic consequences of ownership of such shares of Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise, for a
period of 90 days after the date hereof, other than (x) the sale to the
Underwriters of the shares of Common Stock offered hereby or (y) except for
the grant of stock options and purchase rights to employees of the Company
under the 1995 Plan, the 1996 Plan and the QSP Plan, the issuance of shares
upon the conversion or exercise of outstanding options and warrants, the
registration of the shares of Common Stock underlying the QSP Plan and the
issuance of shares in connection with the Center acquisition and other
acquisitions.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with this Offering, creating a short position in the Common Stock
for their own account. In addition, to cover overallotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in this Offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
The Company, the Selling Shareholders, and the Underwriters have agreed to
indemnify each other against certain liabilities that may be incurred in
connection with the offering of the Common Stock, including liabilities under
the Securities Act, or to contribute to payments that the other may be
required to make in respect thereof.
Morgan Stanley & Co. Incorporated has provided investment banking services
and financial advisory services to the Company in the past, including acting
as an underwriter of the Company's equity offering in June 1997, for which
Morgan Stanley & Co. Incorporated has received usual and customary fees.
William Blair & Company, L.L.C. has also provided investment banking services
and financial advisory services to the Company in the past, including acting
as lead underwriter of the Company's initial public offering in September 1996
and lead underwriter of the Company's equity offering in June 1997, for which
William Blair & Company, L.L.C. has received usual and customary fees.
72
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
FOR NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of the principal United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a Non-U.S. Holder, as defined below. As used herein, the term "Non-
U.S. Holder" means a holder that for United States federal income tax purposes
is an individual or entity other than (i) a citizen or individual resident of
the United States, (ii) a corporation or partnership created or organized in
or under the laws of the United States or of any political subdivision
thereof, (iii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source or (iv) a trust if both (A) a U.S. court is
able to exercise primary supervision over the administration of the trust and
(B) one or more U.S. persons have the authority to control all substantial
decisions of the trust. This discussion does not address all aspects of United
States federal income and estate taxes and does not deal with foreign, state
and local consequences that may be relevant to Non-U.S. Holders in light of
their personal circumstances, or to certain types of Non-U.S. Holders which
may be subject to special treatment under United States federal income tax
laws (for example, insurance companies, tax-exempt organizations, financial
institutions and broker-dealers). Furthermore, this discussion is based on
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
existing and proposed regulations promulgated thereunder and administrative
and judicial interpretations thereof, all as of the date hereof, and all of
which are subject to change, possibly with retroactive effect. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS REGARDING THE UNITED STATES
FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF
ACQUIRING, HOLDING AND DISPOSING OF SHARES OF COMMON STOCK.
An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to a nonresident alien) by virtue of being present in the
United States for at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
The Company does not anticipate paying cash dividends on its capital stock
in the foreseeable future. See "Price Range of Common Stock and Dividend
Policy." In the event, however, that dividends are paid on shares of Common
Stock, dividends paid to a Non-U.S. Holder of Common Stock will be subject to
withholding of United States federal income tax at a 30% rate, or such lower
rate as may be provided by an income tax treaty between the United States and
a foreign country if the Non-U.S. Holder is treated as a resident of such
foreign country within the meaning of the applicable treaty, unless (i) the
dividends are effectively connected with the conduct of a trade or business of
the Non-U.S. Holder within the United States and the Non-U.S. Holder provides
the payor with proper documentation and (ii) if a tax treaty applies, the
dividends are attributable to a United States permanent establishment
maintained by the Non-U.S. Holder. Dividends that are effectively connected
with the conduct of a trade or business within the United States and, if a tax
treaty applies, are attributable to such a United States permanent
establishment, are subject to United States federal income tax on a net income
basis (that is, after allowance for applicable deductions) at applicable
graduated individual or corporate rates. Any such effectively connected
dividends received by a foreign corporation may, under certain circumstances,
be subject to an additional "branch profits tax" at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.
Dividends paid before January 1, 1999 to an address outside the United
States will be presumed to be paid to a resident of the country of such
address for purposes of the withholding tax rules discussed above (unless the
payor has knowledge to the contrary) and, under the current interpretation of
United States Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. However, under newly issued Treasury
73
<PAGE>
regulations, in the case of dividends paid after December 31, 1998, a Non-U.S.
Holder generally will be subject to United States withholding tax at a 31%
rate under the backup withholding rules described below, rather than at a 30%
rate or a reduced rate under an income tax treaty, as described above, unless
certain Internal Revenue Service ("IRS") certification procedures (or, in the
case of payments made outside the United States with respect to an offshore
account, certain IRS documentary evidence procedures) are complied with.
Further, in order to claim the benefit of an applicable tax treaty rate for
dividends paid after December 31, 1998, a Non-U.S. Holder must comply with IRS
certification requirements. Certain IRS certification and disclosure
requirements must be complied with in order to be exempt from withholding
under the effectively connected income exemption. The new regulations also
provide special rules for dividend payments made to foreign intermediaries.
U.S. or foreign wholly owned entities that are disregarded for U.S. federal
income tax purposes and entities that are treated as fiscally transparent in
the United States, the applicable income tax treaty jurisdiction, or both.
Prospective investors should consult with their own tax advisers concerning
the effect, if any, of the adoption of these new Treasury regulations on an
investment in the Common Stock.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i) (a) the gain is effectively connected with a trade or
business conducted by the Non-U.S. Holder within the United States, and (b) if
a tax treaty applies, the gain is attributable to a United States permanent
establishment maintained by the Non-U.S. Holder, (ii) in the case of a Non-
U.S. Holder who is an individual and holds the Common Stock as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year of the sale or other disposition and certain other conditions are
met, (iii) the Non-U.S. Holder is subject to tax pursuant to certain
provisions of the Code applicable to United States expatriates or (iv) the
Company is or has been a "U.S. real property holding corporation" for United
States federal income tax purposes at any time within the shorter of the five-
year period preceding such disposition or the period such Non-U.S. Holder held
the Common Stock. A corporation is a "U.S. real property holding corporation"
if the fair market value of the United States real property interests held by
the corporation is 50% or more of the aggregate fair market value of certain
assets of the corporation. The Company believes that it has not been and is
not currently a "U.S. real property holding corporation." If the Company were,
or were to become, a U.S. real property holding corporation, gains realized
upon a disposition of Common Stock by a Non-U.S. Holder which did not directly
or indirectly own more than 5% of the Common Stock during the shorter of the
periods described above generally would not be subject to United States
federal income tax so long as the Common Stock is "regularly traded" on an
established securities market. The Company believes that the Common Stock will
be treated as "regularly traded."
If a Non-U.S. Holder who is an individual falls under clause (i) above, such
individual generally will be taxed on the net gain derived from a sale of
Common Stock under regular graduated United States federal income tax rates.
If an individual Non-U.S. Holder falls under clause (ii) above, such
individual generally will be subject to a flat 30% tax on the gain derived
from a sale, which may be offset by certain United States capital losses
(notwithstanding the fact that such individual is not considered a resident
alien of the United States). Thus, individual Non-U.S. Holders who have spent
(or expect to spend) more than a de minimis period of time in the United
States in the taxable year in which they contemplate a sale of Common Stock
are urged to consult their tax advisers prior to the sale as to the U.S. tax
consequences of such sale.
If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it generally will be taxed on its net gain under regular graduated
United States federal income tax rates and, in addition, will be subject to
the branch profits tax equal to 30% of its "effectively connected earnings and
profits," within the meaning of the Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an applicable tax
treaty.
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FEDERAL ESTATE TAX
Common Stock owned or treated as owned by an individual who is neither a
United States citizen nor a United States resident (as defined for United
States federal estate tax purposes) at the time of death will be included in
the individual's gross estate for United States federal estate tax purposes,
unless an applicable estate tax or other treaty provides otherwise and,
therefore, may be subject to United States federal estate tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under United States Treasury regulations, the Company must report annually
to the IRS and to each Non-U.S. Holder the amount of dividends paid to such
holder and the tax withheld with respect to such dividends. These information
reporting requirements apply even if withholding was not required because the
dividends were effectively connected with a trade or business in the United
States of the Non-U.S. Holder or withholding was reduced or eliminated by an
applicable income tax treaty. Copies of the information returns reporting such
dividends and withholding may also be made available to the tax authorities in
the country in which the Non-U.S. Holder is a resident under the provisions of
an applicable income tax treaty or agreement.
United States backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting
requirements) generally will not apply (i) to dividends paid to Non-U.S.
Holders that are subject to the 30% withholding discussed above (or that are
not so subject because a tax treaty applies that reduces or eliminates such
30% withholding) or (ii) before January 1, 1999, to dividends paid to a Non-
U.S. Holder at an address outside of the United States. However, under newly
issued Treasury regulations, in the case of dividends paid after December 31,
1998, a Non-U.S. Holder generally will be subject to backup withholding at a
31% rate, unless certain IRS certification procedures (or, in the case of
payments made outside the United States with respect to an offshore account,
certain IRS documentary evidence procedures) are complied with, directly or
through an intermediary.
Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of Common Stock
to beneficial owners that are not "exempt recipients" and that fail to provide
in the manner required certain identifying information.
In general, backup withholding and information reporting will not apply to a
payment of the gross proceeds of a sale of Common Stock effected at a foreign
office of a broker. Before January 1, 1999, however, if such broker is, for
United States federal income tax purposes, a U.S. person, a controlled foreign
corporation or a foreign person, 50% or more of whose gross income for certain
periods is derived from activities that are effectively connected with the
conduct of a trade or business in the United States, such payments will not be
subject to backup withholding but will be subject to information reporting,
unless (i) such broker has documentary evidence in its records that the
beneficial owner is a Non-U.S. Holder and certain other conditions are met or
(ii) the beneficial owner otherwise establishes an exemption. Further after
December 31, 1998, under the newly issued Treasury regulations referred to
above, information reporting and backup withholding may apply to payments of
the gross proceeds from the sale or redemption of Common Stock effected
through foreign offices of brokers having any of a broader class of
connections with the United States unless certain IRS certification
requirements are complied with. Prospective investors should consult with
their own tax advisers regarding these Treasury regulations, and in particular
with respect to whether the use of a particular broker would subject the
investor to these rules.
Payment by a United States office of a broker of the proceeds of a sale of
Common Stock is subject to both backup withholding and information reporting
unless the beneficial owner certifies under penalties of perjury that it is a
Non-U.S. Holder or otherwise establishes an exemption. Backup withholding is
not an additional tax. Any amounts withheld under the backup withholding rules
will be allowed as a refund or a credit against such holder's United States
federal income tax liability provided the required information is furnished to
the IRS.
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LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters in connection with the 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 of the Company. Such persons do not have the power to vote or
dispose of such shares. Certain legal matters in connection with the Offering
will be passed upon for the Underwriters by Shearman & Sterling, New York, New
York.
EXPERTS
The consolidated financial statements and financial statement schedules of
Rental Service Corporation as of December 31, 1995 and 1996, and for each of
the three years in the period ended December 31, 1996, appearing in this
Prospectus and Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing herein.
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, appearing in this Prospectus and Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing herein. The financial statements of Brute Equipment
Co., d/b/a Foxx Hy-Reach, Inc., as of December 31, 1995 and 1996, and for the
years then ended, appearing in this Prospectus and Registration Statement,
have been audited by McGladrey & Pullen, LLP, independent auditors, as set
forth in their report thereon appearing herein. The combined financial
statements of Industrial Air Tool as of March 31, 1996 and 1997 and for the
years then ended, appearing in this Prospectus and Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing herein. The combined financial statements of
Rent-It-Center, Inc. and Affiliates as of October 31, 1996, and 1997, and for
each of the three years in the period ended October 31, 1997, appearing in
this Prospectus and Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
herein. The financial statements of JDW Enterprises, Inc. d/b/a Valley Rentals
as of December 31, 1996 and for the year then ended, appearing in this
Prospectus and Registration Statement, have been audited by Weintraub &
Morrison, P.C., independent auditors, as set forth in their report thereon
appearing herein. These financial statements and financial statement schedules
are included in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of Rental Service Corporation
Report of Independent Auditors.......................................... F-3
Consolidated Balance Sheets--December 31, 1995 and 1996, and September
30, 1997 (unaudited)................................................... F-4
Consolidated Statements of Operations--for the years ended December 31,
1994, 1995 and 1996,
and for the nine months ended September 30, 1996 and 1997 (unaudited).. F-5
Consolidated Statements of Redeemable Preferred Stock and Common
Stockholders' Equity
(Deficit)--for the years ended December 31, 1994, 1995 and 1996, and
for the nine months ended September 30, 1996 and 1997 (unaudited)...... F-6
Consolidated Statements of Cash Flows--for the years ended December 31,
1994, 1995 and 1996,
and for the nine months ended September 30, 1997 (unaudited)........... F-7
Notes to Consolidated Financial Statements--December 31, 1996, and
September 30, 1997 (unaudited)......................................... F-8
Consolidated Financial Statements of Acme Holdings Inc.
Report of Independent Auditors.......................................... F-27
Consolidated Balance Sheets--December 31, 1993 and 1994, and June 30,
1995 (unaudited)....................................................... F-28
Consolidated Statements of Operations--for the years ended December 31,
1992, 1993 and 1994,
and for the six months ended June 30, 1994 and 1995 (unaudited)........ F-29
Consolidated Statements of Shareholders' Deficit--for the years ended
December 31, 1992, 1993 and 1994, and for the six months ended June 30,
1995 (unaudited) ...................................................... F-30
Consolidated Statements of Cash Flows--for the years ended December 31,
1992, 1993 and 1994,
and for the six months ended June 30, 1994 and 1995 (unaudited)........ F-31
Notes to Consolidated Financial Statements--December 31, 1994, and June
30, 1995 (unaudited)................................................... F-33
Combined Financial Statements of Industrial Air Tool
Report of Independent Auditors.......................................... F-45
Combined Balance Sheets--March 31, 1996 and 1997........................ F-46
Combined Statements of Operations--for the years ended March 31, 1996
and 1997 .............................................................. F-47
Combined Statements of Redeemable Stock and Other Stockholders' and
Partners' Equity--for the years ended March 31, 1996 and 1997 ......... F-48
Combined Statements of Cash Flows--for the years ended March 31, 1996
and 1997 .............................................................. F-49
Notes to Combined Financial Statements--March 31, 1997.................. F-50
Financial Statements of Brute Equipment Co. d/b/a Foxx Hy-Reach
Independent Auditor's Report............................................ F-55
Balance Sheets--December 31, 1995 and 1996, and March 31, 1997
(unaudited)............................................................ F-56
Statements of Operations--for the years ended December 31, 1995 and
1996, and for the three months ended March 31, 1996 and 1997
(unaudited)............................................................ F-57
Statements of Stockholders' Equity--for the years ended December 31,
1995 and 1996, and for the three months ended March 31, 1997
(unaudited) ........................................................... F-58
Statements of Cash Flows--for the years ended December 31, 1995 and
1996, and for the three months ended March 31, 1996 and 1997
(unaudited)............................................................ F-59
Notes to Financial Statements--December 31, 1996, and March 31, 1997
(unaudited)............................................................ F-60
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Combined Financial Statements of Rent-It-Center, Inc. and Affiliates d/b/a
Center Rental and Sales
Report of Independent Auditors.......................................... F-65
Combined Balance Sheets--October 31, 1996 and 1997...................... F-66
Combined Statements of Operations--for the years ended October 31, 1995,
1996
and 1997............................................................... F-67
Combined Statements of Stockholders' and Members' Equity (Deficit)--for
the years ended October 31, 1995, 1996 and 1997 ....................... F-68
Combined Statements of Cash Flows--for the years ended October 31, 1995,
1996 and 1997 ......................................................... F-69
Notes to Combined Financial Statements--October 31, 1997................ F-70
Financial Statements of JDW Enterprises, Inc. d.b.a. Valley Rentals
Independent Auditor's Report............................................ F-79
Balance Sheets--December 31, 1996, and September 30, 1997 (unaudited)... F-80
Statements of Operations--for the year ended December 31, 1996, and for
the nine months ended September 30, 1996 and 1997 (unaudited).......... F-81
Statements of Changes in Stockholders' Equity--for the year ended
December 31, 1996, and for the nine months ended September 30, 1997
(unaudited)............................................................ F-82
Statements of Cash Flows--for the year ended December 31, 1996, and for
the nine months ended September 30, 1996 and 1997 (unaudited).......... F-83
Notes to the Financial Statements--December 31, 1996, and September 30,
1997 (unaudited)....................................................... F-85
</TABLE>
F-2
<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, 1995 and 1996, 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, 1996. 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, 1995 and 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
February 28, 1997
F-3
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Cash and cash equivalents............ $ 1,455,000 $ 1,452,000 $ 4,887,000
Accounts receivable, net of allowance
for doubtful accounts of $1,791,000
and $2,165,000 at December 31, 1995
and 1996, respectively, and
$4,867,000 at September 30, 1997.... 14,427,000 20,856,000 43,694,000
Other receivables and prepaid
expense............................. 2,178,000 3,170,000 3,941,000
Income tax receivable................ -- 1,563,000 1,117,000
Parts and supplies inventories, net
of reserve for obsolescence of
$603,000 and $782,000 at December
31, 1995 and 1996, respectively, and
$1,173,000 at September 30, 1997.... 5,997,000 10,099,000 20,701,000
Assets held for sale (Note 2)........ 16,054,000 -- --
Deferred taxes (Note 10)............. 7,310,000 8,645,000 8,787,000
Rental equipment, principally
machinery, at cost, net of
accumulated depreciation of
$11,747,000 and $24,743,000 at
December 31, 1995 and 1996,
respectively, and $43,892,000 at
September 30, 1997 (Notes 5 and 8).. 52,818,000 116,921,000 229,894,000
Operating property and equipment, at
cost, net (Note 3).................. 10,629,000 20,043,000 30,640,000
Intangible assets, net (Note 4)...... 24,154,000 34,801,000 115,279,000
Other assets, primarily deferred
financing costs, net................ 2,810,000 1,383,000 3,637,000
------------ ------------ ------------
$137,832,000 $218,933,000 $462,577,000
============ ============ ============
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED
STOCK,
AND COMMON STOCKHOLDERS' EQUITY
---------------------------------
<S> <C> <C> <C>
Accounts payable..................... $ 10,185,000 $ 20,302,000 $ 16,168,000
Payroll and other accrued expenses... 19,839,000 21,540,000 29,461,000
Accrued interest payable............. 771,000 514,000 1,473,000
Income taxes payable (Note 10)....... 220,000 48,000 6,478,000
Deferred taxes (Note 10)............. 9,815,000 12,863,000 12,573,000
Bank debt and long term obligations
(Note 5)............................ 67,910,000 68,526,000 224,504,000
Obligations under capital leases
(Note 8)............................ 645,000 68,000 31,000
------------ ------------ ------------
Total liabilities.................... 109,385,000 123,861,000 290,688,000
Commitments and contingencies (Notes
5, 8 and 12)........................
Redeemable preferred stock,
cumulative, $.01 par value (Note 6):
Authorized shares--350,000
Issued and outstanding shares--
244,805 and none at December 31,
1995 and 1996, respectively, and
none at September 30, 1997........ 28,401,000 -- --
Common stockholders' equity (Note 6):
Preferred stock, $.01 par value:
Authorized shares--500,000
Issued and outstanding shares--
none.............................. -- -- --
Common stock, $.01 par value:
Authorized shares--20,000,000
Issued and outstanding shares--
4,247,730 and 11,376,378 at
December 31, 1995 and 1996,
respectively, and 14,930,784 at
September 30, 1997................ 42,000 114,000 149,000
Additional paid-in capital......... 40,000 93,917,000 159,394,000
Common stock issuable--153,651
shares at September 30, 1997...... -- -- 2,881,000
Retained earnings (deficit)........ (36,000) 1,041,000 9,465,000
------------ ------------ ------------
Total common stockholders' equity.... 46,000 95,072,000 171,889,000
------------ ------------ ------------
$137,832,000 $218,933,000 $462,577,000
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $27,775,000 $47,170,000 $ 94,218,000 $67,742,000 $111,549,000
Sales of parts,
supplies and new
equipment............ 10,800,000 14,621,000 21,919,000 16,450,000 47,119,000
Sales of used
equipment............ 3,240,000 4,126,000 12,217,000 8,903,000 13,664,000
----------- ----------- ------------ ----------- ------------
Total revenues....... 41,815,000 65,917,000 128,354,000 93,095,000 172,332,000
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation......... 16,284,000 27,854,000 55,202,000 40,977,000 57,506,000
Depreciation,
equipment rentals.... 4,020,000 7,691,000 17,840,000 12,375,000 24,493,000
Cost of sales of
parts, supplies and
new equipment........ 7,978,000 10,439,000 15,582,000 11,799,000 36,383,000
Cost of sales of used
equipment............ 2,320,000 2,178,000 8,488,000 5,820,000 9,261,000
----------- ----------- ------------ ----------- ------------
Total cost of
revenues............ 30,602,000 48,162,000 97,112,000 70,971,000 127,643,000
----------- ----------- ------------ ----------- ------------
Gross profit............ 11,213,000 17,755,000 31,242,000 22,124,000 44,689,000
Selling, general and
administrative
expense.............. 4,747,000 6,421,000 12,254,000 9,061,000 13,444,000
Depreciation and
amortization,
excluding equipment
rental depreciation.. 504,000 1,186,000 2,835,000 1,829,000 3,789,000
Amortization of
intangibles.......... 2,078,000 718,000 2,379,000 1,825,000 2,463,000
----------- ----------- ------------ ----------- ------------
Operating income........ 3,884,000 9,430,000 13,774,000 9,409,000 24,993,000
Interest expense, net... 731,000 3,314,000 7,063,000 5,819,000 8,863,000
----------- ----------- ------------ ----------- ------------
Income before income
taxes and extraordinary
items.................. 3,153,000 6,116,000 6,711,000 3,590,000 16,130,000
Provision for income
taxes
(Note 10).............. 1,177,000 2,401,000 2,722,000 1,411,000 7,172,000
----------- ----------- ------------ ----------- ------------
Income before
extraordinary items.... 1,976,000 3,715,000 3,989,000 2,179,000 8,958,000
Extraordinary items,
loss on extinguishment
of debt less applicable
income tax benefit
of $305,000, $822,000
and $386,000 in 1995,
1996 and the nine
months ended
September 30, 1997,
respectively (Note 5).. -- 478,000 1,269,000 1,269,000 534,000
----------- ----------- ------------ ----------- ------------
Net income.............. 1,976,000 3,237,000 2,720,000 910,000 8,424,000
Redeemable preferred
stock accretion........ 1,646,000 1,717,000 1,643,000 1,643,000 --
----------- ----------- ------------ ----------- ------------
Net income (loss)
available to common
stockholders........... $ 330,000 $ 1,520,000 $ 1,077,000 $ (733,000) $ 8,424,000
=========== =========== ============ =========== ============
Earnings (loss) per
common and common
equivalent share:
Income before
extraordinary items.. $ .06 $ .39 $ .33 $ .09 $ .68
Extraordinary items... -- (.09) (.18) (.22) (.04)
----------- ----------- ------------ ----------- ------------
Net income (loss)..... $ .06 $ .30 $ .15 $ (.13) $ .64
----------- ----------- ------------ ----------- ------------
Weighted average common
and common equivalent
shares................. 5,427,728 5,087,790 7,218,041 5,772,636 13,149,622
=========== =========== ============ =========== ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED STOCK
-----------------------------------
TREASURY
SHARES AMOUNT STOCK
-------- ------------ -----------
<S> <C> <C> <C>
Balance at
December 31,
1993............ 253,475 $ 25,956,000 $ --
Issuance of
preferred stock. 2,586 259,000 --
Purchase of
treasury stock.. -- -- (1,177,000)
Redeemable
preferred stock
accretion....... -- 1,646,000 --
Net income...... -- -- --
-------- ------------ -----------
Balance at
December 31,
1994............ 256,061 27,861,000 (1,177,000)
Issuance of
common stock.... -- -- --
Retirement of
treasury stock.. (11,256) (1,177,000) 1,177,000
Redeemable
preferred stock
accretion....... -- 1,717,000 --
Net income...... -- -- --
-------- ------------ -----------
Balance at
December 31,
1995............ 244,805 28,401,000 --
Issuance of
preferred stock. 75,000 7,500,000 --
Issuance of
common stock,
net of issuance
costs of
$8,723,000...... -- -- --
Exercise of
stock options... -- -- --
Repurchase of
preferred stock. (319,805) (37,874,000) --
Preferred stock
adjustment...... -- 330,000 --
Repurchase of
common stock
warrants........ -- -- --
Redeemable
preferred stock
accretion....... -- 1,643,000 --
Net income...... -- -- --
-------- ------------ -----------
Balance at
December 31,
1996............ -- -- --
Issuance of
common stock,
net of issuance
costs of
$3,982,000
(unaudited)..... -- -- --
Issuance of
common stock in
connection with
acquisitions
(unaudited)..... -- -- --
Exercise of
stock options
(unaudited)..... -- -- --
Common stock
issuable in
connection with
acquisitions
(unaudited)..... -- -- --
Net income
(unaudited)..... -- -- --
-------- ------------ -----------
Balance at
September 30,
1997
(unaudited)..... -- $ -- $ --
======== ============ ===========
<CAPTION>
COMMON STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------------------------------------------------------------
COMMON STOCK
-------------------------------- ADDITIONAL COMMON RETAINED
TREASURY PAID-IN STOCK EARNINGS
SHARES AMOUNT STOCK CAPITAL ISSUABLE (DEFICIT) TOTAL
----------- --------- ---------- ------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1993............ 4,675,320 $ 47,000 $ -- $ 52,000 $ -- $(1,380,000) $ (1,281,000)
Issuance of
preferred stock. -- -- -- -- -- -- --
Purchase of
treasury stock.. -- -- (523,000) -- -- -- (523,000)
Redeemable
preferred stock
accretion....... -- -- -- -- -- (1,646,000) (1,646,000)
Net income...... -- -- -- -- -- 1,976,000 1,976,000
----------- --------- ---------- ------------- ---------- ------------ -------------
Balance at
December 31,
1994............ 4,675,320 47,000 (523,000) 52,000 -- (1,050,000) (1,474,000)
Issuance of
common stock.... 278,685 2,000 -- (2,000) -- -- --
Retirement of
treasury stock.. (706,275) (7,000) 523,000 (10,000) -- (506,000) --
Redeemable
preferred stock
accretion....... -- -- -- -- -- (1,717,000) (1,717,000)
Net income...... -- -- -- -- -- 3,237,000 3,237,000
----------- --------- ---------- ------------- ---------- ------------ -------------
Balance at
December 31,
1995............ 4,247,730 42,000 -- 40,000 -- (36,000) 46,000
Issuance of
preferred stock. -- -- -- -- -- -- --
Issuance of
common stock,
net of issuance
costs of
$8,723,000...... 7,094,358 71,000 -- 95,152,000 -- -- 95,223,000
Exercise of
stock options... 34,290 1,000 -- -- -- -- 1,000
Repurchase of
preferred stock. -- -- -- -- -- -- --
Preferred stock
adjustment...... -- -- -- (330,000) -- -- (330,000)
Repurchase of
common stock
warrants........ -- -- -- (945,000) -- -- (945,000)
Redeemable
preferred stock
accretion....... -- -- -- -- -- (1,643,000) (1,643,000)
Net income...... -- -- -- -- -- 2,720,000 2,720,000
----------- --------- ---------- ------------- ---------- ------------ -------------
Balance at
December 31,
1996............ 11,376,378 114,000 -- 93,917,000 -- 1,041,000 95,072,000
Issuance of
common stock,
net of issuance
costs of
$3,982,000
(unaudited)..... 3,000,000 30,000 -- 55,613,000 -- -- 55,643,000
Issuance of
common stock in
connection with
acquisitions
(unaudited)..... 524,655 5,000 -- 9,785,000 -- -- 9,790,000
Exercise of
stock options
(unaudited)..... 29,751 -- -- 79,000 -- -- 79,000
Common stock
issuable in
connection with
acquisitions
(unaudited)..... -- -- -- -- 2,881,000 -- 2,881,000
Net income
(unaudited)..... -- -- -- -- -- 8,424,000 8,424,000
----------- --------- ---------- ------------- ---------- ------------ -------------
Balance at
September 30,
1997
(unaudited)..... 14,930,784 $149,000 $ -- $159,394,000 $2,881,000 $ 9,465,000 $171,889,000
=========== ========= ========== ============= ========== ============ =============
</TABLE>
See accompanying notes.
F-6
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............. $ 1,976,000 $ 3,237,000 $ 2,720,000 $ 910,000 $ 8,424,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization.......... 6,602,000 9,595,000 23,054,000 16,029,000 30,745,000
Extraordinary item..... -- 478,000 1,269,000 1,269,000 534,000
Interest paid in kind.. -- 710,000 1,706,000 1,706,000 --
Provision for losses
on accounts
receivable............ 621,000 1,040,000 1,692,000 989,000 1,789,000
Gain on sale of rental
equipment............. (920,000) (1,948,000) (3,729,000) (3,256,000) (4,403,000)
Changes in operating
assets and
liabilities, net of
effect of business
acquisitions:
Accounts receivable.. (2,834,000) (3,346,000) (5,725,000) (3,393,000) (12,186,000)
Other receivables and
prepaid expenses.... 200,000 (1,182,000) (1,703,000) (3,983,000) (179,000)
Income tax
receivable.......... -- -- (1,563,000) -- 446,000
Intangible assets and
other assets........ (192,000) 1,351,000 379,000 244,000 (105,000)
Parts and supplies
inventories......... (469,000) (1,403,000) (2,444,000) (2,369,000) (1,917,000)
Accounts payable..... 1,599,000 1,866,000 10,077,000 3,532,000 (6,959,000)
Payroll and other
accrued expenses and
related party
payables............ 410,000 (1,000,000) (3,523,000) 1,852,000 (1,738,000)
Accrued interest
payable............. (18,000) 737,000 (257,000) (131,000) 959,000
Income taxes payable. 211,000 (375,000) (172,000) (2,209,000) 6,383,000
Deferred taxes, net.. 223,000 132,000 1,713,000 -- --
------------ ------------ ------------- ------------- -------------
Net cash provided by
operating activities... 7,409,000 9,892,000 23,494,000 11,190,000 21,793,000
INVESTING ACTIVITIES
Acquisitions of rental
operations, net of cash
acquired............... (20,000) (42,057,000) (27,270,000) (19,858,000) (122,723,000)
Cash purchases of rental
equipment and operating
property and equipment. (17,043,000) (23,632,000) (86,842,000) (60,559,000) (117,759,000)
Proceeds from sale of
used equipment......... 3,240,000 4,126,000 12,695,000 8,903,000 13,664,000
Proceeds from (additions
to) assets held for
sale................... -- 2,652,000 16,668,000 16,054,000 --
------------ ------------ ------------- ------------- -------------
Net cash used in
investing activities... (13,823,000) (58,911,000) (84,749,000) (55,460,000) (226,818,000)
FINANCING ACTIVITIES
Proceeds from bank debt. 20,557,000 114,826,000 225,335,000 170,698,000 366,811,000
Payments on bank debt... (11,125,000) (69,108,000) (213,511,000) (175,793,000) (210,559,000)
Payments of debt
issuance costs......... (400,000) (2,024,000) (984,000) (885,000) (3,202,000)
Proceeds from long term
obligations............ -- 10,000,000 -- -- --
Payment on long term
obligations............ (894,000) (3,597,000) (12,916,000) (12,702,000) (275,000)
Payment on capital lease
obligations............ (197,000) (276,000) (577,000) (533,000) (37,000)
Purchase of treasury
stock--preferred....... (1,177,000) -- -- -- --
Purchase of treasury
stock--common.......... (523,000) -- -- -- --
Proceeds from issuance
of preferred stock..... 259,000 -- 7,500,000 7,500,000 --
Repurchase of preferred
stock.................. -- -- (37,874,000) (37,874,000) --
Proceeds from issuance
common stock, net of
issuance costs......... -- -- 95,223,000 95,223,000 55,643,000
Proceeds from exercise
of stock options....... -- -- 1,000 -- 79,000
Repurchase of common
stock warrants......... -- -- (945,000) (945,000) --
------------ ------------ ------------- ------------- -------------
Net cash provided by
financing activities... 6,500,000 49,821,000 61,252,000 44,689,000 208,460,000
------------ ------------ ------------- ------------- -------------
Net increase (decrease)
in cash and cash
equivalents............ 86,000 802,000 (3,000) 419,000 3,435,000
Cash and cash
equivalents at
beginning of period.... 567,000 653,000 1,455,000 1,455,000 1,452,000
------------ ------------ ------------- ------------- -------------
Cash and cash
equivalents at end of
period................. $ 653,000 $ 1,455,000 $ 1,452,000 $ 1,874,000 $ 4,887,000
============ ============ ============= ============= =============
Supplemental disclosure
of cash flow
information:
Cash paid for
interest.............. $ 749,000 $ 1,863,000 $ 5,614,000 $ 4,244,000 $ 7,904,000
Cash paid for income
taxes................. $ 777,000 $ 1,545,000 $ 1,850,000 $ 1,540,000 $ 200,000
</TABLE>
See accompanying notes.
F-7
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(THE INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR
THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. ACCOUNTING POLICIES
Basis of Presentation
Rental Service Corporation (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 locations throughout the United States. 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 consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year financial statement
presentation.
Revenue Recognition
Equipment rental revenue is recorded as earned under the operating method.
Equipment rentals in the consolidated statements of operations includes
revenues earned on equipment rentals, fuel sales and rental equipment delivery
fees. Revenue from the sale of parts, supplies and new equipment and revenue
from the sale of used equipment is recorded at the time of delivery to or
pick-up by the customer.
Credit Policy
Substantially all of the Company's business is on a credit basis. The
Company extends credit to its commercial customers based on evaluations of
their financial condition and generally no collateral is required, although in
many cases mechanics' liens are filed to protect the Company's interests.
Invoices are generated when a piece of rental equipment is returned by the
customer or in any event after 21 days. The Company has diversified its
customer base by operating rental locations in 15 states, primarily in the
Southeast and Midwest. The Company maintains reserves it believes are 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.
F-8
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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 in 1994 and 1995 and less
than $400 in 1996 and 1997 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 to 40 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 (SFAS) 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 to be realized 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
$407,000, $491,000, $1,050,000, $714,000 and $715,000 in advertising costs
during the years ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997, respectively.
Debt Costs
Deferred financing costs are amortized using the straight-line method over
the lives of the related debt. Deferred financing costs are expensed in
connection with refinancings if there are substantive changes in the terms of
the related debt. Interest expense for the Company's increasing interest rate
Bank Note (see Note 5) was determined based on the average effective interest
rate payable over the period in which the debt was expected to be outstanding,
which was three years.
F-9
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, Accounting for Stock Issued to Employees (APB 25), and,
accordingly, recognizes no compensation expense for stock option grants.
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 the balance sheet
date 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 September 30, 1997 and the
consolidated statements of operations, redeemable preferred stock and common
stockholders' equity and cash flows for the nine-month periods ended September
30, 1996 and 1997 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 periods are not necessarily indicative of results
for the full year.
Earnings (Loss) Per Share and Supplemental Earnings (Loss) 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 initial offering price, through the effective date of the
Company's initial public offering. Dilutive common stock equivalent shares
subsequent to the Company's initial public offering are computed using the
treasury stock method.
Supplementary pro forma net income per common and common equivalent share,
assuming the proceeds from the issuance of common shares in connection with
the initial public offering at the initial public offering
F-10
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
price of $16.00 ($14.88 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, would have been $.51 and $.36 for the
years ended December 31, 1995 and 1996, respectively, based upon 7,145,174 and
9,353,282 pro forma shares outstanding, respectively.
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, Earnings per Share, which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact is expected to
result in no material change in earnings (loss) per share (before or after
extraordinary items) for the years ended December 31, 1994, 1995 and 1996 and
the nine month periods ended September 30, 1996 and 1997.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which is required to be adopted in the first quarter of 1998. SFAS No. 130
established standards for the reporting and display of comprehensive income
and its components. Comprehensive income includes certain non-owner changes in
equity that are currently excluded from net income. Because the Company
historically has not experienced transactions which would be included in
comprehensive income, adoption of SFAS No. 130 is not expected to have a
material effect on the consolidated financial position, results of operations
or cash flows of the Company.
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. Purchase accounting values for all acquisitions have been assigned
on a preliminary basis, and are subject to adjustment when final information
as to the fair values of the net assets acquired is available. 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, common stock issued or issuable and cash
purchase price for these acquisitions.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER
----------------------------------- 30,
1994 1995 1996 1997
-------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Assets acquired.......... $113,000 $ 50,109,000 $20,316,000 $ 64,706,000
Goodwill and covenants
not to compete.......... (91,000) 19,513,000 12,221,000 82,926,000
Less: common stock issued
or issuable............. -- -- -- (12,238,000)
Less: liabilities
assumed................. (2,000) (27,565,000) (5,267,000) (12,671,000)
-------- ------------ ----------- ------------
Cash purchase price...... $ 20,000 $ 42,057,000 $27,270,000 $122,723,000
======== ============ =========== ============
Number of acquisitions... 1 5 11 15
</TABLE>
F-11
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the unaudited pro forma results of operations
for each year in which acquisitions occurred and for the immediately preceding
year as if the acquisitions were consummated at the beginning of the
immediately preceding year:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER
----------------------------------------- 30,
1994 1995 1996 1997
----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues.......... $85,712,000 $118,954,000 $240,865,000 $202,371,000
Income (loss) before
non-recurring and
extraordinary items.... (2,451,000) 1,660,000 4,915,000 9,500,000
Net income (loss)....... (2,451,000) 47,030,000(a) 3,646,000 8,966,000
Earnings (loss) per
common and common
equivalent share:
Income (loss) before
non-recurring and
extraordinary items.. (.76) (.01) .41 .70
Net income (loss)....... (.76) 8.15(a) .25 .66
</TABLE>
- --------
(a) Net income in 1995 includes non-recurring and extraordinary items related
to RHI's prepackaged bankruptcy of $45,370,000 ($8.17 per share),
including a gain on extinguishment of debt of $52,079,000 and charges for
fresh start accounting adjustment and reorganization items of $6,709,000.
On September 12, 1995, the Company acquired all of the assets and assumed
all of the liabilities of Acme Holdings Inc. (renamed as RSC Holdings Inc.)
(RHI) and its subsidiaries. RHI 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, RHI 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 RHI that had an aggregate principal balance at
that time of approximately $78,000,000. Additionally, the Company paid RHI's
debtor-in-possession facility of approximately $3,795,000 and assumed the
remaining liabilities of RHI in exchange for full releases from substantially
all of RHI's note holders.
In connection with the acquisition of RHI, the Company decided to sell,
close or dispose of RHI's rental locations in California, as they did not meet
the Company's financial performance criteria and were not part of the
Company's strategic plans. The assets related to those rental locations,
consisting primarily of rental equipment and accounts receivable, were
classified as assets held for sale in the accompanying consolidated balance
sheet at December 31, 1995. 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. The initial accrual of
$2,492,000 included $1,404,000 of allocated interest expense. 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 a gain on
disposal of assets of $649,000, and was credited to the accrual. The pre-tax
loss during the year ended December 31, 1996 was $3,380,000, which included
allocated interest expense of $751,000 and a gain on disposal of assets of
$513,000, and was charged to the accrual. In 1996, the Company revised its
estimates of the operating cash outflows expected to be incurred as part of
the disposal of the California locations and accrued an additional $1,292,000,
which was recorded as an adjustment to goodwill. During 1996, the Company sold
or closed all of the California locations, and had a remaining balance in the
accrual of $912,000 at December 31, 1996. During the nine months ended
September 30, 1997, $362,000 was charged to the accrual, leaving a remaining
balance of $550,000 at September 30, 1997.
F-12
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On April 25, 1997, the Company acquired all of the outstanding stock of
Comtect, Inc. and subsidiaries d/b/a Industrial Air Tool (IAT) for $32.6
million in cash and 189,189 shares of RSC common stock. Up to an additional
108,108 shares of RSC common stock may be paid to the sellers over a three
year period if certain performance objectives are met. IAT is an "on-site"
small tool provider, rental management company and maintenance, repair and
operations (MRO) supplier and operated a total of four locations in Texas and
Louisiana. IAT's balance sheet was consolidated with the Company's under the
purchase method of accounting as of April 25, 1997. This acquisition resulted
in approximately $23.8 million in goodwill, which is being amortized over 40
years. Pursuant to the acquisition agreement, the Company assumed effective
control of IAT's operations on March 1, 1997 and has included IAT's revenues,
costs and expenses from such date in its consolidated statements of
operations, net of related imputed purchase price adjustments. The pro forma
information above includes this acquisition as if it had occurred as of the
beginning of 1996 and 1997, respectively.
On June 5, 1997, the Company acquired substantially all of the assets of
Brute Equipment Co. d/b/a Foxx Hy-Reach Company (Foxx) for $32.7 million in
cash and 284,250 shares of RSC common stock, of which 233,034 shares were paid
to the Seller at closing, with the remaining 51,216 shares to be issued one
year from the date of closing. Up to an additional 89,630 shares of RSC common
stock may be paid to the seller over a three year period if certain
performance objectives are met. Foxx specializes in the rental and sale of
aerial equipment to construction and industrial customers and operates a total
of four locations in Iowa and Illinois. This acquisition was recorded under
the purchase method of accounting and resulted in approximately $24.4 million
in goodwill, which is being amortized over 40 years. The pro forma information
above includes this acquisition as if it had occurred as of the beginning of
1996 and 1997, respectively.
On June 17, 1997, the Company acquired substantially all of the assets of
Central States Equipment, Inc. and Equipment Lessors, Inc. (collectively,
Central) for approximately $18.0 in cash and 204,867 shares of RSC common
stock, of which 102,435 shares of RSC common stock will be paid to the sellers
over a five year period, and may be accelerated to three years if certain
performance objectives are met. Central specializes in the rental and sale of
aerial equipment, ladders and scaffolding and operates a total of four
locations in Kansas, Missouri and Oklahoma. This acquisition was recorded
under the purchase method of accounting and resulted in approximately $11.0
million in goodwill, which is being amortized over 40 years. The pro forma
information above includes this acquisition as if it had occurred as of the
beginning of 1996 and 1997, respectively.
The common stock issuable in the accompanying consolidated balance sheets is
associated with the common stock relating to the acquisitions of Foxx (51,216
shares) and Central (102,435 shares) which vests over future time periods.
Common stock issuable is treated as if it were outstanding since the date of
the respective acquisition for the calculation of weighted average common and
common equivalent shares. Weighted average common and common equivalent shares
excludes the effects of the potential issuance of all shares contingent on the
achievement of certain performance objectives, as the related objectives have
not currently been achieved.
F-13
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. OPERATING PROPERTY AND EQUIPMENT
Operating property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Vehicles, machinery and equipment..... $ 7,010,000 $14,638,000 $25,018,000
Leasehold improvements................ 1,284,000 2,695,000 3,978,000
Furniture, fixtures and computer
equipment............................ 2,663,000 5,385,000 7,554,000
Land and building..................... 1,634,000 1,828,000 2,230,000
----------- ----------- -----------
Total............................... 12,591,000 24,546,000 38,780,000
Less: accumulated depreciation and
amortization......................... 1,962,000 4,503,000 8,140,000
----------- ----------- -----------
$10,629,000 $20,043,000 $30,640,000
=========== =========== ===========
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Covenants not to compete............... $ 141,000 $ 2,281,000 $ 3,151,000
Goodwill............................... 24,685,000 34,766,000 116,822,000
----------- ----------- ------------
Total................................ 24,826,000 37,047,000 119,973,000
Less: accumulated amortization......... 672,000 2,246,000 4,694,000
----------- ----------- ------------
$24,154,000 $34,801,000 $115,279,000
=========== =========== ============
</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.
5. BANK DEBT AND LONG TERM OBLIGATIONS
Bank debt and long term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
----------------------- 30,
1995 1996 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
$300,000,000 Revolving Line of Credit
(Revolver) with a bank, interest at the
prime rate plus 0.25%, due monthly, or
Eurodollar rate plus 1.75%, due on
demand, at the Company's option,
principal due January 31, 2002. The
interest rate in effect at December 31,
1995 and 1996 and September 30, 1997 was
8.9%, 8.3%, and 7.5%, respectively...... $56,042,000 $67,867,000 $224,119,000
Note payable to bank (Bank Note)......... 10,710,000 -- --
Notes payable, interest at 8%, due in
aggregate monthly installments of $3,400
through 2008............................ 393,000 306,000 293,000
Equipment contracts payable, interest at
7-11%, payable in various monthly
installments through 1998,
collateralized by equipment............. 765,000 353,000 92,000
----------- ----------- ------------
$67,910,000 $68,526,000 $224,504,000
=========== =========== ============
</TABLE>
F-14
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On January 31, 1997, the Company amended the Revolver to, among other
things, increase the availability to $200 million, decrease the interest rate
margins by 0.5%, increase the advance rates on eligible rental equipment to
100% and extended the maturity date to January 31, 2002. On June 4, 1997, the
Company again amended the Revolver to, among other things, increase the
availability to $300.0 million, decrease the interest rate margins by 0.25%
with further reductions if certain interest coverage ratios are met and to
reduce the unused line fee to 0.25% of the unused commitment. 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) 100% of the value (lower of net book value or market) of
eligible rental equipment through December 31, 1998; 90% of the value of
eligible rental equipment from January 1, 1999 through December 31, 1999; 80%
of the value of eligible rental equipment from January 1, 2000 through
December 31, 2000; and 75% of the value of eligible rental equipment from
January 1, 2001 through the expiration date of the Revolver. The Revolver
expires on January 31, 2002. The Revolver also contains provisions to annually
adjust the prime and Eurodollar interest rate margins based on the Company's
achievement of specified interest coverage ratios. The obligations of the
lenders to make 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.
Effective June 30, 1997, the Company further amended the Revolver to increase
the allowed level of investments and capital expenditures for 1997 to $138.0
million and to increase the maximum allowed total indebtedness to trailing
EBITDA ratio for each of the last three quarters of 1997. As of September 30,
1997, the Company was in compliance with all covenants of the Revolver, and
substantially all of the net consolidated assets of the Company were
restricted under the terms of 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 Company's subsidiaries. RSC is a guarantor of the
obligations of its subsidiaries under the Revolver, and has granted liens on
substantially all of its assets (including the stock of its subsidiaries) to
secure such guaranty. The Revolver also restricts the Company from declaring
or paying dividends on its common stock. 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 0.25% 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 under the Revolver at December 31, 1995 and 1996 and
September 30, 1997 were $56,042,000, $67,867,000, and $224,119,000,
respectively, with approximately $6,815,000 and $28,888,000, and $43,958,000,
respectively, available based on the borrowing base. Outstanding letters of
credit totaled $212,000, $0 and $0 at December 31, 1995 and 1996 and September
30, 1997, respectively.
F-15
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with an amendment to the Revolver in January 1997, the Company
wrote-off the related unamortized deferred financing costs and recorded a loss
on extinguishment of debt of $920,000, net of income taxes of $386,000, which
has been classified as an extraordinary item in the accompanying consolidated
statements of operations for the nine months ended September 30, 1997.
The Company utilized proceeds from its initial public offering in September
1996 to reduce the outstanding amounts under the Revolver by $37.7 million. In
connection with the implementation of an amendment to the Revolver in September
1996, the Company wrote off the related deferred financing costs and recorded a
loss on extinguishment of debt of $2,453,000 which has been classified as an
extraordinary item, net of income taxes of $964,000, in the accompanying
consolidated statements of operations for the year ended December 31, 1996.
The Company entered into a redeemable note and warrant purchase agreement
(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 was to be paid in kind through
the issuance of additional notes, thereafter paid semi-annually in cash. The
principal amount of the Bank Note was to be increased by $1,000,000 on each of
the first three anniversaries, which was being accounted for as interest
expense. Additionally, the financial institution was issued warrants entitling
the purchase of 87,120 shares of common stock at a purchase price of $4.83 per
share (subject to adjustment) through September 15, 2005. On September 24,
1996, the Company repaid the Bank Note and repurchased the related warrants for
$13,000,000, utilizing proceeds from its initial public offering. This
repayment resulted in a reduction of additional paid-in capital of $945,000 and
a gain on extinguishment of debt of $362,000, which has been classified as an
extraordinary item, net of income taxes of $142,000, in the accompanying
consolidated statements of operations for the year ended December 31, 1996.
In 1995, the Company paid off the borrowings under a previous revolver 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
for the year ended December 31, 1995.
The aggregate annual maturities of bank debt and long term obligations as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
NOTES EQUIPMENT
REVOLVER PAYABLE CONTRACTS TOTAL
----------- -------- --------- -----------
<S> <C> <C> <C> <C>
1997............................ $ -- $ 16,000 $279,000 $ 295,000
1998............................ -- 17,000 74,000 91,000
1999............................ -- 19,000 -- 19,000
2000............................ -- 21,000 -- 21,000
2001............................ $67,867,000 23,000 -- 67,890,000
Thereafter...................... -- 210,000 -- 210,000
----------- -------- -------- -----------
$67,867,000 $306,000 $353,000 $68,526,000
=========== ======== ======== ===========
</TABLE>
6. PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
Preferred Stock
The Company's Board of Directors, without approval of the holders of the
common stock, is authorized to fix the number of shares of any series of
preferred stock and to designate for issuance up to 500,000 shares of preferred
stock, par value $.01 per share, in such number of series and with such rights,
preferences, privileges and restrictions (including without limitations voting
rights) as the Board of Directors may from time to time determine.
F-16
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company had outstanding at December 31, 1995, 244,805 shares of a series
of cumulative redeemable preferred stock. On September 24, 1996, the Company
utilized proceeds from its initial public offering to redeem all outstanding
shares of this preferred stock, including accumulated dividends, for
$37,874,000. The Redeemable Preferred Stock was cumulative at a rate of 6% per
annum, computed on a quarterly basis. No dividends could be paid on the common
stock in any quarter until the accumulated dividends on the Redeemable
Preferred Stock had been paid for all quarters ending prior to the date of
payment of dividends on the common stock.
Stock Purchase Agreements
Between 1992 and 1995, the Company entered into various stock purchase
agreements with a former chairman, a former president, the current chairman and
the current chief financial officer for the sale of 675,000 shares of common
stock at $.02 per share and 372,195 shares of common stock at $.01 per share.
The stock was issued subject to certain vesting requirements over generally a
four to five year period. However, the vesting for a portion of the stock which
otherwise vested in the last two years could be accelerated if the Company
achieved certain performance targets, as determined by the Company's Board of
Directors. Upon a change of control (as defined), any unvested shares generally
immediately vested. In the event the participant terminated employment with the
Company, the Company generally has the option to purchase any unvested shares
at the original issuance price.
In connection with the former chairman's resignation, the Company in
September 1994 purchased all of his vested and unvested shares (675,000) of the
Company's common stock for $523,000, as well as all of his shares (11,256) of
the Company's preferred stock for $1,177,000. As of December 31, 1994, these
shares were held by the Company as treasury shares and were canceled during
1995.
In April 1995, the Company purchased 31,275 shares of outstanding unvested
stock of the former president at $.01 per share, which were subsequently
canceled.
At December 31, 1995 and 1996 and September 30, 1997, there were 144,787,
81,923 and 81,923 of these shares, respectively, which had not yet vested and
were subject to the Company's repurchase option at $.01 per share.
Stock Option Plan
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, Accounting
for Stock-Based Compensation, requires the use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
On July 25, 1995, the Board of Directors of the Company adopted the Stock
Option Plan for Key Employees (1995 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 or
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 that may be issued upon exercise
of options may not exceed 324,000. Generally, the incentive stock options will
expire ten years from the date such options were granted. At September 30,
1997, 1,860 of these shares were available for future stock option grants.
F-17
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The options currently outstanding generally become exercisable in various
amounts over either a four or five year period; however, the vesting for
certain portions of the options may be accelerated if the employee and the
Company achieve certain performance targets, as determined by the Company's
option committee.
On February 5, 1997, the Company's stockholders approved and the Company
adopted the 1996 Equity Participation Plan of Rental Service Corporation (1996
Plan). The 1996 Plan authorizes the issuance of not more than 1,000,000 shares
of the Company's common stock (or the equivalent in other equity securities)
upon the exercise of options, stock appreciation rights and other awards, or
upon vesting of restricted or deferred stock awards (Awards). Under the 1996
Plan, Awards may be granted to officers, non-employee directors, key employees
and consultants of the Company at a price not to be less than 100% of the fair
market price on the date such award is granted. At September 30, 1997, 362,438
shares of Common Stock were available for future Awards under the 1996 Plan.
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, which also requires that the information be determined as if
the Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 1995
and 1996: a risk-free interest rate of 6.28%, a dividend yield of 0%, a
volatility factor of the expected market price of the Company's Common Stock of
.641 and a weighted average expected life of the option of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of the Company's employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Pro forma net income................................ $3,237,000 $2,597,000
Pro forma net income per share...................... .30 .13
</TABLE>
Because SFAS No. 123 is applicable only to options granted after December 31,
1994, its pro forma effect will not be fully reflected until 1997. The effects
of applying SFAS No. 123 for the years ended December 31, 1995 and 1996 are not
likely to be representative of the effects on reported net income for future
years.
F-18
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the Company's stock option activity, and related information,
for the years ended December 31, 1995 and 1996, and the nine months ended
September 30, 1997 follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE
AVAILABLE NUMBER EXERCISE PRICE
FOR OF PRICE PER PER
OPTIONS SHARES SHARE SHARE
--------- ------- ------------ --------
<S> <C> <C> <C> <C>
Balance at December 31, 1994.... -- -- $ -- $ --
Authorized Shares--1995 Plan.... 324,000 -- -- --
Grants--1995 Plan............... (129,690) 129,690 .01 .01
--------- ------- ------
Balance at December 31, 1995.... 194,310 129,690 .01 .01
Grants--1995 Plan............... (209,190) 209,190 7.03-21.00 17.12
Exercises--1995 Plan............ -- (34,290) .01 .01
Forfeitures--1995 Plan.......... 16,740 (16,740) .01 .01
Cancellations--1995 Plan........ -- (12,510) .01 .01
--------- ------- ------
Balance at December 31, 1996.... 1,860 275,340 .01-21.00 13.01
Authorized Shares--1996 Plan
(unaudited).................... 1,000,000 -- -- --
Grants--1996 Plan (unaudited) .. (659,450) 659,450 18.00-26.875 20.19
Exercises--1995 Plan
(unaudited).................... -- (29,751) .01-14.11 2.66
Forfeitures--1996 Plan
(unaudited).................... 21,888 (21,888) 20.25 20.25
Cancellations--1995 Plan
(unaudited).................... -- (5,400) 14.11 14.11
--------- ------- ------
Balance at September 30, 1997
(unaudited).................... 364,298 877,751 $ .01-26.875 $18.57
========= ======= ======
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1995 and 1996 was $.01 and $10.23, respectively.
There were no options exercisable at December 31, 1995 and 9,333 options
exercisable with a weighted average exercise price of $2.53 per share at
December 31, 1996. The weighted average remaining contractual life of the
options outstanding at December 31, 1996 is 9.2 years.
Employee Stock Purchase Plan
On April 28, 1997 at the Company's Annual Meeting of Stockholders, the
Company's stockholders approved, and the Company adopted, the Employee
Qualified Stock Purchase Plan of Rental Service Corporation (QSP Plan). Under
the QSP Plan, the Company has reserved 250,000 shares of common stock for sale
to employees. The QSP Plan allows eligible employees of the Company to
purchase shares of common stock at the lesser of 85% of the fair market value
of such shares at the beginning of each semiannual offering period or 85% of
the fair market value of such shares on the date of exercise of an installment
of the purchase right. Purchases are limited to 15% of an employee's eligible
compensation, subject to a maximum purchase of 1,500 shares in any semiannual
offering period. The QSP Plan commenced on July 1, 1997.
7. EMPLOYEE BENEFIT PLANS
The Company maintains a Section 401(k) employees savings plan (Savings Plan)
covering substantially all full-time employees upon completion of at least
1,000 hours of service during the plan year or nine months of continuous
employment.
F-19
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1994, 1995 and 1996 and the nine
months ended September 30, 1996 and 1997, the Company made discretionary
contributions totaling $0, $0, $150,000, $78,000 and $312,000, 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
$2,352,000 and $599,000, respectively, at December 31, 1995 and $107,000 and
$67,000, respectively, at December 31, 1996. Future minimum lease payments
under the capital leases and the present value of the minimum lease payments as
of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................ $65,000
1998............................................................ 9,000
-------
Total minimum future lease payments............................. 74,000
Less amount representing interest............................... 6,000
-------
Present value of net minimum future lease payments.............. $68,000
=======
</TABLE>
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 $919,000, $2,397,000, $3,081,000
$2,161,000 and $3,563,000 for the years ended December 31, 1994, 1995 and 1996
and the nine months ended September 30, 1996 and 1997, 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, 1996:
<TABLE>
<S> <C>
1997......................................................... $ 4,084,000
1998......................................................... 3,418,000
1999......................................................... 2,864,000
2000......................................................... 2,282,000
2001......................................................... 1,575,000
Thereafter................................................... 1,889,000
-----------
$16,112,000
===========
</TABLE>
Purchase Obligations
At December 31, 1996 and September 30, 1997, the Company was obligated, under
noncancellable purchase commitments, to purchase $28,145,000 and $7,000,000,
respectively, of 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
F-20
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
general and vehicle policy includes an annual aggregate liability limit of
$2,000,000 and a per occurrence liability limit of $1,000,000.
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, $763,000 and $763,000 at December 31, 1995 and 1996 and September 30,
1997, respectively, related to the removal of underground tanks at the
Company's locations. The actual costs of remediating these environmental
conditions may be different than that accrued by the Company due to the
difficulty in estimating such costs and due to potential changes in the status
of legislation and state reimbursement programs. The Company does not believe
that such removal and remediation will have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
Legal Proceedings
The Company and its subsidiaries are parties to various litigation matters,
in most cases involving ordinary and routine claims incidental to the business
of the Company. The ultimate legal and financial liability of the Company with
respect to such pending litigation cannot be estimated with certainty, but the
Company believes, based on its examination of such matters, that such ultimate
liability will not have a material adverse effect on the business, or the
consolidated financial position, results of operations or cash flows of the
Company.
9. RELATED PARTY TRANSACTIONS
In July 1992, the Company entered into a five-year management agreement
(Management Agreement) with RHI, which also operated an equipment rental
business. Under the Management Agreement, RHI 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, RHI agreed, until April 1, 1995, to make available
first to the Company any opportunities that came to its attention for acquiring
additional rental center locations. The Company reimbursed RHI for any costs
incurred 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. Total management fee
expense, included in general and administrative expense, was $1,586,000 and
$742,000 for the years ended December 31, 1994 and 1995, respectively. The
Management Agreement was terminated on September 12, 1995.
The Company and RHI agreed to re-rent 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 re-rental. During the years ended December 31, 1994 and 1995, re-rent
revenue received by the Company from RHI was $230,000 and $72,000,
respectively, and re-rent expense paid by the Company to RHI was $39,000, and
$27,000, respectively. The agreement terminated on September 12, 1995.
During 1994 and 1995, certain expenses incurred by RHI were paid by the
Company and vice versa.
F-21
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
One of the stockholders of the Company received an investment banking fee
from the Company in connection with the Company's acquisitions. The fee was
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, 1994, 1995 and 1996 and the nine months ended
September 30, 1996 and 1997 totaled $0, $663,000, $388,000, $388,000 and $0,
respectively. Effective November 1, 1993, the stockholder also received a
monitoring fee, which equaled 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, 1994, 1995 and 1996 and nine
months ended September 30, 1996 and 1997 totaled $235,000, $235,000, $235,000,
$176,000 and $0, respectively, and are included in general and administrative
expense. The Company's obligation to pay such investment banking and monitoring
fees terminated in September 1996, in conjunction with the Company's initial
public offering, however, the Company, at its discretion, can utilize the
stockholder's investment banking services under the same fee arrangement.
On December 31, 1994, RSC Acquisition purchased 37,512 shares of common stock
and 675,000 shares of preferred stock of RHI for $10 from a former officer of
RSC Acquisition. This equated to a voting interest of 34.2% in RHI at December
31, 1994. These shares of RHI were canceled September 12, 1995 as part of RHI's
plan of reorganization.
10. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................. $ 793,000 $1,135,000 $ --
State................................... 161,000 337,000 187,000
---------- ---------- ----------
954,000 1,472,000 187,000
Deferred:
Federal................................. 123,000 581,000 1,550,000
State................................... 100,000 43,000 163,000
---------- ---------- ----------
223,000 624,000 1,713,000
Extraordinary items....................... -- 305,000 822,000
---------- ---------- ----------
$1,177,000 $2,401,000 $2,722,000
========== ========== ==========
</TABLE>
For interim periods, the provision for income taxes is based upon the
estimated income tax rate for the full fiscal year.
F-22
<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,
-------------------------
1995 1996
----------- ------------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities.......................... $ 4,601,000 $ 3,310,000
Inventory reserve............................ 559,000 677,000
Bad debt reserve............................. 1,161,000 1,245,000
Net operating loss carryforwards............. 7,189,000 6,563,000
Alternative minimum tax credit............... 1,658,000 1,590,000
Valuation allowance.......................... (7,858,000) (4,740,000)
----------- ------------
7,310,000 8,645,000
Deferred tax liabilities:
Depreciation................................. (9,815,000) (12,863,000)
----------- ------------
Net deferred tax liability..................... $(2,505,000) $ (4,218,000)
=========== ============
</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,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Expected provision using the
statutory tax rate.................. $1,072,000 $2,079,000 $2,282,000
State taxes, net of federal tax
benefit............................. 172,000 290,000 204,000
Permanent differences................ 80,000 213,000 341,000
Other................................ (147,000) (181,000) (105,000)
---------- ---------- ----------
$1,177,000 $2,401,000 $2,722,000
========== ========== ==========
</TABLE>
At December 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $14,100,000 that expire in years
2005 through 2011. In addition the Company had combined state net operating
loss carryforwards of approximately $11,300,000 that expire in years 1997
through 2011. Approximately $8,500,000 of the federal carryforwards and
$1,100,000 of the state carryforwards are attributable to the Company's
September 12, 1995 acquisition of RHI. For financial reporting purposes a
valuation allowance of $6,200,000 and $3,986,000 at December 31, 1995 and
1996, respectively, 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 RHI.
The Company also has alternative minimum tax credit carryovers of
approximately $1,425,000 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 RHI. For
financial reporting purposes a valuation allowance of $1,658,000 and $754,000
at December 31, 1995 and 1996, respectively, 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.
F-23
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The valuation allowances increased $7,831,000 in 1995 and decreased
$3,118,000 in 1996. The decrease in the 1996 valuation allowance is
principally due to a $9,506,000 decrease in the estimated net operating loss
that is not expected to be realized from the Company's discontinued California
operations.
Any tax benefit resulting from the utilization of the net operating loss
carryforwards or the tax credit carryovers obtained in the acquisition of RHI
will be accounted for as a reduction of the purchase price in the periods they
are realized.
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR-TO-DATE
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues:
1995.................. $11,583,000 $12,952,000 $16,461,000 $24,921,000 $ 65,917,000
1996.................. 27,197,000 31,267,000 34,631,000 35,259,000 128,354,000
1997.................. 41,309,000 58,554,000 72,469,000 N/A 172,332,000
Gross profit:
1995.................. 3,240,000 3,644,000 4,234,000 6,637,000 17,755,000
1996.................. 6,048,000 7,758,000 8,318,000 9,118,000 31,242,000
1997.................. 10,978,000 14,870,000 18,841,000 N/A 44,689,000
Income before
extraordinary items:
1995.................. 899,000 1,019,000 1,021,000 776,000 3,715,000
1996.................. 330,000 897,000 952,000 1,810,000 3,989,000
1997.................. 2,183,000 2,855,000 3,920,000 N/A 8,958,000
Net income (loss):
1995.................. 899,000 1,019,000 543,000 776,000 3,237,000
1996.................. 330,000 897,000 (317,000) 1,810,000 2,720,000
1997.................. 1,649,000 2,855,000 3,920,000 N/A 8,424,000
Earnings (loss) per
common and common
equivalent share:
1995
Income before
extraordinary items.. $ .09 $ .12 $ .11 $ .07 $ .39
Extraordinary items... -- -- (.09) -- (.09)
----------- ----------- ----------- ----------- ------------
Net income............ $ .09 $ .12 $ .02 $ .07 $ .30
=========== =========== =========== =========== ============
1996
Income (loss) before
extraordinary items.. $ (.04) $ .06 $ .07 $ .16 $ .33
Extraordinary items... -- -- (.20) -- (.18)
----------- ----------- ----------- ----------- ------------
Net income (loss)..... $ (.04) $ .06 $ (.13) $ .16 $ .15
=========== =========== =========== =========== ============
1997
Income before
extraordinary items.. $ .19 $ .23 $ .26 $ .68
Extraordinary items... (.05) -- -- (.04)
----------- ----------- ----------- ------------
Net income............ $ .14 $ .23 $ .26 N/A $ .64
=========== =========== =========== ============
</TABLE>
F-24
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SUBSEQUENT EVENTS (UNAUDITED)
On December 2, 1997, the Company acquired all of the outstanding capital
stock of Rent-It-Center, Inc. d/b/a Center Rentals and Sales and substantially
all of the assets of certain affiliated entities (collectively, Center) for
approximately $100.9 million in cash, 482,315 shares of RSC common stock (of
which 64,544 shares will be issued over seven years, subject to earlier
issuance within three years if certain performance objectives are achieved)
and the assumption of approximately $16.0 million of Center's debt. Center is
an independent rental company and also sells a variety of equipment ranging
from small tools to heavy equipment, including related commodity supplies.
Center operates a total of 14 locations in Colorado, New Mexico, Texas,
Kansas, Missouri and Nebraska. Center's balance sheet is consolidated with the
Company's under the purchase method of accounting as of December 2, 1997.
Pursuant to the acquisition agreements, the Company assumed effective control
of Center's operations on November 1, 1997 and has included Center's revenues,
costs and expenses from such date in its consolidated statements of
operations, net of related imputed purchase price adjustments.
On October 28, 1997, the Company signed a letter of intent to acquire
substantially all of the assets of JDW Enterprises, Inc. d.b.a Valley Rentals
(Valley) for a total purchase price of $104.0 million, consisting of
$93.6 million of cash and $10.4 million of RSC common stock. The purchase
price is subject to adjustment based on levels of accounts receivable,
inventory and equipment. Valley is an independent rental company located in
the Southwest and operates a total of ten locations in Arizona and New Mexico.
The transaction is anticipated to close by January 31, 1998, and will be
recorded under the purchase method of accounting. The closing is subject to a
number of closing conditions, including the execution of a definitive purchase
agreement, RSC board and bank approval and early termination or expiration of
the waiting period under the Hart-Scott-Rodino Act.
On December 12, 1997, the Company acquired all of the outstanding capital
stock of Siems Rental & Sales Co., Inc. (Siems) for $8.0 million in cash,
126,315 shares of RSC common stock and the assumption of approximately $13.5
million of Siems' debt. Siems is an independent rental company engaged in the
rental, sales and service of various types of construction and industrial
equipment. Siems operates a total of six locations in Maryland, Delaware,
Pennsylvania and Virginia. Siems' balance sheet is consolidated with the
Company's under the purchase method of accounting as of December 12, 1997.
Pursuant to the acquisition agreement, the Company assumed effective control
of Siems' operations on November 1, 1997 and has included Siems' revenues,
costs and expenses from such date in its consolidated statements of
operations, net of related imputed purchase price adjustments.
On November 3, 1997, the Company began soliciting written consent of its
stockholders for the approval of an increase in the number of authorized
shares of its common stock, $.01 par value, from 20 million to 40 million
shares. Stockholder approval of the increase became effective on November 28,
1997. On December 11, 1997, the Company amended its Certificate of
Incorporation to effect such increase.
On December 2, 1997, the Company amended and restated the Revolver to
increase its total available financing to $600.0 million. This increase
consisted of an increase in the availability under the Revolver from $300.0
million to $500.0 million and a new $100.0 million seven-year term loan
facility (Term Loan). In addition, this new financing package extended the
maturity date of the Revolver to December 2, 2002; changed the methodology for
determining the interest rate margins; increased the allowed levels of capital
expenditures and investments to $160.0 million in 1997, $150.0 million in each
of 1998, 1999 and 2000, $160.0 million in 2001, $180.0 million in 2002, $225.0
million in 2003 and $240.0 million in 2004 (plus amounts reinvested from asset
sales); and amended several covenants, including the computation methodology
of certain financial covenants.
The Term Loan requires mandatory principal payments of $1.0 million on each
of its first six anniversaries, with the remaining principal amount due at
maturity. The Term Loan matures on December 2, 2004. Interest on
F-25
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the Term Loan is payable monthly at either the prime rate plus 1.0% or the
Eurodollar rate plus 2.5% (at the Company's option). The Term Loan contains
the same conditions, covenants and restrictions as the Revolver.
Subsequent to September 30, 1997, the Company completed the acquisitions of
substantially all of the assets of Kansas Enterprises, Inc. d/b/a AAA Rent-
All; Sunbelt Equipment & Rentals, Inc.; Roesch Equipment Company; Allen
Equipment, Inc. and R&M Rentals, Inc. for a total combined purchase price of
approximately $16.5 million. These acquisitions have a combined ten locations
in Arkansas, Florida, Illinois, Kansas and Missouri.
As of December 12, 1997, the Company is party to additional letters of
intent to acquire four businesses for a total combined purchase price of
approximately $9.7 million and having a combined ten locations in Florida,
Georgia, South Carolina and Tennessee. Each of these acquisitions is subject
to a number of closing conditions, including the execution of definitive
purchase agreements and RSC board approval.
F-26
<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-27
<PAGE>
ACME HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1993 1994 1995
------------ ------------ ------------
(UNAUDITED)
ASSETS (NOTE 3)
---------------
<S> <C> <C> <C>
Cash and cash equivalents (Note 1).. $ 599,000 $ 3,183,000 $ 1,627,000
Accounts receivable, net of
allowance for doubtful accounts of
$1,097,000 in 1993, $1,352,000 in
1994 and $1,786,000 in 1995........ 9,025,000 9,145,000 8,829,000
Other receivables................... 164,000 316,000 235,000
Receivables from related parties
(Note 7)........................... 220,000 138,000 298,000
Parts and supplies inventories (Note
1)................................. 1,453,000 1,180,000 1,099,000
Prepaid expenses.................... 609,000 585,000 897,000
Rental equipment, principally
machinery, at cost, net of
accumulated depreciation of
$32,515,000 in 1993, $32,576,000 in
1994 and $33,102,000 in 1995
(Notes 1, 3 and 6)................. 33,027,000 28,277,000 30,049,000
Operating property and equipment, at
cost, net of accumulated
depreciation of $3,505,000 in 1993,
$3,856,000 in 1994 and $4,019,000
in 1995 (Notes 1 and 3)............ 3,931,000 3,067,000 3,698,000
Goodwill, net of accumulated
amortization of $724,000 in 1993,
$869,000 in 1994 and $941,000 in
1995 (Note 1)...................... 3,646,000 3,501,000 3,429,000
Other assets, net (Notes 1 and 6)... 3,830,000 3,001,000 2,682,000
------------ ------------ ------------
$ 56,504,000 $ 52,393,000 $ 52,843,000
============ ============ ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS'
DEFICIT
-----------------------------
<S> <C> <C> <C>
Accounts payable.................... $ 3,369,000 $ 2,720,000 $ 3,238,000
Unfunded disbursements.............. 1,214,000 1,635,000 3,093,000
Payroll and other accrued expenses.. 7,240,000 8,804,000 8,339,000
Accrued interest payable............ 763,000 5,398,000 10,309,000
Income taxes payable (Note 9)....... 230,000 99,000 81,000
Deferred taxes based on income (Note
9)................................. 425,000 375,000 325,000
Obligations under capital leases
(Note 6)........................... 990,000 685,000 505,000
Senior Notes (Note 3)............... 77,566,000 77,618,000 77,644,000
Senior secured borrowings (Note 3).. 5,839,000 5,058,000 4,353,000
------------ ------------ ------------
Total liabilities................... 97,636,000 102,392,000 107,887,000
Commitments (Note 6)
Shareholders' deficit (Notes 1, 4
and 8):
Preferred stock, $1.00 par value:
Authorized, issued and
outstanding shares at
December 31, 1993 and 1994 and
June 30, 1995--3,000,000....... 3,000,000 3,000,000 3,000,000
Common stock, $.01 par value:
Authorized shares--500,000
Issued and outstanding shares--at
December 31, 1993 and 1994--
112,095 and 104,598, respectively
and 102,596 at June 30, 1995..... 1,000 1,000 1,000
Additional paid-in capital........ 724,000 724,000 724,000
Accumulated deficit............... (44,857,000) (53,724,000) (58,769,000)
------------ ------------ ------------
Total shareholders' deficit......... (41,132,000) (49,999,000) (55,044,000)
------------ ------------ ------------
$ 56,504,000 $ 52,393,000 $ 52,843,000
============ ============ ============
</TABLE>
See accompanying notes.
F-28
<PAGE>
ACME HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1992 1993 1994 1994 1995
----------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals
(Note 1)............. $58,423,000 $ 55,504,000 $57,444,000 $28,296,000 $26,772,000
Sales of parts,
supplies and used
equipment............ 10,166,000 7,985,000 10,890,000 4,765,000 5,282,000
----------- ------------ ----------- ----------- -----------
Total revenues.......... 68,589,000 63,489,000 68,334,000 33,061,000 32,054,000
Costs and expenses:
Operating expenses.... 36,134,000 40,454,000 37,912,000 18,569,000 17,516,000
Cost of sales of
parts, supplies and
used equipment....... 7,074,000 6,087,000 8,188,000 3,565,000 3,912,000
General and
administrative
expense.............. 7,106,000 7,338,000 11,180,000 4,631,000 5,648,000
Depreciation and
amortization expense. 10,494,000 11,347,000 9,933,000 5,132,000 4,765,000
Restructure costs
(Note 2)............. -- 1,887,000 -- -- --
Provision for rental
equipment
retirements.......... -- 880,000 -- -- --
----------- ------------ ----------- ----------- -----------
Total costs and
expenses............... 60,808,000 67,993,000 67,213,000 31,897,000 31,841,000
----------- ------------ ----------- ----------- -----------
Operating income (loss). 7,781,000 (4,504,000) 1,121,000 1,164,000 213,000
Interest expense........ 8,422,000 9,279,000 9,927,000 4,897,000 5,198,000
----------- ------------ ----------- ----------- -----------
Loss before income
taxes.................. (641,000) (13,783,000) (8,806,000) (3,733,000) (4,985,000)
Provision for income
taxes (Note 9)......... 427,000 274,000 61,000 124,000 60,000
----------- ------------ ----------- ----------- -----------
Net loss................ $(1,068,000) $(14,057,000) $(8,867,000) $(3,857,000) $(5,045,000)
=========== ============ =========== =========== ===========
</TABLE>
See accompanying notes.
F-29
<PAGE>
ACME HOLDINGS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- --------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ---------- ------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1991...... -- $ -- 111,111 $1,000 $724,000 $(29,732,000) $(29,007,000)
Net loss................ -- -- -- -- -- (1,068,000) (1,068,000)
Issuance of preferred
stock, $1.00 par value. 3,000,000 3,000,000 -- -- -- -- 3,000,000
--------- ---------- ------- ------ -------- ------------ ------------
Balance at
December 31, 1992...... 3,000,000 3,000,000 111,111 1,000 724,000 (30,800,000) (27,075,000)
Net loss................ -- -- -- -- -- (14,057,000) (14,057,000)
Issuance of common
stock, $.01 par value.. -- -- 5,985 -- -- -- --
Forfeiture of common
shares under Restricted
Stock Agreement (Note
4)..................... -- -- (5,001) -- -- -- --
--------- ---------- ------- ------ -------- ------------ ------------
Balance at December 31,
1993................... 3,000,000 3,000,000 112,095 1,000 724,000 (44,857,000) (41,132,000)
Net loss................ -- -- -- -- -- (8,867,000) (8,867,000)
Forfeiture of common
shares under Restricted
Stock Agreement (Note
4)..................... -- -- (7,497) -- -- -- --
--------- ---------- ------- ------ -------- ------------ ------------
Balance at December 31,
1994................... 3,000,000 3,000,000 104,598 1,000 724,000 (53,724,000) (49,999,000)
--------- ---------- ------- ------ -------- ------------ ------------
Net loss (unaudited).... -- -- -- -- -- (5,045,000) (5,045,000)
Forfeiture of common
shares under Restricted
Stock Agreement (Note
4) (unaudited)......... -- -- (2,002) -- -- -- --
--------- ---------- ------- ------ -------- ------------ ------------
Balance at June 30, 1995
(unaudited)............ 3,000,000 $3,000,000 102,596 $1,000 $724,000 $(58,769,000) $(55,044,000)
========= ========== ======= ====== ======== ============ ============
</TABLE>
See accompanying notes.
F-30
<PAGE>
ACME HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1992 1993 1994 1994 1995
----------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................ $(1,068,000) $(14,057,000) $(8,867,000) $(3,857,000) $(5,045,000)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation and
amortization......... 10,327,000 11,394,000 9,985,000 5,157,000 4,792,000
Interest payable
financed through
borrowings........... 2,648,000 421,000 -- -- --
Provision for doubtful
accounts............. 726,000 1,252,000 816,000 400,000 434,000
(Gain) loss on sale of
equipment............ (409,000) 1,666,000 (679,000) (230,000) (333,000)
Increase (decrease) in
deferred taxes....... 233,000 (26,000) (50,000) -- --
Write-off of deferred
financing fees....... -- 329,000 -- -- --
Changes in operating
assets:
(Increase) decrease
in accounts
receivable......... (2,307,000) 51,000 (936,000) (35,000) (119,000)
Decrease in income
tax refund
receivable......... 211,000 -- -- -- --
Increase in other
and related party
receivables........ (153,000) (52,000) (70,000) (440,000) (79,000)
(Increase) decrease
in parts and
supplies
inventories........ (201,000) 367,000 273,000 193,000 81,000
(Increase) decrease
in prepaid
expenses........... (115,000) (97,000) 24,000 47,000 (313,000)
(Increase) decrease
in other assets.... 37,000 (97,000) 259,000 (198,000) 94,000
Increase (decrease)
in accounts payable
and unfunded
disbursements...... (405,000) 83,000 (228,000) (1,016,000) 1,976,000
Increase (decrease)
in payroll and
other accrued
expenses........... (1,205,000) 3,042,000 1,564,000 1,035,000 (471,000)
Increase (decrease)
in accrued interest
payable............ 1,219,000 (1,066,000) 4,635,000 27,000 4,911,000
Increase (decrease)
in income taxes
payable............ 349,000 (119,000) (131,000) (51,000) (66,000)
----------- ------------ ----------- ----------- -----------
Net cash provided by
operating activities... 9,887,000 3,091,000 6,595,000 1,032,000 5,862,000
INVESTING ACTIVITIES
Proceeds from sale of
rental equipment and
operating plant and
equipment.............. 1,500,000 2,194,000 5,122,000 1,866,000 2,204,000
Cash purchases of rental
equipment and operating
plant and equipment.... (3,287,000) (4,219,000) (5,653,000) (1,322,000) (8,737,000)
Financed purchases of
rental equipment and
operating equipment.... (3,163,000) (3,789,000) (2,394,000) (2,535,000) --
----------- ------------ ----------- ----------- -----------
Net cash used in
investing activities... (4,950,000) (5,814,000) (2,925,000) (1,991,000) (6,533,000)
</TABLE>
See accompanying notes.
F-31
<PAGE>
ACME HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- --------------------------
1992 1993 1994 1994 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Borrowings under
revolving facility..... $ 71,325,000 $ 40,238,000 $ 55,078,000 $ 23,766,000 $ 36,321,000
Payments under revolving
facility............... (71,840,000) (53,336,000) (55,952,000) (22,182,000) (36,109,000)
Proceeds from secured
borrowings............. 3,015,000 2,765,000 2,242,000 2,409,000 --
Payments on secured
borrowings............. (9,387,000) (28,664,000) (2,149,000) (1,339,000) (917,000)
Payments on subordinated
debt................... -- (33,828,000) -- -- --
Payments of loan
origination costs...... (678,000) (3,074,000) -- -- --
Proceeds from capital
lease borrowings....... 148,000 1,024,000 152,000 126,000 --
Payments on capital
lease obligations...... (324,000) (648,000) (457,000) (266,000) (180,000)
Proceeds from sale of
preferred stock........ 3,000,000 -- -- -- --
Proceeds from issuance
of Senior Notes........ -- 77,544,000 -- -- --
------------ ------------ ------------ ------------ ------------
Net cash provided (used)
in financing
activities............. (4,741,000) 2,021,000 (1,086,000) 2,514,000 (885,000)
------------ ------------ ------------ ------------ ------------
Net increase (decrease)
in cash and cash
equivalents............ 196,000 (702,000) 2,584,000 1,555,000 (1,556,000)
Cash and cash
equivalents at
beginning of period.... 1,105,000 1,301,000 599,000 599,000 3,183,000
------------ ------------ ------------ ------------ ------------
Cash and cash
equivalents at end of
period................. $ 1,301,000 $ 599,000 $ 3,183,000 $ 2,154,000 $ 1,627,000
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-32
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JUNE 30, 1995
(THE INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Acme Holdings Inc., a Delaware corporation, and its wholly owned subsidiaries
(together, "Holdings") Acme Rents, Inc. ("Acme Rents"), Acme Duval Inc. ("Acme
Duval") and Acme Dixie Inc. ("Acme Dixie"). All material intercompany accounts
and transactions have been eliminated. Certain reclassifications have been
made to prior years' amounts to conform to the current year presentation.
Holdings operates in a single industry segment: the rental of equipment
through a network of rental center locations in California, Florida, Texas and
Louisiana, including sales of equipment, parts, supplies and used rental
equipment. The nature of Holdings' business is such that short-term
obligations are typically met by cash flow generated from long-term assets.
Consequently, consistent with industry practice, the accompanying balance
sheets are presented on an unclassified basis.
Interim Financial Statements
The accompanying consolidated balance sheet at June 30, 1995 and the
consolidated statements of operations, shareholders' deficit and cash flows
for the six-month periods ended June 30, 1994 and 1995 are unaudited and have
been prepared on the same basis as the audited consolidated financial
statements included herein. In the opinion of management, such unaudited
consolidated financial statements include all adjustments necessary to present
fairly the information set forth therein, which consist solely of normal
recurring adjustments. The results of operations for such interim period are
not necessarily indicative of results for the full year.
Operations
During the years ended December 31, 1992, 1993 and 1994, and six months
ended June 30, 1994 and June 30, 1995 Holdings had operating income (loss) of
$7,781,000, ($4,504,000), $1,121,000, $1,164,000 and $213,000 and net loss of
$1,068,000, $14,057,000, $8,867,000, $3,857,000 and $5,045,000, respectively.
The losses are primarily attributable to the interest expense associated with
Holdings' debt level. The results for the year ended December 31, 1994 and six
months ended June 30, 1995 include expenses related to discussions with
holders of Holdings' 11.75% $78,000,000 Senior Notes due 2000 (the Senior
Notes) regarding a possible recapitalization (Note 3). In the fourth quarter
of 1993, Holdings implemented a restructuring plan and recorded a charge of
$1,887,000 (Note 2).
Effective March 31, 1992, Holdings sold 3,000,000 shares of newly authorized
preferred stock for $3,000,000 cash, and restructured the terms of its
financing agreements with its lenders as more fully described in Notes 3 and
4. The restructured agreements reduced the amounts available to borrow,
accelerated certain bank principal payments, deferred certain subordinated
debt interest payments and modified certain loan terms, conditions and
covenants. The restructured agreements were amended in March and April 1993 to
defer certain principal and interest payments and extend the term of the
revised covenant provisions.
In June 1993, Holdings issued the Senior Notes (Note 3). Proceeds from this
issuance were used to pay off all then existing bank debt, senior subordinated
notes payable and junior subordinated notes payable.
Holdings did not make an interest payment on the Senior Notes in the amount
of $4,582,500 which was due December 1, 1994 and another payment due June 1,
1995 for the accrued interest on the Senior Notes since
F-33
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
December 1, 1994. The failure to make such payments constitutes an event of
default under the terms of the indenture to the Senior Notes (Note 3).
Simultaneously with the offering of Senior Notes, Holdings established a
revolving credit facility (the New Credit Facility) with Citicorp USA Inc. and
other lenders (Citicorp). As of December 31, 1994 and June 30, 1995 Holdings
was not in compliance with the interest coverage ratio, fixed charges ratio,
leverage ratio, and capital expenditure limits in the covenant provisions
contained in the New Credit Facility agreement. In addition, Holdings' failure
to make the December 1, 1994 and June 1, 1995 interest payments on the Senior
Notes constitute an event of default under the terms of the New Credit
Facility. As of June 30, 1995, and July 12, 1995, Citicorp was making
discretionary advances to Holdings under the terms of the New Credit Facility
without any assurance that it would make such discretionary advances in the
future.
In August 1994, Holdings hired Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") as its financial advisor to help Holdings explore
alternatives for restructuring the Senior Notes and to identify long term
solutions to strengthen Holdings' financial position (Note 3). Also, in August
1994, certain holders of the Senior Notes formed an unofficial committee (the
"Unofficial Committee") to evaluate and respond to proposals.
On April 28, 1995, Holdings reached an agreement in principle with the
Unofficial Committee of the holders of the Senior Notes on a financial
restructuring of Holdings. On July 11, 1995, Holdings received and accepted
the requisite number of votes from holders of the Senior Notes approving the
contemplated financial restructuring plan. As part of the plan, on July 13,
1995, Holdings filed a prepackaged joint plan of reorganization involving
Holdings and its wholly-owned subsidiaries under Chapter 11 of the Bankruptcy
Code ("Chapter 11 Filing"). Simultaneous with the Chapter 11 Filing, the
Bankruptcy Court approved and Holdings established a $5,000,000 DIP Facility
with Citicorp USA, Inc. The DIP Facility paid off the $1,835,000 outstanding
under Holdings' New Credit Facility.
An order confirming the Plan was entered by the Court on August 24, 1995 and
the Plan became effective September 11, 1995 (the "Effective Date"). For each
$1,000.00 principal amount of Holdings' 11% Senior Notes, holders received a
total of $525.75 consisting of $497.81 as payment for the Senior Notes and
$28.94 as payment for the Releases solicited with the Plan. All of the notes
were canceled pursuant to the Plan. The Plan provided that the holders of
Holdings' Preferred Stock, Common Stock, warrants and all other options to
acquire Holdings' stock and securities claims were not entitled to receive or
retain any property under the Plan and were deemed to reject the Plan, which
was approved by the Court. All applicable shares were canceled, annulled and
extinguished on the Effective Date. The other classes of claims and interests
were unimpaired under the Plan. The Plan provided for the payment of 100% of
their claims in the ordinary course of business, with the exception of two
rejected real estate leases.
On September 12, 1995, Holdings was merged into a subsidiary of Rental
Service Corporation, and the Senior Notes, DIP Facility and certain equipment
financing were paid off.
Revenue Recognition
Equipment rental revenue is recorded as earned under the operating method.
Equipment rentals in the consolidated statements of operations include
revenues earned on fuel sales and equipment delivery fees. Revenue from the
sale of parts, supplies and equipment are recorded at the time of delivery to
or pick-up by the customer.
F-34
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 for the years ended December 31,
1992, 1993 and 1994 and the six months ended June 30, 1994 and 1995 is
$175,000, $167,000, $145,000, $73,000 and $72,000, respectively, of such
amortization expense. It is Holdings' policy to account for goodwill and all
other intangible assets at the lower of amortized cost or fair value. The
carrying value of goodwill is reviewed periodically (at least annually) based
on the undiscounted cash flows of the entity over the remaining amortization
period. Should this review indicate that goodwill will not be recoverable,
Holdings' carrying value of goodwill will be reduced by the estimated short
fall of undiscounted cash flows. In addition, management reviews the valuation
and amortization of other intangible assets, taking into consideration any
events and circumstances which might have diminished fair value.
Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
JUNE 30,
1993 1994 1995
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Recapitalization and deferred finance costs,
net of accumulated amortization of
$277,000, $726,000 and $955,000 in 1993,
1994 and 1995 respectively................. $2,813,000 $2,364,000 $2,135,000
Noncompetition and consulting agreements,
net of accumulated amortization of
$1,951,000 in 1993......................... 121,000 -- --
Other, primarily deposits................... 896,000 637,000 547,000
---------- ---------- ----------
$3,830,000 $3,001,000 $2,682,000
========== ========== ==========
</TABLE>
In March 1992 Holdings entered into revised credit agreements (Note 3), and
amended the terms of the subordinated notes (the Refinancing). Costs incurred
in connection with the Refinancing were being amortized over two years, the
estimated benefit period. In June 1993 Holdings issued Senior Notes (Note 3),
therefore unamortized costs of $320,000 in connection with the 1992
refinancing were written off in 1993. Noncompetition and consulting agreements
are amortized ratably over the terms of the agreements (two to five years).
Included
F-35
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in depreciation and amortization expense for the years ended December 31,
1992, 1993 and 1994 and the six months ended June 30, 1994 and 1995 is
$919,000, $1,217,000, $574,000, $344,000 and $229,000, respectively, of other
assets' amortization expense.
Statements of Cash Flows
For purposes of the statements of cash flows, Holdings considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid during the
year for:
Interest.............. $4,550,000 $9,924,000 $5,240,000 $4,876,000 $297,000
Income taxes.......... 160,000 282,000 381,000 324,000 54,000
</TABLE>
Concentration of Credit Risk
Holdings extends credit to its commercial customers based on evaluations of
their financial condition and generally no collateral is required, although in
many cases mechanics' liens are filed to protect Holdings' interests. Holdings
has diversified its customer base by operating rental center locations in
California, Florida, Texas and Louisiana. Customers of the Texas and Louisiana
and certain California rental center locations are primarily large
petrochemical companies or the maintenance contractors working therein.
Holdings maintains adequate reserves for potential credit losses and such
losses have been within management's estimates.
2. RESTRUCTURING PLAN
In the fourth quarter of 1993, Holdings implemented a restructuring plan
which focused on critical aspects of its business. As a result, Holdings
recorded a charge to operations of $1,887,000. Costs applied against the
reserve in the fourth quarter were $466,000, resulting in a reserve balance at
December 31, 1993 of $1,421,000. The restructuring charge includes $356,000 of
noncash items and $1,531,000 of cash items, of which $112,000 of noncash items
and $354,000 of cash items were realized in 1993. The primary components of
the restructuring charge are as follows:
<TABLE>
<S> <C>
Closure and realignment of rental center locations (includes
future lease commitments and the write down to net realizable
value of owned locations)...................................... $1,398,000
Severance or relocation of 19 employees......................... 489,000
----------
$1,887,000
==========
</TABLE>
For the year ended December 31, 1994, Holdings applied $1,166,000 of costs
against the restructuring reserve of which $866,000 related to cash items and
$300,000 related to noncash items. As of December 31, 1994 and June 30, 1995,
the restructuring reserve was $255,000 and $195,000 respectively, which
related to the incremental costs associated with the sublet of the Hollywood,
California location, which is a future cash item.
F-36
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. FINANCING AGREEMENTS
Secured and unsecured debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
JUNE 30,
1993 1994 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Bank debt under revolving advances.... $ 1,919,000 $ 1,045,000 $ 1,257,000
Equipment contracts payable........... 3,920,000 4,013,000 3,096,000
----------- ----------- -----------
Senior secured borrowings............. 5,839,000 5,058,000 4,353,000
11.75% senior notes due 2000.......... 77,566,000 77,618,000 77,644,000
----------- ----------- -----------
$83,405,000 $82,676,000 $81,997,000
=========== =========== ===========
</TABLE>
Bank Debt
On March 30, 1992, Holdings entered into a revised credit agreement (the
1992 Credit Agreement) with its banks which consisted of $20 million available
($18 million at December 31, 1992) through a revolving line of credit, a $22
million acquisition note and an $8.9 million equipment note; the amounts
available decreased over the term of the agreement. Amounts outstanding under
the 1992 Credit Agreement bore interest, due monthly, at the bank's prime rate
plus 2.25% or LIBOR plus 3.50% (8.25% or 7.5%, effective rate at December 31,
1992), provided that not more than 80% of such amounts outstanding could be at
LIBOR plus 3.50%. The bank debt was paid off in June 1993 with proceeds from
the issuance of the Senior Notes.
Simultaneous with the issuance of Senior Notes in June 1993, Holdings
established the $10,000,000 New Credit Facility with a financial institution.
Holdings may borrow, on a revolving basis, up to the amount of a borrowing
base calculated as a percentage of eligible accounts receivable and a
percentage of resale inventory. The financial institution has a security
interest in all of Holdings' accounts receivable, inventory, and proceeds
thereof. The New Credit Facility is available for general corporate purposes,
including working capital requirements. Interest is due monthly at a rate of
1.25% over the financial institution's prime rate or 2.50% over the LIBOR rate
(9.75% or 9.0%, effective rate at December 31, 1994 and 10.25% or 9.0%,
effective rate at June 30, 1995), at Holdings' option. Availability on the
revolving facility and principal borrowings outstanding were $5,027,000 and
$1,045,000, respectively, at December 31, 1994 and $4,134,000 and $1,257,000,
respectively, at June 30, 1995. Commitment fees on the unused portion of the
revolving credit facility at the rate of one-half of 1% per annum, payable in
arrears on March 1, June 1, September 1, and December 1, are due commencing
September 1, 1993. Principal is due in its entirety on June 2, 1998, unless
accelerated prior thereto.
Up to $1,000,000 of letters of credit may be issued under the New Credit
Facility. Outstanding letters of credit totaled $114,000 and $14,000 at
December 31, 1994 and June 30, 1995, respectively. Fees at the rate of 2.5%
per annum are paid upon issuance of letters of credit.
Certain financial covenants and other affirmative and negative covenants are
required to be maintained as called for by the New Credit Facility agreement.
The financial covenants were amended in 1993 and again on March 29, 1994. As
of December 31, 1994 and June 30, 1995, Holdings was not in compliance with
the interest coverage ratio, fixed charges ratio, leverage ratio and capital
expenditure limits of the covenant provisions. Holdings' failure to make the
interest payment on the Senior Notes is also an event of default under the
terms of its New Credit Facility. As of March 15, 1995, Citicorp acknowledged
all the covenant non-compliance and defaults, did not waive such defaults and
reserved any and all rights and remedies under or with respect to the New
Credit Facility and the Loan Documents (as defined in the credit agreement)
resulting from such event of
F-37
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
default. Moreover, because the covenants are based on the trailing 12 months'
earnings, pursuant to Management's estimates for 1995, Holdings anticipates
not being in compliance with covenant provisions of the New Credit Facility at
the end of any quarter during 1995. As of June 30, 1995 and July 12, 1995,
Citicorp was making discretionary advances under the New Credit Facility
without assurance that it would make discretionary advances or issue a waiver
or continue to preserve their rights for any future defaults. If Holdings is
not able to obtain an advance or a waiver in the future and a default is
declared and demand is made for the payment of all amounts outstanding under
the New Credit Facility, Holdings does not believe it will be able to satisfy
such demand. In this event, Citicorp under the New Credit Facility would also
be entitled to exercise their rights and remedies under the related Security
Agreement, which include all rights and remedies of a secured party upon
default under the New York Uniform Commercial Code.
There can be no assurance that demand for payment of all amounts outstanding
under the New Credit Facility will not be made or how much longer Citicorp
will continue to make discretionary advances under the New Credit Facility or
that funds will otherwise be available under the New Credit Facility.
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
F-38
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Public Offering of Holdings' stock, up to 20% of the originally issued
aggregate principal amount of Senior Notes may be redeemed at the option of
Holdings at a certain agreed upon price. The indenture relating to the Senior
Notes (Indenture) contains certain covenants that, among other things, limit
the type and amount of additional indebtedness that may be incurred by
Holdings and certain of its subsidiaries and imposes limitation on
investments, loans, advances, the payment of dividends and the making of
certain other payments, the creation of liens, certain transactions with
affiliates and certain mergers.
Interest, at a rate of 11.75%, is due semiannually on June 1 and December 1.
The interest payments on the Senior Notes are in the amount of $4,582,500. To
date, Holdings has not made the interest payment on the Senior Notes due
December 1, 1994 and is in default with the terms of the Senior Notes
Indenture. Since an event of default under the Indenture has occurred and is
continuing, the holders of at least 25 percent in aggregate principal amount
of the outstanding Senior Notes may, by written notice to Holdings and the
Trustee under the Indenture, and the Trustee upon the written request of such
holders, can declare the principal amount of and accrued interest on all of
the outstanding Senior Notes due and payable immediately. If an event of
default under the Indenture occurs related to the bankruptcy of Holdings or
any Holdings subsidiary of Holdings, then the principal of and accrued
interest on the Senior Notes shall become immediately due and payable. If the
indebtedness under the Senior Notes is accelerated, Holdings would not be able
to pay such amounts. In such event, the Trustee is entitled to pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of or interest on the Senior Notes or to enforce the performance of
any provision of the Senior Notes or the Indenture. If not accelerated before
such date, principal under the Senior Notes, in its entirety, is due June 1,
2000.
Equipment Contracts Payable
The equipment contracts bear interest at rates ranging from 7% to 14%, are
secured by equipment purchased and are payable in various monthly principal
installments.
Debt Maturities
The aggregate annual maturities of debt as of December 31, 1994, are as
follows:
<TABLE>
<CAPTION>
BANK EQUIPMENT SENIOR
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.
F-39
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. SHAREHOLDERS' DEFICIT
On March 31, 1992, in connection with the 1992 Credit Agreement (Note 3)
Holdings issued and sold 3,000,000 shares of Series A preferred stock, par
value $1.00, (the Preferred Stock) for $3,000,000 cash. Each share of the
Preferred Stock is entitled to .005 (five one-thousandths) of one vote. No
dividends may be paid on common stock in any fiscal year unless Holdings has
first paid to the Preferred Stock shareholders a dividend of not less than
$0.06 per share, which is noncumulative. Any additional dividends declared
shall be declared on the common stock only. Upon liquidation, the Preferred
Stock carries a liquidation preference of $1.00 per share, plus an amount
equal to all declared and unpaid dividends thereon. After the payment or
distribution to the Preferred Stock shareholders of the full preferential
amounts, the common shareholders are entitled to all remaining assets of
Holdings to be distributed. Concurrent with the issuance of the Preferred
Stock, Holdings' Board of Directors declared a one-for-ten reverse stock split
of Holdings' stock outstanding on such date. The authorized shares of
Holdings' common stock was changed to 500,000 shares, $.01 par value.
Additionally, Holdings entered into a restricted stock agreement with its
former Chairman and Chief Executive Officer subjecting 25,005 shares of
Holdings' common stock owned by him to forfeiture. The restrictions on 10,002
of such shares were to lapse based on ratable monthly vesting over 36 months.
The restrictions on the remaining 15,003 shares were to lapse ratably each
year if certain earnings levels were achieved for fiscal years 1992, 1993 and
1994. At December 31, 1993, restrictions on 10,839 of the shares had lapsed
and 5,001 shares were forfeited and returned to Holdings. As of December 31,
1994, restrictions on 12,507 of the shares had lapsed and 12,498 were
forfeited and returned to Holdings. On December 31, 1994, AAC purchased all of
the former Chairman's outstanding common and preferred shares in Holdings for
a total consideration of $10.
On December 28, 1993, Holdings entered into a stock purchase agreement with
the former President (Management Participant) whereby the Management
Participant purchased 5,985 shares of Holdings' authorized but unissued common
stock at $.01 per share. One-half of the shares are referred to as Employment
Stock and the remaining one-half of the shares are referred to as Eligible
Time Accelerated Stock (ETA Stock). The shares of common stock subject to this
agreement are held in escrow until such time as the shares vest. The
Employment Stock vests at the rate of 25% on December 31, 1993, 1994, 1995 and
1996. The ETA Stock vests at the rate of 25% on December 31, 1993, 1997, 1998
and 1999, however, the vesting may be accelerated if Holdings achieves certain
performance targets, as determined by Holdings' Board of Directors. As of
December 31, 1994, 1,496 shares of Employment Stock and 748 shares of ETA
Stock had vested.
5. EMPLOYEE BENEFIT PLANS
Holdings has a Section 401(k) employees savings plan (the Savings Plan)
covering substantially all full-time employees upon completion of at least 500
hours of service and six-months of continuous employment. The Savings Plan is
a defined contribution plan and provides for Holdings to make discretionary
contributions as deemed appropriate by the Savings Plan administrative
committee. No contributions were made by Holdings to the Savings Plan during
the years ended December 31, 1992, 1993 or 1994 or the six months ended June
30, 1995.
Holdings also has a group medical and dental insurance plan (the Health
Plan) covering substantially all full time employees (and their eligible
dependents) as defined, who have completed a minimum of three months of
continuous service (12 months of service to qualify for dental benefits).
Holdings is insured for individual and aggregate claims in excess of defined
stop-loss limits and has provided reserves for amounts it believes are
sufficient to cover claims which have been incurred but not reported as of
December 31, 1994 and June 30, 1995.
F-40
<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,
$4,380,000, $2,224,000 and $2,110,000 for the years ended December 31, 1992,
1993, 1994, and six months ended June 30, 1994 and 1995, respectively.
Holdings leases all or a portion of one of its California locations from a
partnership that is comprised of certain present and former shareholders and
directors of Holdings and leases property which is part of a second California
location from certain present and former shareholders and directors of
Holdings. The corporate offices in California are leased from a former officer
and director of Holdings. Two locations in Louisiana are leased from a former
officer of Acme Dixie. The leases require monthly lease payments aggregating
approximately $43,000. Total rent expense attributable to these leases and
included in operations was $421,000, $532,000 and $533,000 for the years ended
December 31, 1992, 1993 and 1994, respectively and $231,000 and $231,000 for
the six months ended June 30, 1994 and 1995, respectively.
Purchase Commitments
As of December 31, 1994 and June 30, 1995, Holdings had commitments to
purchase equipment of approximately $2,395,000 and $1,977,000, respectively.
F-41
<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, $121,000, $121,000
and $0, for the years ended December 31, 1992, 1993 and 1994, and the six
months ended June 30, 1994 and 1995, respectively.
7. RELATED PARTY TRANSACTIONS
In July 1992, Holdings entered into a five-year management agreement
(Management Agreement) with a company owned by certain shareholders of
Holdings (AAC) that is acquiring equipment rental businesses. Under the
Management Agreement, Holdings locates potential acquisition opportunities,
provides administrative assistance in connection with acquisitions and
manages, supervises and provides administrative and accounting support for the
operation of AAC's rental locations. Pursuant to the Management Agreement,
Holdings has agreed, until April 1, 1995, to make available first to such
company any opportunities which come to its attention for acquiring additional
rental locations. During 1992, 1993 and 1994, Holdings assisted AAC in making
six acquisitions. AAC reimburses Holdings for any costs incurred by Holdings
to acquire the companies. Additionally, AAC pays Holdings a management fee
based on a percentage of the acquisition cost for each acquisition and the
performance of the companies acquired. As of December 31, 1993, the
miscellaneous receivable and the management fee receivable were $45,000 and
$146,000, respectively and as of December 31, 1994, the net miscellaneous
payable and the management fee receivable were $117,000 and $255,000,
respectively, and as of June 30, 1995, the net miscellaneous payable and the
management fee receivable were $82,000 and $381,000, respectively. As a result
of the chairman's resignation in June 1994, AAC at its discretion may
terminate the Management Agreement between AAC and Holdings. AAC has not
notified Holdings as to its intentions with respect to the termination or
continuation of the Management Agreement. Total management fee revenue,
included as a reduction in general and administrative expense, was $162,000,
$1,082,000, $1,496,000, $718,000 and $524,000, for the years ended December
31, 1992, 1993 and 1994, and the six months ended June 30, 1994 and 1995,
respectively.
In addition, Holdings and AAC have agreed to rerent equipment to each other
in the event the other party does not have sufficient rental equipment at a
given rental center location to meet a customer's requirements. The party
making such equipment available receives 70% of the gross rental receipts
received by the other party related to such rerental. For the years ended
December 31, 1992, 1993 and 1994 and the six months ended June 30, 1994 and
1995, rerent revenue received by Holdings from AAC was $13,000, $151,000,
$39,000, $6,000 and $16,000, respectively, and rerent expense paid by Holdings
to AAC was $37,000, $111,000, $230,000, $62,000 and $35,000, respectively.
Holdings also leases certain facilities owned by certain of Holdings'
present and former officers, directors and shareholders (Note 6).
F-42
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. STOCK OPTION PLAN
In May 1990, Holdings' Board of Directors approved the Acme Holdings Inc.
1990 Stock Option Plan which authorizes the granting of options to various
directors, officers, employees and outside consultants to purchase, within a
period of 10 years from date of grant, up to 7,310 shares of common stock at
an exercise price to be determined at the time of grant by Holdings' Board of
Directors. The exercise price shall be not less than fair market value on the
date of grant for incentive stock options (ISOs), and not less than 85% of the
fair market value on the date of grant for nonstatutory stock options (NSOs).
Any otherwise eligible participant who owns more than 10% of the total
combined voting power of all classes of outstanding stock of Holdings is not
eligible to receive options under the plan unless the exercise price is at
least 110% of the fair market value of such shares on the date of grant and
the options are exercisable for a term of only five years from the date of
grant. Options vest in such increments as determined by Holdings' Board of
Directors.
ISOs to purchase 3,290 shares of common stock at $.10 per share were granted
in March 1992 to replace previously issued and canceled options. In January
1993, 1,097 ISOs to purchase shares of common stock at $2.69 per share were
granted. Such ISOs become exercisable at various dates commencing July 1993.
ISOs covering 1,097 shares are exercisable at December 31, 1994. On March 31,
1992, NSOs to purchase 365 shares of common stock at $27.00 per share were
granted to replace previously issued and canceled options; such exercise price
was based upon isolated negotiations with a single option holder and bore no
relationship to the fair market value of the common stock. The NSOs were fully
exercisable at date of grant. No options were granted during 1994.
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-43
<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 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1994
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 8,614,000 $ 11,899,000
Alternative minimum tax credit.................. 754,000 754,000
Allowance for doubtful accounts................. 384,000 501,000
Accrued health & general insurance.............. 1,298,000 1,257,000
State taxes, net................................ 297,000 123,000
Other accruals.................................. 1,733,000 1,183,000
----------- ------------
Total deferred tax assets....................... 13,080,000 15,717,000
Valuation allowance for deferred tax assets..... (7,396,000) (11,596,000)
----------- ------------
Net deferred tax assets........................... 5,684,000 4,121,000
Deferred tax liabilities:
Depreciation, tax over book..................... (5,904,000) (4,146,000)
Other accruals.................................. (205,000) (350,000)
----------- ------------
Total deferred tax liabilities.................... (6,109,000) (4,496,000)
----------- ------------
Net deferred tax liabilities...................... $ (425,000) $ (375,000)
=========== ============
</TABLE>
A reconciliation between the provision for income taxes computed by applying
the federal statutory tax rate to loss before taxes for the years ended
December 31 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1992 1993 1994
--------- ----------- -----------
<S> <C> <C> <C>
Federal tax benefit at statutory rate. $(218,000) $(4,686,000) $(2,994,000)
Losses without benefit................ 218,000 4,686,000 2,994,000
State taxes........................... 427,000 274,000 61,000
--------- ----------- -----------
$ 427,000 $ 274,000 $ 61,000
========= =========== ===========
</TABLE>
At December 31, 1994, Holdings has approximately $29,300,000 of net
operating loss carryforwards for federal income tax purposes that expire
$9,500,000 in 2005, $6,000,000 in 2006, $1,700,000 in 2007 and $6,800,000 in
2008 and $5,300,000 in 2009. In addition, Holdings has net operating loss
carryforwards for California income tax purposes of approximately $17,800,000
which are available to offset taxable income starting in 1993 and expire
$4,300,000 in 1996, $5,800,000 in 1997, $3,900,0000 in 1998 and $3,800,000 in
1999. The ultimate realization of the benefit of these loss carryforwards is
dependent on Holdings achieving proper levels of operating profits in the
future.
Holdings also has alternative minimum tax credit carryovers of approximately
$590,000 for federal income tax purposes and $164,000 for California income
tax purposes which are available to offset future regular income tax that is
in excess of the alternative minimum tax in such year. The credits carry over
indefinitely.
Pursuant to the Tax Reform Act of 1986, use of Holdings' net operating loss
carryforwards and other tax attributes may be substantially limited if a
cumulative change in ownership of more than 50% occurs within any three year
period. As of December 31, 1994, a cumulative change of more than 50% occurred
which could significantly impact the future benefit of the federal and state
net operating loss carryforwards under Internal Revenue Service Code Section
382.
10. SUBSEQUENT EVENT
Holdings has decided to relocate its corporate office to Scottsdale, Arizona
during the second and third quarters of 1995.
F-44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Rental Service Corporation
We have audited the accompanying combined balance sheets of the corporations
and partnerships listed in Note 1 (the Company) as of March 31, 1997 and 1996
and the related combined statements of operations, redeemable stock and other
stockholders' and partners' equity and cash flows for the years then ended.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
corporations and partnerships listed in Note 1 at March 31, 1997 and 1996, and
the combined results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
May 6, 1997
F-45
<PAGE>
INDUSTRIAL AIR TOOL
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1996 1997
----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents............................. $ 1,816,726 $ 7,164,847
Investments, at market value (cost of $2,687,731)..... 2,813,546 --
Accounts receivable, net of allowance for doubtful
accounts of $120,000 at March 31, 1996 and 1997...... 7,482,984 6,993,000
Inventory............................................. 6,843,218 6,663,676
Prepaid expenses and other assets..................... 306,003 217,400
Rental equipment, at cost, net of accumulated
depreciation of $2,086,440 and $1,835,658 at March
31, 1996 and 1997.................................... 1,103,985 1,010,027
Operating property and equipment, at cost, net of
accumulated depreciation............................. 1,350,901 1,377,166
Other assets.......................................... 764,371 716,238
----------- -----------
$22,481,734 $24,142,354
=========== ===========
<CAPTION>
LIABILITIES, REDEEMABLE STOCK, AND OTHER
STOCKHOLDERS' AND PARTNERS' EQUITY
----------------------------------------
<S> <C> <C>
Accounts payable...................................... $ 2,717,936 $ 2,513,777
Payroll and other accrued expenses.................... 1,120,553 1,232,929
Notes payable to stockholders......................... 705,127 705,127
----------- -----------
Total liabilities..................................... 4,543,616 4,451,833
Commitments and contingencies
Class B common stock--redeemable, at liquidation
value................................................ 11,399,437 10,774,506
Other stockholders' and partners' equity:
Unrealized gain on investments available for sale... 125,815 --
Preferred stock, at liquidation value............... 890,800 890,800
Class A common stock................................ 10,000 10,000
Common stock--Bayview............................... 2,500 2,500
Partners' equity.................................... 6,021,363 7,781,958
Retained earnings (deficit)......................... (511,797) 230,757
----------- -----------
Total other stockholders' and partners' equity........ 6,538,681 8,916,015
----------- -----------
$22,481,734 $24,142,354
=========== ===========
</TABLE>
See accompanying notes.
F-46
<PAGE>
INDUSTRIAL AIR TOOL
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues:
Sales of parts, supplies and equipment............. $38,159,436 $41,694,541
Equipment rentals.................................. 6,848,704 7,318,643
----------- -----------
Total revenues....................................... 45,008,140 49,013,184
Cost of revenues:
Cost of sales of parts, supplies and equipment..... 30,377,393 33,306,804
Cost of equipment rentals, excluding equipment
rental depreciation............................... 4,624,537 5,169,571
Depreciation, equipment rentals.................... 528,926 445,504
----------- -----------
Total cost of revenues............................... 35,530,856 38,921,879
----------- -----------
Gross profit......................................... 9,477,284 10,091,305
Selling, general and administrative expenses......... 6,366,204 7,107,647
Depreciation and amortization, excluding equipment
rental depreciation................................. 205,742 164,243
----------- -----------
Operating income..................................... 2,905,338 2,819,415
Other income (expense):
Interest income.................................... 159,477 204,263
Gain on sale of investments........................ -- 251,540
Interest expense................................... (48,661) (67,070)
Other, net......................................... 10,496 (82,379)
----------- -----------
3,026,650 3,125,769
Provision for income taxes........................... 100,000 150,000
----------- -----------
Net income........................................... $ 2,926,650 $ 2,975,769
=========== ===========
</TABLE>
See accompanying notes.
F-47
<PAGE>
INDUSTRIAL AIR TOOL
COMBINED STATEMENTS OF REDEEMABLE STOCK AND OTHER STOCKHOLDERS' AND PARTNERS'
EQUITY
<TABLE>
<CAPTION>
COMTECT, INC. BAYVIEW
------------------------------ -------------
REDEEMABLE
CLASS B CLASS A
COMMON STOCK PREFERRED STOCK COMMON STOCK COMMON STOCK
------------------ --------------- -------------- ------------- PARTNERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ----------- ------ -------- ------ ------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March
31, 1995........ 10,000 $11,158,316 8,908 $890,800 10,000 $10,000 2,500 $2,500 $3,889,279
Net income...... -- -- -- -- -- -- -- -- 2,638,684
Change in
liquidation
value of
redeemable
stock........... -- 241,121 -- -- -- -- -- -- --
Unrealized
appreciation on
investments..... -- -- -- -- -- -- -- -- --
Distributions to
stockholders and
partners........ -- -- -- -- -- -- -- -- (506,600)
------ ----------- ----- -------- ------ ------- ----- ------ ----------
Balance at March
31, 1996........ 10,000 11,399,437 8,908 890,800 10,000 10,000 2,500 2,500 6,021,363
Net income...... -- -- -- -- -- -- -- -- 2,657,487
Change in
liquidation
value of
redeemable
stock........... -- (624,931) -- -- -- -- -- -- --
Liquidation of
investment
portfolio....... -- -- -- -- -- -- -- -- --
Distributions to
stockholders and
partners........ -- -- -- -- -- -- -- -- (896,892)
------ ----------- ----- -------- ------ ------- ----- ------ ----------
Balance at March
31, 1997........ 10,000 $10,774,506 8,908 $890,800 10,000 $10,000 2,500 $2,500 $7,781,958
- --------------------------------------------------
====== =========== ===== ======== ====== ======= ===== ====== ==========
<CAPTION>
UNREALIZED TOTAL
GAINS (LOSSES) OTHER
ON INVESTMENTS RETAINED STOCKHOLDERS'
AVAILABLE FOR EARNINGS AND PARTNERS'
SALE (DEFICIT) EQUITY
-------------- ---------- -------------
<S> <C> <C> <C>
Balance at March
31, 1995........ $(159,812) $(159,643) $ 4,473,124
Net income...... -- 287,966 2,926,650
Change in
liquidation
value of
redeemable
stock........... -- (241,121) (241,121)
Unrealized
appreciation on
investments..... 285,627 -- 285,627
Distributions to
stockholders and
partners........ -- (398,999) (905,599)
-------------- ---------- -------------
Balance at March
31, 1996........ 125,815 (511,797) 6,538,681
Net income...... -- 318,282 2,975,769
Change in
liquidation
value of
redeemable
stock........... -- 624,931 624,931
Liquidation of
investment
portfolio....... (125,815) -- (125,815)
Distributions to
stockholders and
partners........ -- (200,659) (1,097,551)
-------------- ---------- -------------
Balance at March
31, 1997........ $ -- $ 230,757 $ 8,916,015
- --------------------------------------------------
============== ========== =============
</TABLE>
See accompanying notes.
F-48
<PAGE>
INDUSTRIAL AIR TOOL
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $ 2,926,650 $ 2,975,769
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 734,668 609,747
Gain on sale of investments available for sale.... -- (251,540)
Provision for deferred taxes...................... (105,000) 60,000
Changes in operating assets and liabilities:
Accounts receivable............................. (1,760,654) 489,984
Prepaid expenses and other assets............... (68,793) 76,736
Inventory....................................... (748,832) 179,542
Accounts payable ............................... (159,262) (204,159)
Payroll and other accrued expenses.............. 502,565 112,376
----------- -----------
Net cash provided by operating activities........... 1,321,342 4,048,455
INVESTING ACTIVITIES
Proceeds from the sale of investments available for
sale, net.......................................... 321,927 2,939,271
Acquisition of property and equipment .............. (871,473) (542,054)
----------- -----------
Net cash provided by (used in) investing activities. (549,546) 2,397,217
FINANCING ACTIVITIES
Distributions to stockholders and partners.......... (905,599) (1,097,551)
Principal repayments of notes payable............... (284,873) --
----------- -----------
Net cash used by financing activities............... (1,190,472) (1,097,551)
----------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ (418,676) 5,348,121
Cash and cash equivalents at beginning of year...... 2,235,402 1,816,726
----------- -----------
Cash and cash equivalents at end of year............ $ 1,816,726 $ 7,164,847
=========== ===========
</TABLE>
See accompanying notes.
F-49
<PAGE>
INDUSTRIAL AIR TOOL
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined financial statements include the accounts of the
following companies (collectively, Industrial Air Tool or IAT):
.Comtect Inc. (Comtect), a Nevada Corporation, and its wholly owned
subsidiaries:
-- IAT interests of Nevada, Inc., a Nevada corporation.
-- RNJB, Inc., a Nevada corporation.
-- CFTSIJC., Inc., a Nevada corporation.
-- Industrial Air Tool Pasadena, Inc., a Texas corporation.
-- Industrial Air Tool Texas City, Inc., a Texas corporation.
-- PST, Inc. of Louisiana, A Louisiana corporation.
-- LRB Supply, Inc., a Texas corporation.
.GT Financial Ltd., a Texas limited partnership
.Shield Pt., Ltd. (Shield), a Texas limited partnership
.Bayview Interests, Inc. (Bayview), a Nevada Corporation
Each of these companies and partnerships are owned by substantially the same
shareholders and partners. All material intercompany accounts and transactions
have been eliminated.
Comtect sells maintenance, repair, and operations (MRO) equipment and
supplies, and rents equipment to customers throughout the world from its
locations in Texas and Louisiana. Comtect grants credit to customers, the
majority of whom are in the petrochemical or construction industries. GT
Financial purchases certain accounts receivable from Comtect. Shield owns land
and buildings which are leased to Comtect. Bayview is a domestic international
sales corporation which has received a commission of 4 percent (to a maximum
commission of $400,000) on all export sales.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenue from the sale of parts, supplies and equipment are recorded at the
time of delivery to or pick-up by the customer. Equipment rental revenue is
recorded as earned under the operating method.
Cash and Cash Equivalents.
IAT considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
F-50
<PAGE>
INDUSTRIAL AIR TOOL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Credit Policy
IAT extends credit to its customers based on evaluations of their financial
condition. Collateral generally is not required. IAT maintains reserves which
it believes are adequate for potential credit losses.
Inventories
Inventories consist principally of equipment, parts, and supplies. All
inventories are valued at the lower of cost or market using the specific
identification last-in, first-out (LIFO) method of accounting, which
approximates the first-in, first-out method of accounting.
Depreciation and Amortization
Rental equipment and operating property and equipment are stated at cost and
are depreciated using the straight-line method over the following estimated
useful lives:
<TABLE>
<S> <C>
Rental equipment............................................... 5-7 years
Operating property and equipment............................... 5 years
Buildings and leasehold improvements........................... 28-40 years
</TABLE>
All rental equipment costing more than $500 and greater than one year useful
life is capitalized at the date of purchase.
Income Taxes
Comtect 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.
GT Financial Ltd. and Shield are Texas limited liability partnerships, and,
accordingly, taxes related to their income are the responsibility of the
individual partners.
Advertising Expense
Advertising costs are expensed as incurred. Advertising expense was $46,057
and $88,912 for the years ended March 31, 1996 and 1997, respectively.
F-51
<PAGE>
INDUSTRIAL AIR TOOL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. OPERATING PROPERTY AND EQUIPMENT
Operating property and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Land and building........................................ $1,424,593 $1,424,593
Vehicles, machinery and equipment........................ 618,069 607,631
Office equipment......................................... 272,747 298,585
---------- ----------
Total................................................ 2,315,409 2,330,809
Less accumulated depreciation............................ 964,508 953,643
---------- ----------
$1,350,901 $1,377,166
========== ==========
</TABLE>
3. NOTES PAYABLE TO STOCKHOLDERS
Notes payable at March 31, 1996 and 1997 are payable by GT Financial Ltd. to
two shareholders with interest at 10 percent, and due on demand. No interest
was paid in the years ended March 31, 1996 and 1997.
4. EMPLOYEE BENEFIT PLANS
IAT maintains the ERISA qualified IAT Interests, Inc. Profit Sharing Plan
(the Plan) covering substantially all employees who complete 1,000 hours of
service annually. The Plan allows IAT to make discretionary contributions.
Contributions are allocated to employee accounts based upon individual wages
as compared to total IAT wages. Employees are not permitted or required to
make contributions to the Plan. Vesting of an employee's interest in the Plan
occurs over a seven year period. Contributions to the Plan were $543,065 and
$617,824 for the years ended March 31, 1996 and 1997, respectively.
5. REDEEMABLE STOCK AND OTHER STOCKHOLDERS' EQUITY
Comtect has 20,000 shares of preferred stock authorized, $10 par value, with
8,908 shares issued and outstanding at March 31, 1996 and 1997. The preferred
stock is nonvoting and is entitled to receive, when and as declared by the
board of directors, a noncumulative dividend of $9.00 per share. The preferred
stock has a liquidation preference of $100 per share plus any declared and
unpaid dividends.
Comtect has 20,000 shares of Class A voting common stock authorized, $1.00
par value, with 10,000 shares issued and outstanding at March 31, 1996 and
1997. Comtect also has 20,000 shares of Class B nonvoting common stock, $1.00
par value, with 10,000 shares issued and outstanding at March 31,1997. The
Class B common stock is subordinate to the preferred stock and Class A common
stock with respect to dividends and upon liquidation.
Bayview has 5,000 shares of common stock authorized, $1.00 par value, with
2,500 shares issued and outstanding at March 31, 1996 and 1997.
Pursuant to a buy-sell agreement dated March 31, 1992, Comtect has agreed
with the holders of it's Class B common stock to purchase such shares upon the
shareholder's termination of employment, death, disability, or at the
shareholder's option, at its estimated fair value at the date of purchase, as
defined in the agreement. The shareholders have agreed not to sell their
shares except to Comtect.
F-52
<PAGE>
INDUSTRIAL AIR TOOL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
Environmental
IAT 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. IAT incurs ongoing expenses associated with
the performance of appropriate remediation at certain of its locations. IAT
does not believe that such remediation will have a material adverse effect on
IAT's combined financial position, results of operations or cash flows.
Legal Proceedings
IAT is party to various litigation matters, in most cases involving ordinary
and routine claims incidental to the business of IAT. The ultimate legal and
financial liability of IAT with respect to such pending litigation cannot be
estimated with certainty, but IAT believes, based on its examination of such
matters, that such ultimate liability will not have a material adverse effect
on the business, or the combined financial position, results of operations or
cash flows of IAT.
7. INCOME TAXES
Income tax expense differs from the amount computed by applying the
statutory federal income tax to the income before income taxes due to the
effect of state taxes and the portion of IAT's income which is attributable to
limited partnerships, which are not subject to income taxes.
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Nondeductible reserves and accruals................... $156,000 $131,000
Uniform capitalization adjustment..................... 90,000 86,000
Depreciation and other................................ 104,000 73,000
-------- --------
Total deferred tax assets........................... $350,000 $290,000
======== ========
</TABLE>
The tax provision is comprised of:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-------------------
1996 1997
--------- --------
<S> <C> <C>
Federal:
Current.............................................. $ 135,000 $ 30,000
Deferred............................................. (105,000) 60,000
--------- --------
30,000 90,000
State:
Current.............................................. 70,000 60,000
Deferred............................................. -- --
--------- --------
70,000 60,000
--------- --------
Total.............................................. $ 100,000 $150,000
========= ========
</TABLE>
F-53
<PAGE>
INDUSTRIAL AIR TOOL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. SIGNIFICANT CUSTOMERS
A single customer represented 10% and 12% of IAT's revenues for the years
ended March 31, 1996 and 1997, respectively.
Export sales, primarily to offshore petrochemical operators, totaled
$10,801,000 and $13,107,000 during the years ended March 31, 1996 and 1997,
respectively.
A significant portion of the Company's revenues are generated based on
manufacturers' distribution agreements. The loss of any such distributorships
could have a material adverse effect on the Company's business. Sales of one
manufacturer's products under a distribution arrangement represented 21% and
25% of revenues in the years ended March 31, 1996 and 1997, respectively.
9. SUBSEQUENT EVENTS
Pursuant to a Purchase Agreement signed March 14, 1997, all of the
outstanding common and preferred stock of Comtect was purchased on April 25,
1997 by Rental Service Corporation (RSC), effective March 1, 1997, in exchange
for $32.6 million in cash and 189,189 shares of RSC Common Stock. Up to an
additional 108,108 shares of RSC Common Stock may be paid to the sellers over
a three year period if certain performance objectives are met. Under the terms
of the Purchase Agreement all previously factored accounts receivable sold to
GT Financial Ltd. were repurchased by Comtect, and all real estate owned by
Shield and leased to Comtect was purchased by Comtect, effective March 31,
1997, and Bayview ceased its affiliation with Comtect. The transaction closed
on April 25, 1997, and IAT's balance sheet was consolidated with RSC's under
the purchase method of accounting as of that date. Pursuant to the acquisition
agreement, RSC assumed effective control of IAT's operations on March 1, 1997
and has included IAT's revenues of $4,322,000 and costs and expenses of
$3,848,000 from such date in its consolidated statements of operations for the
three months ended March 31, 1997, net of related imputed purchase price
adjustments of $48,000.
F-54
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Brute Equipment Co.
d/b/a Foxx Hy-Reach, Inc.
Moline, Illinois
We have audited the accompanying balance sheets of Brute Equipment Co. d/b/a
Foxx Hy-Reach, Inc. as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
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 financial position of Brute Equipment Co. d/b/a
Foxx Hy-Reach, Inc. as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ McGLADREY & PULLEN, LLP
Moline, Illinois
April 26, 1997
F-55
<PAGE>
BRUTE EQUIPMENT CO.
D/B/A FOXX HY-REACH, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 4)
Cash...................................... $ 27,250 $ 3,350 $ 3,350
Accounts receivables, less allowance for
doubtful accounts December 31, 1995
$20,000; December 31, 1996 $40,475;
March 31, 1997 $40,475................... 2,002,199 2,649,607 2,453,143
Parts and supplies inventories............ 142,796 405,161 404,783
Other receivables and prepaid expense..... 42,737 23,986 51,397
Investment, life insurance................ 205,034 230,399 236,740
Rental equipment, net of accumulated
depreciation December 31, 1995
$3,826,500; December 31, 1996 $5,098,656;
March 31, 1997 $5,368,193................ 11,277,363 14,226,511 13,841,221
Operating equipment and leasehold
improvements, net of accumulated
depreciation December 31, 1995 $625,695;
December 31, 1996 $718,709; March 31,
1997
$717,093 (Note 3)........................ 590,759 492,441 421,874
----------- ----------- -----------
$14,288,138 $18,031,455 $17,412,508
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.......................... $ 68,850 $ 560,202 $ 235,905
Accrued expenses.......................... 260,084 338,251 321,961
Litigation judgment liability (Note 9).... -- 2,320,000 2,320,000
Notes payable, including notes to related
parties December 31, 1995 $1,567,635;
December 31, 1996 $579,355; March 31,
1997 $551,839 (Note 4)................... 4,426,776 3,991,157 2,420,408
----------- ----------- -----------
Total liabilities..................... 4,755,710 7,209,610 5,298,274
----------- ----------- -----------
Commitments (Notes 5, 6 and 11)
Stockholders' Equity:
Common stock, no par value; authorized
100,000 shares issued 1,000 shares, at
amounts paid in........................ 100,000 100,000 100,000
Retained earnings....................... 9,432,428 10,721,845 12,014,234
----------- ----------- -----------
9,532,428 10,821,845 12,114,234
----------- ----------- -----------
$14,288,138 $18,031,455 $17,412,508
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-56
<PAGE>
BRUTE EQUIPMENT CO.
D/B/A FOXX HY-REACH, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE-MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ---------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals.............. $ 9,465,624 $11,842,440 $2,473,235 $2,856,078
Sales of parts, supplies and
equipment..................... 7,774,425 7,976,069 1,961,169 2,241,285
----------- ----------- ---------- ----------
17,240,049 19,818,509 4,434,404 5,097,363
----------- ----------- ---------- ----------
Cost of revenues:
Cost of equipment rentals,
excluding equipment rental
depreciation.................. 3,969,880 4,228,171 951,111 1,007,432
Depreciation, equipment
rentals....................... 1,940,332 2,718,397 593,398 781,806
Cost of sales of parts,
supplies and equipment........ 5,250,625 5,308,453 1,351,574 1,482,261
----------- ----------- ---------- ----------
Total cost of revenues....... 11,160,837 12,255,021 2,896,083 3,271,499
----------- ----------- ---------- ----------
Gross profit................. 6,079,212 7,563,488 1,538,321 1,825,864
Selling, general and
administrative expense........ 3,107,090 3,461,510 352,700 417,299
Depreciation, excluding
equipment rental depreciation. 225,877 257,723 63,718 51,840
Litigation judgment expense
(Note 9)...................... -- 2,320,000 -- --
----------- ----------- ---------- ----------
Operating income............. 2,746,245 1,524,255 1,121,903 1,356,725
Interest expense, including
amounts paid to related parties
December 31, 1995 $57,045;
December 31, 1996 $73,840;
March 31, 1996 $27,246
March 31, 1997 $11,260.......... 141,539 234,838 68,079 64,336
----------- ----------- ---------- ----------
Net income................... $ 2,604,706 $ 1,289,417 $1,053,824 $1,292,389
=========== =========== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-57
<PAGE>
BRUTE EQUIPMENT CO.
D/B/A FOXX HY-REACH, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS
-------- -----------
<S> <C> <C>
Balance, December 31, 1994................................ $100,000 $ 6,827,722
Net income.............................................. -- 2,604,706
-------- -----------
Balance, December 31, 1995................................ 100,000 9,432,428
Net income.............................................. -- 1,289,417
-------- -----------
Balance, December 31, 1996................................ 100,000 10,721,845
Net income (unaudited).................................. -- 1,292,389
-------- -----------
Balance, March 31, 1997 (unaudited)....................... $100,000 $12,014,234
======== ===========
</TABLE>
See Notes to Financial Statements.
F-58
<PAGE>
BRUTE EQUIPMENT CO.
D/B/A FOXX HY-REACH, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE-MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- ------------------------
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating Activities:
Net income............. $ 2,604,706 $ 1,289,417 $ 1,053,824 $ 1,292,389
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation......... 2,166,209 2,976,120 657,116 833,646
Gain on sale of
rental equipment ... (1,866,525) (2,019,108) (457,612) (535,731)
Changes in operating
assets and
liabilities:
Accounts
receivables ...... (543,772) (647,408) 255,106 196,464
Parts and supplies
inventories....... (22,620) (262,365) 394 378
Other receivables
and prepaid
expense........... (20,702) 18,751 (502) (27,411)
Accounts payable
and accrued
expenses.......... 26,902 569,519 (86,334) (340,587)
Litigation judgment
liability......... -- 2,320,000 -- --
------------ ------------ ----------- -----------
Net cash provided
by operating
activities...... 2,344,198 4,244,926 1,421,992 1,419,148
------------ ------------ ----------- -----------
Investing Activities:
Proceeds from sale of
equipment............. 7,225,096 7,350,903 1,831,976 2,076,763
Purchase of equipment.. (11,520,436) (11,158,745) (1,520,970) (1,918,821)
Purchase of investment
in life insurance..... (25,365) (25,365) (6,341) (6,341)
------------ ------------ ----------- -----------
Net cash provided
by (used in)
investing
activities...... (4,320,705) (3,833,207) 304,665 151,601
------------ ------------ ----------- -----------
Financing Activities:
Borrowings from
stockholders.......... 1,833,024 -- -- --
Payments to
stockholders.......... (1,122,509) (988,280) (251,444) (27,516)
Net borrowings
(payments) from note
payable............... 1,266,392 (947,339) (1,475,213) (1,543,233)
Proceeds from long-term
obligations........... -- 1,500,000 -- --
------------ ------------ ----------- -----------
Net cash provided
by (used in)
financing
activities...... 1,976,907 (435,619) (1,726,657) (1,570,749)
------------ ------------ ----------- -----------
Net increase
(decrease) in
cash............ 400 (23,900) -- --
Cash balance, beginning
of period............... 26,850 27,250 27,250 3,350
------------ ------------ ----------- -----------
Cash balance, end of
period.................. $ 27,250 $ 3,350 $ 27,250 $ 3,350
============ ============ =========== ===========
Supplemental Disclosure
of Cash Flow
Information,
Cash paid for interest. $ 145,501 $ 215,184 $ 53,885 $ 61,477
</TABLE>
See Notes to Financial Statements.
F-59
<PAGE>
BRUTE EQUIPMENT CO.
D/B/A FOXX HY-REACH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Basis of presentation: Brute Equipment Co. was incorporated in the state of
Iowa in May 1984 and qualified to do business under the assumed name of Foxx
Hy-Reach, Inc. in the same month. During 1986, the Company, with the consent
of its stockholders, elected to be taxed as an S-Corporation. The Company's
operations consist principally of the short-term rental and the sale of
equipment to the construction industry primarily in the midwest United States.
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 balance sheets are
presented on an unclassified basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain amounts for 1995 have been reclassified to conform with the
classifications used in 1996, with no effect on net income or stockholders'
equity.
Revenue recognition: Equipment rental revenue is recorded as earned under
the operating method. Equipment rentals in the statements of operations
include revenues earned on equipment rentals, fuel sales and rental equipment
delivery fees. Revenue from the sale of parts, supplies and equipment is
recorded at the time of delivery to or pick-up by the customer.
Credit policy: Substantially all of the Company's business is on a credit
basis. The Company extends credit to its commercial customers based on
evaluations of their financial condition and generally no collateral is
required, although in many cases, mechanics' liens are filed to protect the
Company's interests. The Company maintains reserves it believes are adequate
for potential credit losses.
Parts and supplies inventories: Inventories are stated at the lower of cost
(first-in, first-out method) or market.
Equipment and leasehold improvements: Equipment and leasehold improvements
are stated at cost. Depreciation is computed by the straight-line method over
the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Rental equipment..................................................... 6-7
Office and computer equipment........................................ 5-7
Transportation equipment............................................. 3-5
Leasehold improvements............................................... 10
</TABLE>
Advertising costs: Advertising costs are expensed as incurred and totaled
$35,320 and $36,101 for the years ended December 31, 1995 and 1996,
respectively, and $10,030 and $12,217 for the three-months ended March 31,
1996 and 1997 (unaudited), respectively.
Concentrations of credit risk: Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of accounts receivable which is limited due to the large number of
customers.
Fair value of financial instruments: The carrying amount of cash, accounts
receivables, litigation judgment liability and accounts payable approximates
fair value because of the short maturity of these instruments. The
F-60
<PAGE>
BRUTE EQUIPMENT CO.
D/B/A FOXX HY-REACH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
carrying amount of notes payable which carry current interest rates and have
short maturities approximates fair value.
NOTE 2. UNAUDITED INTERIM INFORMATION
In the opinion of management, the accompanying unaudited condensed financial
information of the Company contains all adjustments, consisting only of those
of a recurring nature, necessary to present fairly the Company's financial
position as of March 31, 1997, and the results of its operations and its cash
flows for the three-months ended March 31, 1996 and 1997. These results are
not necessarily indicative of the results to be expected for the full fiscal
year.
NOTE 3. OPERATING EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Operating equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Vehicles, machinery and equipment......... $1,086,270 $1,003,294 $ 922,770
Leasehold improvements.................... 73,494 73,494 73,494
Furniture, fixtures and computer
equipment................................ 56,690 134,362 142,703
---------- ---------- ----------
1,216,454 1,211,150 1,138,967
Less accumulated depreciation and
amortization............................. 625,695 718,709 717,093
---------- ---------- ----------
$ 590,759 $ 492,441 $ 421,874
========== ========== ==========
</TABLE>
NOTE 4. PLEDGED ASSETS AND NOTES PAYABLE
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Revolving credit agreement with a bank, $2,000,000,
($3,000,000 as of December 31, 1995) interest at 3/8%
under the bank's prime rate, (8.5% as of December 31,
1996), due June 30, 1997, collateralized by
substantially all assets of the Company and the
personal guarantees of the officer-stockholders and
the spouse of one of the officer-stockholders. ...... $2,859,141 $1,911,802
Note payable, bank, due in annual installments of
$300,000 plus interest at 7.84%, due April 1999,
collateralized by substantially all assets of the
Company and the personal guarantees of the officer-
stockholders and the spouse of one of the officer-
stockholders. ....................................... -- 1,500,000
Note payable, officer-stockholders, due on demand,
unsecured. The interest rate in effect as of December
31, 1995 and 1996 was 7% and 8%, respectively. ...... 1,567,635 579,355
---------- ----------
$4,426,776 $3,991,157
========== ==========
</TABLE>
F-61
<PAGE>
BRUTE EQUIPMENT CO.
D/B/A FOXX HY-REACH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company also has an unused $1,500,000 line-of-credit agreement with a
bank that pays interest at 3/8% under the bank's prime rate (8.5% as of
December 31, 1996), due April 30, 1997, collateralized by substantially all
assets of the Company and the personal guarantees of the officer-stockholders
and the spouse of one of the officer-stockholders.
NOTE 5. STOCKHOLDERS' AGREEMENT
The stockholders of the Company have entered into an agreement which places
restrictions on the transfer of their stock during their lifetime. The
agreement also contains provisions for the mandatory purchase of shares, by
the surviving stockholder, upon the death or disability of a stockholder under
the terms and conditions set forth in the agreement.
NOTE 6. LEASE COMMITMENTS AND RENTAL EXPENSE
The Company leases its Morton, Illinois facility from an officer-
stockholder. The agreement expires July 24, 1997 and requires monthly rentals
of $2,500 plus the payment of all property taxes, utilities, insurance and
maintenance on the property.
The Company leases its Moline, Illinois facility from an officer-
stockholder. The agreement expires June 30, 1997 and requires monthly rentals
of $5,500 plus the payment of all property taxes, utilities, insurance and
maintenance on the property.
The Company leases a facility in Des Moines, Iowa. The agreement expires May
14, 2000 and requires monthly rentals of $3,500 plus the payment of all
property taxes, utilities, insurance and maintenance on the property.
The Company also leases a facility in Cedar Rapids, Iowa. The agreement
expires May 31, 1998 and requires monthly rentals of $3,000 plus the payment
of all property taxes, utilities, insurance and maintenance on the property.
The total rental expense for the years ended December 31, 1995 and 1996 was
$165,400 and $179,600, respectively, and $45,600 and $44,700 for the three-
months ended March 31, 1996 and 1997 (unaudited), respectively. Of the total
rent expense, $96,000 was paid to an officer-stockholder for each of the years
ended December 31, 1995 and 1996, respectively, and $24,000 for each of the
three-months ended March 31, 1996 and 1997 (unaudited).
The total minimum rental commitment under these leases as of December 31,
1996 is $242,500 which is due as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------
<S> <C>
1997........................................................ $126,000
1998........................................................ 57,000
1999........................................................ 42,000
2000........................................................ 17,500
--------
$242,500
========
</TABLE>
F-62
<PAGE>
BRUTE EQUIPMENT CO.
D/B/A FOXX HY-REACH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. DISCRETIONARY BONUSES AND MANAGEMENT FEE
The Company pays discretionary bonuses to its officers and key employees.
The amount of these bonuses totaled $1,198,500 and $1,107,500 for the years
ended December 31, 1995 and 1996, respectively. There were no discretionary
bonuses paid to officers or key employees during each of the three-months
ended March 31, 1996 and 1997 (unaudited).
The Company purchases management services from Knox Rental Stores, Inc. The
principal stockholder of Knox Rental Stores, Inc. is also a stockholder of
Brute Equipment Co. The amount of these management services purchased totaled
$1,000,000 for each of the years ended December 31, 1995 and 1996.
NOTE 8. EMPLOYEE BENEFITS AND RETIREMENT PLANS
The Company has a group health insurance plan for all of its employees. The
plan qualifies as a "cafeteria plan" under Section 125 of the Internal Revenue
Code of 1986. The Company has elected to self-insure claims ranging from $100
to $500 whereby the Company pays 80% of all claims within this range. Expenses
relating to the plan totaled $10,345 and $9,346 for the years ended December
31, 1995 and 1996, respectively, and $2,050 and $2,320 for the three-months
ended March 31, 1996 and 1997 (unaudited), respectively.
Effective January 1, 1995, the Company established a 401(k) retirement plan.
Employees are eligible to participate in the Plan after completing one year of
full-time service and attaining age 21. Eligible employees are allowed to
defer up to 15% of their salary. The Company makes matching contributions of
25% of the employee's contribution with a maximum Company contribution of 6%
of eligible employee wages. The employee vests in the employer matching
contribution at a rate of 20% per year after two years of service. Employees
are 100% vested in the employer contribution after six years of service. The
Company's contributions to the Plan for the years ended December 31, 1995 and
1996 was $19,734 and $29,534, respectively, and $1,336 and $1,045 for the
three-months ended March 31, 1996 and 1997 (unaudited), respectively.
NOTE 9. LITIGATION JUDGMENT LIABILITY
In November 1996, a $3,200,000 judgment was awarded by a jury to a
construction worker injured while using equipment owned by the Company. The
Company has insurance coverage for $1,000,000 of this liability and may also
have a claim against its insurance provider for the remaining $2,200,000, plus
accrued interest.
NOTE 10. INCOME TAXES
The Company, with the consent of its stockholders has elected to be taxed
under sections of the federal and state income tax laws as an S-Corporation.
This election provides, that in lieu of corporate income taxes, the
stockholders separately account for their pro rata shares of the Company's
items of income, deductions, losses and credits. Therefore, these financial
statements do not include any provision for corporate income taxes.
F-63
<PAGE>
BRUTE EQUIPMENT CO.
D/B/A FOXX HY-REACH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The net book value of the Company's assets and liabilities exceeded their tax
basis by $2,800,837 and $1,561,420 as of December 31, 1995 and 1996,
respectively. The differences between net book value and tax basis as of
December 31, 1995 and 1996, by major asset and liability, are as follows:
<TABLE>
<CAPTION>
1995 1996
----------------------- -----------------------
NET BOOK NET BOOK
VALUE TAX BASIS VALUE TAX BASIS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Trade receivables........... $ 2,002,199 $ 2,022,199 $ 2,737,045 $ 2,757,045
Rental equipment............ 11,277,363 8,475,684 14,226,511 10,311,157
Operating equipment and
leasehold improvements..... 590,759 571,601 492,441 506,375
----------- ----------- ----------- -----------
13,870,321 11,069,484 17,455,997 13,574,577
Litigation judgment
liability.................. -- -- 2,320,000 --
----------- ----------- ----------- -----------
$13,870,321 $11,069,484 $15,135,997 $13,574,577
=========== =========== =========== ===========
</TABLE>
NOTE 11. SUBSEQUENT EVENT
On April 25, 1997 the Company agreed to sell substantially all of its
operating assets to Rental Service Corporation at an amount greater than their
net book value. The closing of this transaction is expected to occur on or
before June 30, 1997 and is subject to a number of closing conditions.
F-64
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Rental Service Corporation
We have audited the accompanying combined balance sheets as of October 31,
1997 and 1996, of Rent-It-Center, Inc. and Affiliates listed in Note 1, and
the related combined statements of operations, stockholders' and members'
equity (deficit) and cash flows for each of the three years in the period
ended October 31, 1997. These financial statements are the responsibility of
the companies' management. Our responsibility is to express an opinion on
these combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position at October
31, 1997 and 1996, of Rent-It-Center, Inc. and Affiliates listed in Note 1,
and the combined results of their operations and their cash flows for each of
the three years in the period ended October 31, 1997 in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
November 7, 1997
F-65
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31
-----------------------
1996 1997
----------- -----------
ASSETS
------
<S> <C> <C>
Cash..................................................... $ -- $ 283,407
Accounts receivable, net of allowances for doubtful
accounts of $96,000 and $192,000 at October 31, 1996 and
1997, respectively...................................... 4,854,397 5,409,613
Parts and supplies inventories........................... 2,013,637 2,993,454
Prepaid and recoverable income taxes..................... 208,668 243,284
Other receivables and prepaid expenses................... 385,177 138,917
Deferred income taxes.................................... 98,991 467,432
Rental equipment, principally machinery, at cost, net of
accumulated depreciation of $13,526,000 and $17,849,000
at October 31, 1996 and 1997, respectively.............. 37,134,177 33,752,745
Operating property and equipment, at cost, net........... 3,755,028 4,908,510
Intangible assets, net of accumulated amortization of
$79,000 and $203,000 at October 31, 1996 and 1997,
respectively............................................ 1,561,279 1,437,954
Cash surrender value of life insurance policies.......... 161,013 --
----------- -----------
Total assets......................................... $50,172,367 $49,635,316
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY
-------------------------------------------------
<S> <C> <C>
Bank overdraft........................................... $ 43,263 $ --
Accounts payable......................................... 2,854,990 3,064,990
Payroll and other accrued expenses....................... 1,904,166 1,279,896
Bank debt and long-term obligations...................... 21,182,250 16,729,243
Deferred income taxes.................................... 3,215,192 4,944,750
----------- -----------
Total liabilities.................................... 29,199,861 26,018,879
----------- -----------
Commitments and contingencies
Stockholders' and members' equity:
Common stock........................................... 11,600 11,600
Retained earnings...................................... 20,377,616 22,460,867
Members' equity........................................ 583,290 1,143,970
----------- -----------
20,972,506 23,616,437
----------- -----------
Total liabilities and stockholders' and members'
equity.............................................. $50,172,367 $49,635,316
=========== ===========
</TABLE>
See accompanying notes.
F-66
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Equipment rentals..................... $21,225,254 $25,279,134 $34,791,441
Sales of parts, supplies and new
equipment............................ 9,117,503 10,518,131 12,411,690
Sales of used equipment............... 1,852,560 1,253,608 2,593,140
----------- ----------- -----------
Total revenue....................... 32,195,317 37,050,873 49,796,271
Cost of revenue:
Cost of equipment rentals, excluding
equipment depreciation............... 8,411,128 10,039,913 16,194,742
Rental equipment depreciation......... 3,147,577 4,426,614 6,364,659
Cost of sales of parts, supplies and
new equipment........................ 8,268,688 9,607,343 11,873,647
Cost of sales of used equipment....... 1,030,779 629,056 1,924,962
----------- ----------- -----------
Total cost of revenue............... 20,858,172 24,702,926 36,358,010
----------- ----------- -----------
Gross profit........................ 11,337,145 12,347,947 13,438,261
Selling, general and administrative
expenses............................. 4,557,859 5,149,382 7,058,017
Operating property and equipment
depreciation and amortization........ 356,917 503,245 889,215
Amortization of intangibles........... 21,793 30,301 123,325
----------- ----------- -----------
Operating income.................... 6,400,576 6,665,019 5,367,704
Other income (expense):
Charitable contributions.............. (306,222) (311,970) (6,996)
Interest income....................... 51,362 35,855 30,900
Interest expense...................... (316,368) (588,880) (1,599,573)
----------- ----------- -----------
Income before income taxes.......... 5,829,348 5,800,024 3,792,035
Provision for income taxes............ 2,017,136 1,985,530 1,328,504
----------- ----------- -----------
Net income.......................... $ 3,812,212 $ 3,814,494 $ 2,463,531
=========== =========== ===========
</TABLE>
See accompanying notes.
F-67
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
COMBINED STATEMENTS OF STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIT)
YEARS ENDED OCTOBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
RENT-IT-CENTER, INC.
--------------------------
LANOHA LEASING
LIMITED LIABILITY
COMPANY, D/B/A
COMMON STOCK, CENTER RENTAL AND
$1 PAR VALUE, SALES-- CENTER RENTAL AND
50,000 SHARES KANSAS CITY, SALES--OMAHA, ZUNI RENTAL
AUTHORIZED L.L.C. L.L.C. ENTERPRISES, L.L.C.
-------------- ----------------- ----------------- -------------------
RETAINED MEMBERS' EQUITY MEMBERS' EQUITY MEMBERS' EQUITY
SHARES AMOUNT EARNINGS (DEFICIT) (DEFICIT) (DEFICIT) TOTALS
------ ------- ----------- ----------------- ----------------- ------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at November 1,
1994................... 11,600 $11,600 $13,699,475 $(81,323) $(144,752) $ -- $13,485,000
Cash dividends paid.... -- -- (69,600) -- -- -- (69,600)
Net income............. -- -- 3,360,550 332,137 119,525 -- 3,812,212
------ ------- ----------- -------- --------- -------- -----------
Balances at October 31,
1995................... 11,600 11,600 16,990,425 250,814 (25,227) -- 17,227,612
Cash dividends paid.... -- -- (69,600) -- -- -- (69,600)
Net income (loss)...... -- -- 3,456,791 160,798 225,178 (28,273) 3,814,494
------ ------- ----------- -------- --------- -------- -----------
Balances at October 31,
1996................... 11,600 11,600 20,377,616 411,612 199,951 (28,273) 20,972,506
Cash dividends paid.... -- -- (69,600) -- -- -- (69,600)
Capital contribution... -- -- -- -- -- 250,000 250,000
Net income (loss)...... -- -- 2,152,851 (83,678) 335,538 58,820 2,463,531
------ ------- ----------- -------- --------- -------- -----------
Balances at October 31,
1997................... 11,600 $11,600 $22,460,867 $327,934 $ 535,489 $280,547 $23,616,437
====== ======= =========== ======== ========= ======== ===========
</TABLE>
See accompanying notes.
F-68
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Operating activities
Net income........................... $ 3,812,212 $ 3,814,494 $ 2,463,531
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provisions for (reductions in)
allowances for losses on accounts
receivable........................ 6,000 (12,832) 96,332
Provision for inventory
obsolescence...................... -- -- 156,182
Depreciation and amortization...... 3,526,287 4,960,160 7,377,199
Gain on sales of used equipment.... (821,781) (624,552) (668,178)
Deferred income tax expense........ 226,336 1,104,508 1,361,117
Changes in operating assets and
liabilities, net of the effect of
a business acquisition:
Accounts receivable.............. (269,520) (211,783) (651,548)
Parts and supplies inventories... (170,870) (340,376) (1,135,999)
Prepaid and recoverable income
taxes........................... (150,286) (58,382) (34,616)
Other receivables and prepaid
expenses........................ (63,726) (12,893) 246,260
Accounts payable................. 623,131 550,700 210,000
Payroll and other accrued
expenses........................ 469,401 223,242 (624,270)
Accrued income taxes............. (59,695) -- --
----------- ------------ -----------
Net cash provided by operating
activities.................... 7,127,489 9,392,286 8,796,010
Investing activities
Acquisition of rental operations, net
of cash acquired.................... -- (12,945,607) --
Purchases of rental equipment and
operating property and equipment.... (8,497,199) (15,053,391) (6,950,886)
Proceeds from sales of used
equipment........................... 1,852,560 1,253,608 2,593,140
Decrease (increase) in cash surrender
value of life insurance policies.... (49,524) (52,432) 161,013
----------- ------------ -----------
Net cash used in investing
activities.................... (6,694,163) (26,797,822) (4,196,733)
Financing activities
Principal borrowings under long-term
debt arrangements................... $ 650,000 $ 22,953,961 $ 2,175,000
Principal payments on long-term debt. (1,796,800) (5,313,841) (6,628,007)
Increase (decrease) in bank
overdraft........................... 208,247 (164,984) (43,263)
Capital contribution................. -- -- 250,000
Cash dividends paid.................. (69,600) (69,600) (69,600)
----------- ------------ -----------
Net cash provided by (used in)
financing activities.......... (1,008,153) 17,405,536 (4,315,870)
----------- ------------ -----------
Net increase (decrease) in
cash.......................... (574,827) -- 283,407
Cash at beginning of year.............. 574,827 -- --
----------- ------------ -----------
Cash at end of year.................... $ -- $ -- $ 283,407
=========== ============ ===========
Supplemental cash flow information:
Cash paid for interest............... $ 316,368 $ 482,569 $ 1,664,418
=========== ============ ===========
Cash paid for income taxes........... $ 2,000,781 $ 939,404 $ 2,003
=========== ============ ===========
</TABLE>
See accompanying notes.
F-69
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
NOTES TO COMBINED FINANCIAL STATEMENTS
OCTOBER 31, 1997
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Rent-It-Center, Inc. and Affiliates d/b/a Center Rental and Sales
(hereinafter collectively referred to as "Center") operate in a single
industry segment: the short-term rental of equipment, including ancillary
sales of parts, supplies and rental equipment, through a network of fourteen
rental center locations in Colorado, Kansas, Missouri, Nebraska, New Mexico
and Texas.
Basis of Presentation
The accompanying combined financial statements include the accounts of Rent-
It-Center, Inc., a Colorado corporation authorized to do business in Colorado
and Wyoming, and the following Affiliates: Lanoha Leasing Limited Liability
Company, d/b/a Center Rental and Sales--Kansas City, L.L.C. ("Lanoha
Leasing"), a Wyoming limited liability company authorized to do business in
Kansas and Missouri, Center Rental and Sales--Omaha, L.L.C. ("Center Rental"),
a Colorado limited liability company authorized to do business in Nebraska and
Iowa and, effective October 7, 1996, Zuni Rental Enterprises, L.L.C. ("Zuni
Rental"), a Colorado limited liability company authorized to do business in
Texas and New Mexico. The four entities are controlled by one family and
managed by a common executive group. All material inter-affiliate accounts and
transactions have been eliminated.
The operating agreements for the limited liability companies generally limit
each member's personal liability for any debts or losses of the company to the
member's corresponding capital contributions. The limited liability companies
have only one class of members' interest with equivalent rights, preferences
and privileges for all members; however, under certain circumstances, the net
losses of the companies are not shared in proportion to the members' capital
sharing ratio. The following table summarizes certain information regarding
each of the limited liability companies, including the maximum allowable term
of the company pursuant to its underlying operating agreement.
<TABLE>
<CAPTION>
MANDATORY
MEMBERS' CAPITAL OPERATING AGREEMENT
CONTRIBUTIONS DISSOLUTION DATE
---------------- -------------------
<S> <C> <C>
Lanoha Leasing......................... $ 10,000 October 30, 2021
Center Rental.......................... 10,000 February 4, 2024
Zuni Rental............................ 250,000 September 20, 2026
</TABLE>
The nature of Center'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 combined balance sheets
are presented on an unclassified basis.
The accompanying combined financial statements give no effect to the
proposed transaction described in Note 9 herein.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
F-70
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
Equipment rental revenue is recorded as earned under the operating method.
Equipment rentals in the combined statements of operations includes revenues
earned on equipment rentals and rental equipment delivery fees. Revenue from
the sale of parts, supplies and new equipment, which includes fuel sales, is
recorded at the time of delivery or pick-up by the customer.
Credit Policy
A significant portion of Center's business is on a credit basis. Center
extends credit to its commercial customers based on evaluations of their
financial condition and their ability to pay. Generally, no collateral is
required. Center has diversified its customer base by operating rental
locations in six states. Center 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 or market, with cost determined by the weighted
average method of inventory costing.
Depreciation and Amortization
Rental equipment and operating property and equipment are being depreciated
using the straight-line method over the estimated useful lives of the
underlying assets. Leasehold improvements are amortized using the straight-
line method over the lesser of the term of the related lease or the estimated
useful lives of the assets. For financial statement purposes Center utilizes
the following estimated useful lives:
<TABLE>
<S> <C>
Rental equipment............................................... 5 to 7 years
Vehicles, machinery and equipment.............................. 5 years
Leasehold improvements......................................... 5 to 15 years
</TABLE>
Rental equipment is depreciated to a salvage value of approximately 30-35%
of cost. Center expenses repairs and maintenance as incurred and all
acquisitions less than $1,000.
Intangible Assets
Goodwill is recorded at cost and amortized using the straight-line method
over 15 years. The recoverability of goodwill, which had a net book value of
approximately $1,421,000 at October 31, 1997, is analyzed annually based on
actual and projected levels of profitability and cash flows of the locations
acquired on an undiscounted basis.
Organizational costs are recorded at cost and amortized over a five year
period commencing with the opening of the related rental facility.
Income Taxes
Center 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.
F-71
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Lanoha Leasing, Center Rental, and Zuni Rental are treated as if they are
partnerships and, accordingly, the members of such companies recognize the
companies' net income or loss on their personal income tax returns in
proportion to their ownership interests therein.
Advertising
Costs of advertising, including radio, print and sales catalogue
expenditures, are expensed as incurred. Advertising expenses were
approximately $272,000, $336,000 and $570,000 for the years ended October 31,
1995, 1996 and 1997, respectively.
Concentrations of Credit Risk
Financial instruments that potentially subject Center to significant
concentrations of credit risk consist principally of cash investments and
trade accounts receivable.
Center maintains cash with various financial institutions located throughout
the country in order to limit exposure to any one institution; however, Center
occasionally maintains funds on deposit with banks which exceed the available
federally insured limits. Center performs periodic evaluations of the relative
credit standing of those financial institutions that are considered in
Center's investment strategy.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number and geographic diversity of Center's customer
base. Additionally, at October 31, 1996, approximately $830,000 of Center's
accounts receivable were subject to full recourse against the seller of the
rental business operations described in Note 6.
Fair Values of Financial Instruments
The carrying amounts reported in the combined balance sheets for cash,
accounts receivable, accounts payable and accrued liabilities approximate fair
value because of the immediate or short-term maturity of these financial
instruments. The fair value of long-term debt is determined using current
applicable interest rates as of the balance sheet date and approximates the
carrying value of such debt because the underlying instruments are at variable
rates which are repriced frequently or are at rates which reasonably
approximate Center's current rate of borrowing for similar secured and
unsecured financings.
Cash Surrender Value of Life Insurance Policies
Prior to October 31, 1997, Center maintained three split-dollar life
insurance policies on the combined group's chief executive officer. Center was
neither the owner nor the beneficiary of such policies; however, the chief
executive officer and Center had a verbal agreement whereby Center would be
reimbursed the lesser of the policies' cash surrender values or the cumulative
premiums paid by Center. In connection with such agreement, the chief
executive officer liquidated Center's interests in the life insurance policies
in October 1997 with a cash payment of approximately $215,000.
F-72
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. PARTS AND SUPPLIES INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 31
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Parts for resale................................... $ 1,329,060 $ 2,335,510
Parts and supplies for internal consumption........ 684,577 657,944
----------- -----------
$ 2,013,637 $ 2,993,454
=========== ===========
3. OPERATING PROPERTY AND EQUIPMENT
Operating property and equipment consisted of the following:
<CAPTION>
OCTOBER 31
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Vehicles, machinery and equipment.................. $ 4,665,594 $ 5,827,410
Leasehold improvements............................. 506,016 1,024,213
Other.............................................. 152,709 173,398
----------- -----------
5,324,319 7,025,021
Less accumulated depreciation and amortization..... 1,569,291 2,116,511
----------- -----------
$ 3,755,028 $ 4,908,510
=========== ===========
4. BANK DEBT AND LONG-TERM OBLIGATIONS
Bank debt and long-term obligations consisted of the following:
<CAPTION>
OCTOBER 31
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Revolving line of credit........................... $15,153,957 $ 6,375,000
8.0% unsecured bank loans, principal and interest
due on December 31, 1997.......................... -- 6,225,000
9.3% secured bank loan, dated November 8, 1995,
principal and interest payable monthly, maturing
November 8, 2000.................................. 2,549,672 2,012,051
8.8% secured bank loan, dated June 18, 1996,
principal and interest payable monthly, maturing
June 18, 2001..................................... 2,361,933 1,933,359
Various secured equipment notes payable at interest
rates not exceeding 7.9%, maturing between
November 1996 and October 1998.................... 916,688 183,833
Note payable to a family member of a principal
stockholder/member with interest at 9.0%.......... 200,000 --
----------- -----------
$21,182,250 $16,729,243
=========== ===========
</TABLE>
F-73
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Interest paid on the note payable to a family member of a principal
stockholder/member for the years ended October 31, 1995, 1996 and 1997 was
approximately $18,000, $18,000 and $15,000, respectively.
Principal maturities of long-term debt for the years ending October 31 are
as follows:
<TABLE>
<S> <C>
1998........................................................... $ 7,467,280
1999........................................................... 1,159,513
2000........................................................... 1,769,891
2001........................................................... 6,332,559
-----------
Total........................................................ $16,729,243
===========
</TABLE>
Revolving Line of Credit and Unsecured Bank Loans
On September 26, 1996, Rent-It-Center, Inc. entered into an unsecured
revolving line of credit agreement with its principal bank in the amount of
$17.0 million to be used to acquire the net assets of the equipment rental
operations described in Note 6 and for working capital purposes. Effective
October 27, 1997, the revolving line of credit agreement was restructured
insofar as the then outstanding balance was converted to an unsecured line of
credit agreement with a maximum borrowing of $7.5 million by Rent-It Center,
Inc. and individual 8.0% unsecured term loans with each of the three limited
liability companies aggregating $7.0 million. At October 31, 1997, Center had
$6,375,000 and $6,225,000 outstanding under the revolving line of credit
agreement and the unsecured term loans, respectively. Accordingly, as of such
date, $1,125,000 remains available under the revolving line of credit
agreement. Effective October 31, 1997, certain stockholders/members of Center
assumed primary responsibility for the unsecured bank term loans held by the
Affiliates of Rent-It-Center, Inc.
The revolving line of credit, which expires on October 1, 2001, will be
permanently reduced to $7.0 million on or before October 1, 2000.
Additionally, excess cash flow, as defined in the line of credit agreement,
can accelerate the annual principal reduction. Furthermore, the bank, at its
sole discretion, can unilaterally demand repayment of the entire balance
outstanding under the line of credit agreement at any time; however, the bank
has not currently expressed any intent to subjectively accelerate repayment.
The line of credit terms provide for a variable rate of interest equal to
the bank's prime lending rate less one half of one percent (effective rates of
7.8% and 8.0% at October 31, 1996 and 1997, respectively). Through October 1,
2001, Rent-It-Center, Inc. has the option to permanently set the interest rate
on all or a portion of the outstanding principal balance at its discretion,
subject to the terms and conditions of the underlying loan agreement. Interest
is generally payable monthly.
Secured Bank and Other Borrowings
Lanoha Leasing maintains two long-term loans, which are secured by a first
security interest in the accounts receivable, inventories, equipment and
general intangible assets owned by such entity (aggregate net book value of
those assets were approximately $5.1 million at October 31, 1997). The total
outstanding balance of such secured loans at October 31, 1997 was $3,945,410.
The bank may accelerate payments of amounts due thereunder if the bank deems
itself insecure for any reason whatsoever; however, the bank has not currently
expressed any intent to subjectively accelerate repayment. Additionally, both
secured loans include partial and full prepayment penalty provisions that
range from 1/4% to 1/2% of the principal balance subject to prepayment
(partial prepayments impacted if they exceed $150,000). The prepayment
penalties are wholly eliminated in the fifth year of each loan term.
Zuni Rental also maintains various secured equipment notes payable, which
are collateralized by assets with a net book value of approximately $300,000
at October 31, 1997.
F-74
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Loan Covenants
Center's various debt agreements have financial covenants for Center and, in
certain instances, individual members of the combined group which cover
tangible net worth, leverage ratios, cash flow ratios and debt coverage
ratios, most of which are measurable at quarterly and annual intervals. The
debt agreements also contain covenants and provisions that restrict, among
other things, Center's or individual members of the combined group's ability
to i) incur additional indebtedness, ii) incur liens or encumbrances on its
property and equipment, iii) make certain investments, loans or guarantees
other than in the normal course of business, iv) declare or pay dividends from
Rent-It Center, Inc. in excess of $500,000 per annum, v) engage in certain
sales of assets, vi) merge, consolidate with or acquire other business
entities, and vii) fundamentally alter the underlying nature or scope of the
existing business. Additionally, the debt agreements require Center to
maintain its material cash accounts, including its cash concentration account,
at the lending bank. Substantially all of the debt agreements contain cross
default provisions. As of October 31, 1997, Center and the individual members
of the combined group are in compliance with all financial and operational
covenants of its debt agreements.
5. INCOME TAXES
Rent-It Center, Inc. is subject to federal and certain state income taxes.
The income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31
--------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................ $1,548,305 $ 791,131 $ (32,613)
State.................................. 242,495 89,891 --
---------- ---------- ----------
1,790,800 881,022 (32,613)
Deferred:
Federal................................ 195,952 951,269 1,145,838
State.................................. 30,384 153,239 215,279
---------- ---------- ----------
226,336 1,104,508 1,361,117
---------- ---------- ----------
$2,017,136 $1,985,530 $1,328,504
========== ========== ==========
</TABLE>
The income tax expense differs from amounts currently payable because
certain revenue and expenses are reported in the statements of income in
periods that differ from those in which they are subject to taxation.
Reconciliations between the statutory federal income tax rate of 34% and
Center's effective tax rates are as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Federal statutory income taxes........ $1,981,978 $1,972,008 $1,289,292
Earnings of Rent-It-Center, Inc.
Affiliates taxed to individual
members.............................. (153,565) (121,619) (105,631)
State income taxes, net of federal
benefit.............................. 180,100 160,466 142,084
Other................................. 8,623 (25,325) 2,759
---------- ---------- ----------
$2,017,136 $1,985,530 $1,328,504
========== ========== ==========
</TABLE>
F-75
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying values of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of Center's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
OCTOBER 31
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowances for doubtful accounts.................... $ 33,750 $ 57,563
Inventory obsolescence reserves..................... -- 58,568
Inventory overhead capitalization................... 11,989 17,300
Vacation accrual.................................... 53,252 78,110
Alternative minimum tax credit carryforward......... -- 253,472
Other............................................... -- 2,419
---------- ----------
98,991 467,432
---------- ----------
Deferred tax liabilities:
Rental equipment and operating property and
equipment, net..................................... 3,015,192 4,744,750
Other............................................... 200,000 200,000
---------- ----------
3,215,192 4,944,750
---------- ----------
$3,116,201 $4,477,318
========== ==========
</TABLE>
Rent-It-Center, Inc. has an alternative minimum tax credit carryover of
approximately $253,000 for federal income tax purposes which is available to
offset future regular income tax that is in excess of the alternative minimum
tax in such year. If the transaction discussed in Note 9 occurs, the
utilization of these alternative minimum tax credits will be subject to
restrictions in accordance with Internal Revenue Service Code section 383 and
the ultimate utilization is further limited based on the profitability of
Rent-It-Center, Inc.; however, the carryforward period for an alternative
minimum tax credit carryover is unlimited.
At October 31, 1997, the aggregate reported bases for financial statement
purposes of Rent-It Center Inc.'s nontaxable affiliates (i.e., the limited
liability companies) exceed such entities corresponding bases for income tax
purposes by approximately $3.8 million. Such net difference is primarily
attributable to accelerated income tax depreciation and amortization.
6. BUSINESS COMBINATION
On October 7, 1996, Rent-It-Center, Inc. acquired all the operating assets
of three New Mexico and two Texas rental locations for approximately $12.9
million plus assumed liabilities of approximately $911,000. Rent-It-Center,
Inc. retained the acquired rental equipment and transferred all the other
acquired net assets to Zuni Rental. The acquired rental equipment is leased to
Zuni Rental. The transaction was financed through Center's revolving line of
credit agreement.
This acquisition has been accounted for as a purchase and, accordingly, the
acquired tangible and identifiable intangible assets and liabilities have been
recorded at their estimated fair values at the date of acquisition with any
excess purchase price reflected as goodwill in the accompanying combined
financial statements. The operations of the acquired business is included in
the combined statements of operations from the date of acquisition.
F-76
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the net assets acquired, liabilities assumed
and cash purchase price for the acquisition:
<TABLE>
<S> <C>
Assets acquired............................................... $12,324,726
Goodwill...................................................... 1,531,500
Less: liabilities assumed..................................... (910,619)
-----------
Cash purchase price........................................... $12,945,607
===========
</TABLE>
The following table sets forth the unaudited pro forma combined results of
operations for the years ended October 31, 1995 and 1996 as if the above
acquisition was consummated at the beginning of each fiscal year:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
-----------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Total revenue...................................... $43,603,000 $45,802,000
Net income......................................... 5,650,000 4,210,000
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
Center leases certain operating premises and equipment under noncancellable
operating leases. Substantially all of the property leases require Center 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 noncancellable operating leases totaled $251,000,
$326,000, and $713,000 for the years ended October 31, 1995, 1996 and 1997,
respectively. Future minimum lease payments, by the year ended October 31 and
in the aggregate, for noncancellable operating leases with initial or
remaining terms of one year or more are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 743,959
1999............................................................ 668,039
2000............................................................ 621,999
2001............................................................ 577,666
2002............................................................ 76,500
Thereafter...................................................... 291,000
----------
$2,979,163
==========
</TABLE>
Additionally, Center leases certain real property from entities which are
partially or wholly-owned by stockholders, members and/or officers of Center.
Such noncancellable leases, which have various expiration dates through
January 2002, require future minimum lease payments for the years ending
October 31 and in the aggregate as follows:
<TABLE>
<S> <C>
1998............................................................ $ 720,000
1999............................................................ 720,000
2000............................................................ 720,000
2001............................................................ 720,000
2002............................................................ 420,000
----------
$3,300,000
==========
</TABLE>
F-77
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Rent expense under the related party real property leases for the years
ended October 31, 1995, 1996 and 1997 was approximately $506,000, $436,000 and
$688,000, respectively. Additionally, pursuant to the terms and conditions of
such leases, Center is responsible for the insurance premiums, real property
taxes and certain other costs associated directly or indirectly with the
underlying real property.
Purchase Obligations
At October 31, 1997, Center was obligated under noncancellable purchase
commitments to purchase approximately $1.0 million of rental equipment and
inventories.
Legal Matters
Center is party to legal proceedings and potential claims arising in the
ordinary course of its business. The ultimate legal and financial liability of
Center with respect to such ongoing litigation cannot be estimated with any
certainty but, in the opinion of management, Center has adequate legal
defenses, reserves or insurance coverage with respect to those matters so that
the ultimate resolution will not have a material adverse effect on Center's
combined financial position, results of operations or cash flows.
Environmental Matters
Center and its operations are subject to a variety of environmental 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. Center believes it is substantially in
compliance with the aforementioned environmental laws and regulations. The
landlord at certain of the related party lease locations has agreed to assume
responsibility for the removal of underground fuel tanks at such locations and
related remediation costs, if any.
8. EMPLOYEE BENEFIT PLAN
Center has a 401(k) savings and retirement plan covering substantially all
employees who have completed one year of service and attained the age of 18.
The plan is a defined contribution plan and provides for Center to make
contributions of 50% of a participant's elective salary deferral, up to 2% of
each participant's total compensation, plus additional amounts at the option
of the plan sponsor's Board of Directors. Center's matching contributions are
funded on a current basis. Center's matching contributions, including
discretionary contributions, for the years ended October 31, 1995, 1996 and
1997 were $161,000, $183,000 and $122,000, respectively.
9. BUSINESS COMBINATION
On October 6, 1997, Center reached a definitive agreement to sell, effective
November 1, 1997, all of the outstanding capital stock of Rent-It-Center, Inc.
and substantially all of the assets of the Affiliates for approximately $100.9
million in cash, 482,315 shares of common stock (of which 64,544 shares will
be issued over seven years, subject to earlier issuance over three years if
certain performance objectives are achieved) of Rental Service Corporation
("RSC") and the assumption of Center's debt. The transaction is anticipated to
close by December 2, 1997. Pursuant to the acquisition agreements, RSC assumed
effective control of Center's operations on November 1, 1997.
F-78
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Shareholders and Board of Directors of
JDW Enterprises, Inc. d.b.a. Valley Rentals
Gilbert, Arizona
We have audited the accompanying balance sheet of JDW Enterprises, Inc.
d.b.a. Valley Rentals ("Valley") as of December 31, 1996, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of
Valley'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 our 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 JDW Enterprises, Inc.
d.b.a. Valley Rentals as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ WEINTRAUB & MORRISON, P.C.
Tempe, Arizona
February 25, 1997
F-79
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current assets: (Note 1 (a))
Cash on hand...................................... $ 3,600 $ 4,227
Cash in bank (Note 2)............................. 27,703 --
Accounts receivable (Notes 1 (c), 3 and 7)........ 8,003,236 8,917,102
Inventory (Notes 1 (d) and 4)..................... 2,049,601 3,060,291
Prepaid expenses.................................. 605,987 594,661
------------ ------------
Total current assets............................ 10,690,127 12,576,281
------------ ------------
Property and equipment: (Notes 1 (e) and 5)
Land.............................................. 1,434,102 1,434,102
Land improvements................................. 614,241 634,712
Buildings......................................... 3,933,038 4,023,176
Leasehold improvements............................ 12,889 29,493
Rental equipment.................................. 40,953,242 48,587,631
Shop equipment.................................... 380,268 443,414
Trucks and trailers............................... 2,731,449 2,751,446
Office equipment.................................. 1,039,712 1,414,667
Small tools....................................... 174,250 174,250
Signs............................................. 23,432 26,742
Construction in progress.......................... 22,555 61,673
------------ ------------
51,319,178 59,581,306
Less: accumulated depreciation and amortization.... (13,510,813) (17,836,393)
------------ ------------
Net property and equipment......................... 37,808,365 41,744,913
------------ ------------
Other assets:
Goodwill (Note 6) (net of accumulated
amortization of $23,333 and $38,333 at December
31, 1996 and September 30, 1997, respectively)... 76,667 61,667
Other assets...................................... -- 691,941
------------ ------------
Total other assets.............................. 76,667 753,608
------------ ------------
$ 48,575,159 $ 55,074,802
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities: (Note 1 (a))
Bank overdrafts................................... $ -- $ 123,181
Accounts payable.................................. 2,212,778 1,863,760
Note payable, bank (Note 9)....................... 3,348,081 3,917,992
Current portion of long-term debt................. 9,043,776 7,902,076
Accrued salaries and wages........................ 283,738 103,738
Accrued property taxes............................ 124,243 275,579
Accrued sales taxes............................... 512,178 549,055
Other accrued liabilities......................... 40,439 28,375
------------ ------------
Total current liabilities....................... 15,565,233 14,763,756
------------ ------------
Long-term debt and obligations under capital lease:
(Notes 5 and 7)...................................
Notes payable..................................... 29,028,832 34,320,993
Obligations under capital lease................... 1,583,097 1,117,529
Related party loans............................... 3,529,778 3,430,459
Less current portion above........................ (9,043,776) (7,902,076)
------------ ------------
Total long-term debt............................ 25,097,931 30,966,905
------------ ------------
Total liabilities.................................. 40,663,164 45,730,661
------------ ------------
Commitments and contingencies (Note 8)
Stockholder's equity:
Common stock, no par value
Authorized shares--1,000,000; Issued and
outstanding shares--600,000..................... 600,000 600,000
Retained earnings.................................. 7,311,995 8,744,141
------------ ------------
Total stockholders' equity......................... 7,911,995 9,344,141
------------ ------------
$ 48,575,159 $ 55,074,802
============ ============
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
F-80
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------
1996 1996 1997
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Rental revenue and retail sales (Notes
1 (b) and 7)......................... $30,731,628 $22,357,673 $24,566,437
Sale of used equipment................ 1,979,675 1,446,907 2,720,586
----------- ----------- -----------
32,711,303 23,804,580 27,287,023
Cost of sales:
Rental and retail (Notes 1 (b) and 7). 3,044,070 1,671,550 2,058,180
Used equipment........................ 1,309,521 888,448 1,728,991
----------- ----------- -----------
4,353,591 2,559,998 3,787,171
----------- ----------- -----------
Gross profit........................ 28,357,712 21,244,582 23,499,852
Operating expenses: (Note 1 (b))
Delivery expenses..................... 2,406,107 1,767,755 1,825,126
Counter and customer service expenses. 2,132,250 1,578,096 1,610,255
Equipment repair expenses............. 6,756,069 5,283,984 6,387,120
Sales expenses........................ 1,633,419 1,207,218 1,169,455
Administrative expenses............... 3,650,842 2,712,810 3,174,648
Depreciation and amortization (Note 1
(e))................................. 6,777,558 5,041,592 5,557,993
----------- ----------- -----------
Total operating expenses............ 23,356,245 17,591,455 19,724,597
----------- ----------- -----------
Income from operations.................. 5,001,467 3,653,127 3,775,255
Other income (expense):
Interest income....................... 98,848 68,466 134,847
Other income.......................... 56,791 52,015 39,398
Interest expense...................... (3,007,051) (2,251,131) (2,324,416)
Related party interest expense (Note
7)................................... (340,563) (276,250) (192,938)
----------- ----------- -----------
Income before income taxes.......... 1,809,492 1,246,227 1,432,146
Provision for income taxes (Note 1 (f)). -- -- --
----------- ----------- -----------
Net income.......................... $ 1,809,492 $ 1,246,227 $ 1,432,146
=========== =========== ===========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
F-81
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------
NUMBER
OF STATED RETAINED
SHARES VALUE EARNINGS TOTAL
------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Balances at January 1, 1996........... 600,000 $600,000 $5,652,503 $6,252,503
Net income.......................... -- -- 1,809,492 1,809,492
Dividends paid...................... -- -- (150,000) (150,000)
------- -------- ---------- ----------
Balances at December 31, 1996......... 600,000 600,000 7,311,995 7,911,995
Net income (unaudited).............. -- -- 1,432,146 1,432,146
------- -------- ---------- ----------
Balances at September 30, 1997
(unaudited).......................... 600,000 $600,000 $8,744,141 $9,344,141
======= ======== ========== ==========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
F-82
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------
1996 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Cash received from customers....... $ 30,830,982 $ 21,565,155 $ 25,086,555
Cash paid to suppliers and
employees......................... (20,760,732) (14,977,685) (16,883,991)
Interest paid...................... (3,347,614) (2,527,381) (2,517,354)
Interest received.................. 98,848 68,466 39,398
------------ ------------ ------------
Net cash provided by operating
activities........................ 6,821,484 4,128,555 5,724,608
INVESTING ACTIVITIES
Capital expenditures............... (9,799,349) (9,614,467) (11,208,526)
------------ ------------ ------------
Net cash used in investing
activities........................ (9,799,349) (9,614,467) (11,208,526)
FINANCING ACTIVITIES
Net borrowings on line of credit... 1,961,996 -- --
Proceeds from long-term debt....... 11,285,987 11,267,280 13,340,212
Principal payments on long-term
debt.............................. (10,142,559) (7,166,551) (8,006,551)
Dividends paid..................... (150,000) -- --
------------ ------------ ------------
Net cash provided by financing
activities........................ 2,955,424 4,100,729 5,333,661
------------ ------------ ------------
Net decrease in cash and cash
equivalents......................... (22,441) (1,385,183) (150,257)
Cash and cash equivalents, beginning
of period........................... 53,744 53,744 31,303
------------ ------------ ------------
Cash and cash equivalents, end of
period.............................. $ 31,303 $ (1,331,439) $ (118,954)
============ ============ ============
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
F-83
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
STATEMENTS OF CASH FLOWS--(CONTINUED)
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------
1996 1996 1997
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net income............................ $ 1,809,492 $ 1,246,227 $ 1,432,146
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 6,777,558 5,041,592 5,557,993
Cost of equipment sold.............. 1,309,521 888,448 1,728,991
Change in assets and liabilities:
(Increase) in accounts receivable. (1,937,112) (1,802,781) (1,594,481)
(Increase) decrease in inventory.. (358,945) (196,405) (1,010,689)
(Increase) in prepaid expenses.... (169,343) -- --
(Decrease) increase in accounts
payable, trade................... (205,152) (809,857) (349,024)
Increase (decrease) in accrued
salaries and wages............... 57,462 -- --
(Decrease) increase in accrued
property taxes .................. (160,705) -- --
Increase in accrued sales taxes... 82,606 -- --
(Decrease) increase in other
accrued liabilities.............. (383,898) (238,669) (40,328)
----------- ----------- -----------
Net cash provided by operating
activities........................... $ 6,821,484 $ 4,128,555 $ 5,724,608
=========== =========== ===========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
F-84
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(THE INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED.)
1. SIGNIFICANT ACCOUNTING POLICIES
a. Valley's activities and operating cycle. Valley is engaged in the equipment
rental and retailing industries in the states of Arizona and New Mexico.
Assets and liabilities are classified as current and non-current based on a
one year operating cycle.
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were used.
b. Revenue and cost recognition. The accompanying financial statements are
prepared on the accrual basis of accounting.
Revenues are recognized when earned. Costs of good sold and operating costs
are charged to expense as incurred.
c. Accounts receivable. Valley provides for potentially uncollectible accounts
receivable by use of the allowance method. The allowance is provided based
upon a review of the individual accounts outstanding, and prior history of
uncollectible accounts receivable. As of December 31, 1996 and September
30, 1997, an allowance has been provided for potentially uncollectible
accounts receivable.
d. Inventory. Inventory quantities and valuations are determined by using the
first in first out method. Inventory is stated at the lower of cost or
market. Certain used equipment is carried in inventory at net book value
(original cost less accumulated depreciation) because it has been removed
from normal rental operations and is being held for sale.
e. Property and equipment and depreciation. Property and equipment are carried
at cost. When retired or otherwise disposed of, the related carrying value
and accumulated depreciation are cleared from the respective accounts and
the net difference less any amount realized from disposition is reflected
in earnings.
Maintenance and repairs, including the replacement of minor items, are
expensed as incurred, and major additions to property and equipment are
capitalized.
Depreciation is computed primarily by the straight-line method with
estimated salvage values over the following useful lives:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Land................................................................ --
Land improvements................................................... 15
Buildings........................................................... 7-31.5
Rental equipment.................................................... 3-5
Shop................................................................ 5
Trucks and trailers................................................. 3-5
Office equipment.................................................... 5-7
Small tools......................................................... 5
Signs............................................................... 10
Leasehold improvements.............................................. 31.5
</TABLE>
F-85
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
f. Income taxes. No provision for income taxes is reflected in the
accompanying statements because Valley, with the consent of its
stockholders, filed an election with the Internal Revenue Service to be
treated as an S Corporation. Accordingly, all attributes of taxable income,
credits and special deductions are passed directly to the stockholders for
inclusion on their individual income tax returns.
g. Pension plan. Valley sponsors an I.R.C. Section 401 (k) plan that covers
employees that have completed one year of service and have reached twenty
one years of age. Contributions to the plan are made monthly. Valley
matches 25% of the employee contribution and the employee vests
immediately. For the year ended December 31, 1996 and the nine months ended
September 30, 1996 and 1997, Valley's matching contributions to the plan
were $71,431, $52,895 and $57,480, respectively.
h. Cash equivalents. For purposes of the statement of cash flows, the company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
i. Advertising Costs. Advertising costs are charged to expense when incurred.
Included in sales expenses for the year ended December 31, 1996 and the
nine months ended Setpember 30, 1996 and 1997 were advertising costs of
$331,374, $263,773 and $154,717, respectively.
j. Interim Financial Statements. The accompanying balance sheet at September
30, 1997 and the statements of operations and cash flows for the nine month
periods ended September 30, 1996 and 1997 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, which consist solely of normal recurring adjustments. The
results of operations for such interim periods, are not necessarily
indicative of results for the full year.
2. CONCENTRATION OF CREDIT RISK
Valley, in the ordinary course of business, maintains bank balances in
excess of Federal Deposit Insurance Corporation Insurance Limits.
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Accounts receivable............................. $8,071,200 $9,430,998
Less: allowance for doubtful accounts........... (67,964) (513,896)
---------- ----------
$8,003,236 $8,917,102
========== ==========
</TABLE>
F-86
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
4. INVENTORY
At December 31, 1996 and September 30, 1997, inventory categories and
amounts were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Shop and yard inventory......................... $1,158,479 $1,733,813
Merchandise for resale.......................... 564,897 1,036,264
Used equipment for sale......................... 282,218 237,482
Fuel and oil.................................... 44,007 52,732
---------- ----------
$2,049,601 $3,060,291
========== ==========
</TABLE>
5. LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASE
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
NOTES PAYABLE
Notes payable to Wells Fargo Bank, collateralized
by rental equipment and personal guarantees of the
stockholders, principal is due in monthly
installments of $43,750 and 2.0% of the
outstanding balance (minimum $184,000) through
May, 2001. The notes bear interest at prime plus
.125% (8.375% at December 31, 1996), interest is
payable monthly. ................................. $12,237,645 $ --
Notes payable to Wells Fargo Bank, collateralized
by land and buildings, principal and interest due
in monthly installments of $9,755 and $25,146
through July, 2016. The notes bear interest from
8.375% to 9.25%. ................................. 3,895,667 3,790,840
Notes payable to various equipment companies and
individuals, collateralized by the equipment
purchased, principal and interest due in monthly
installments from $192 to $25,824, through
September, 2002. The notes bear interest from 4.9%
to 11.125%. ...................................... 12,895,520 30,530,153
----------- ----------
Subtotal, notes payable............................ 29,028,832 34,320,993
OBLIGATIONS UNDER CAPITAL LEASE
Capital leases payable, secured by the equipment
leased bear interest from 5.91% to 23.85% and are
payable in monthly installments from $454 to
$20,790 through May, 2000. ....................... 1,583,097 1,117,529
RELATED PARTY LOANS
Notes payable to Danny L. and Mary J. Evans are
subordinated to Wells Fargo Bank, interest is due
quarterly and principal is due on demand. The
notes and interest may not be paid without
obtaining the approval of Wells Fargo Bank. The
notes bear interest at 8.75%. .................... 2,090,000 2,090,000
Notes payable to stockholders are subordinated to
Wells Fargo Bank, interest is due quarterly and
principal is due on demand. The notes and interest
may not be paid without obtaining the approval of
Wells Fargo Bank. The notes bear interest at
8.75%. ........................................... 850,000 850,000
</TABLE>
F-87
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Notes payable to stockholders, collateralized by
rental equipment purchased, principal and
interest due in monthly installments of $7,315
through November, 2000. The notes bear interest
at 7.9%. ........................................ 589,778 490,459
----------- -----------
Subtotal, related party loans..................... 3,529,778 3,430,459
----------- -----------
Total debt........................................ 34,141,707 38,868,981
Less current portion.............................. (9,043,776) (7,902,076)
----------- -----------
$25,097,931 $30,966,905
=========== ===========
The aggregate annual maturities on long-term debt
as of December 31, 1996 are as follows:
1997.......................................... $ 9,043,776
1998.......................................... 8,366,671
1999.......................................... 8,807,972
2000.......................................... 3,449,096
2001.......................................... 1,213,070
Thereafter.................................... 3,261,122
-----------
$34,141,707
===========
Minimum future lease payments, by year and in the
aggregate, under capital leases as of December
31, 1996 are as follows:
1997.......................................... $ 822,447
1998.......................................... 627,415
1999.......................................... 283,893
2000 ......................................... 7,511
-----------
Total minimum future lease payments............... 1,741,266
Less amount representing interest................. (145,475)
-----------
1,595,791
Less amount representing sales tax................ (12,694)
-----------
Present value of net minimum future lease
payments......................................... $ 1,583,097
===========
</TABLE>
Amortization on the assets collateralizing the capital leases is included in
the depreciation and amortization expense.
6. GOODWILL
Goodwill represents the aggregate excess of the cost of companies acquired
over the fair value of their net assets at dates of acquisition and is being
amortized on the straight line method over a five year period. Amortization
expense charged to operations for the year ended December 31, 1996 and the
nine months ended September 30, 1996 and 1997 was $20,000, $15,000, and
$15,000, respectively.
F-88
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
7. RELATED PARTY TRANSACTIONS
Accounts receivable
Included in accounts receivable is $86,388 and $0 at December 31, 1996 and
September 30, 1997, respectively, due from J.H. Kelly, Inc., a corporation
controlled by a 50% stockholder of Valley. In addition, accounts receivable at
December 31, 1996 and September 30, 1997 include $35,874 due from a 25%
stockholder of Valley.
Notes payable, related party
At December 31, 1996 and September 30, 1997, Valley has notes payable to
Danny L. and Mary J. Evans in the amount of $2,090,000. The notes are
subordinated to Wells Fargo Bank and bear interest at 8.75%.
At December 31, 1996 and September 30, 1997, Valley has notes payable to its
stockholders in the amount of $850,000. The notes are subordinated to Wells
Fargo Bank and bear interest at 8.75%.
Valley purchased rental equipment in the amount of $589,778, $0 and $0 from
two of Valley's stockholders during the year ended December 31, 1996 and the
nine months ended September 30, 1996 and 1997, respectively. The stockholder
notes resulting from this transaction bear interest at 7.9% and total $589,778
and $490,459 at December 31, 1996 and September 30, 1997, respectively .
Rental revenue and retail sales
Valley rents and sells equipment to J.H. Kelly, Inc. For the year ended
December 31, 1996 and the nine months ended September 30, 1996 and 1997,
Valley recognized revenues of $48,864, $4,053 and $13,178, respectively, from
J.H. Kelly, Inc.
Interest expense
Interest expense paid on the stockholder notes and to J.H. Kelly, Inc.
amounted to $340,563, $276,250, and $192,938, respectively, for the year ended
December 31, 1996 and the nine months ended September 30, 1996 and 1997.
8. COMMITMENTS AND CONTINGENCIES
Valley is currently leasing various facilities and equipment under operating
leases expiring through the year 2001.
Future minimum lease payments as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
Years ended December 31,
1997.......................................................... $1,445,991
1998.......................................................... 1,415,991
1999.......................................................... 1,347,029
2000.......................................................... 1,066,670
2001 ......................................................... 254,714
----------
$5,530,395
==========
</TABLE>
9. NOTE PAYABLE, BANK
Note payable, bank in the amounts of $3,348,081 at December 31, 1996 and
$3,917,992 at September 30, 1997 are the balances owed on a $4,000,000
revolving line of credit with Wells Fargo Bank. The note is secured by
accounts receivable, inventory and the personal guarantees of the
stockholders. The line of credit bears interest at the prime lending rate
(8.25% at December 31, 1996 and 8.5% at September 30, 1997).
F-89
<PAGE>
Every rental location has on-line
access to centralized systems which
provide real-time transaction
processing, extensive fleet
management tools and daily financial
management reports. These systems
also allow an employee at any
location to identify and reserve a [Photo of employee using the
specific piece of equipment anywhere Company's advanced information
in a region and schedule delivery to systems to assist customer]
a customer's job site.
Depending upon market needs, RSC
offers value-added services to its
customers such as radio-dispatched
transportation fleet and 24 hours-a-
day, seven days-a-week support
[Photo of employee delivering rental services, including on-site
equipment] maintenance and repair.
The Company's information systems
track each individual rental asset
and automatically schedule [Photo of employee performing
preventative maintenance. As a rental equipment maintenance]
result, the Company is able to
enhance the reliability and extend
the useful life of its rental
equipment fleet.
<PAGE>
[LOGO]
<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 +
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued , 1997
5,000,000 Shares
[LOGO of RSC]
COMMON STOCK
-----------
OF THE 5,000,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 1,000,000 SHARES
ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 4,000,000 SHARES ARE BEING OFFERED INITIALLY
IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY ARE
BEING SOLD BY THE COMPANY. THE COMMON STOCK IS TRADED ON THE NEW YORK
STOCK EXCHANGE UNDER THE SYMBOL "RSV." ON DECEMBER 12, 1997, THE LAST
REPORTED SALE PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE
WAS $25 7/8 PER SHARE.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
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.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- ----------
<S> <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 "Underwriters."
(2) Before deducting expenses payable by the Company estimated at
$1,000,000.
(3) The Company and certain Selling Stockholders have granted the U.S.
Underwriters an option, exercisable within 30 days of the date hereof,
to purchase up to an aggregate of 750,000 additional Shares at the price
to public less underwriting discounts and commissions for the purpose of
covering overallotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions, proceeds to Company and proceeds to Selling Stockholders
will be $ , $ , $ and $ , respectively.
The Company will not receive any proceeds from the sale of Shares by the
Selling Stockholders. See "Principal and Selling Stockholders" and
"Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Shearman & Sterling, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER WILLIAM BLAIR & COMPANY
, .
<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, 1995 and 1996, and for each of
the three years in the period ended December 31, 1996, and have issued our
report thereon dated February 28, 1997, included elsewhere in this
Registration Statement. Our audits also included the financial statement
schedules listed in Item 16(b) of this Registration Statement. These schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
February 28, 1997
S-1
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENTAL SERVICE CORPORATION (PARENT COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
------
Cash.................................................. $ 5,000 $ 5,000
Investment in and net amounts due from wholly owned
subsidiaries......................................... 39,152,000 95,075,000
----------- -----------
$39,157,000 $95,080,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable and accrued expenses................. $ -- $ 8,000
Note payable to bank.................................. 10,710,000 --
Redeemable preferred stock............................ 28,401,000 --
Common stockholders' equity:
Common stock........................................ 42,000 114,000
Additional paid-in capital.......................... 40,000 93,917,000
Retained earnings (deficit)......................... (36,000) 1,041,000
----------- -----------
Total common stockholders' equity................. 46,000 95,072,000
----------- -----------
$39,157,000 $95,080,000
=========== ===========
</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
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Costs and expenses:
General and administrative expenses..... $ 93,000 $ -- $ --
Interest expense (income)............... 28,000 (7,000) 3,000
---------- ---------- ----------
Income (loss) before equity in income of
subsidiaries and extraordinary item...... (121,000) 7,000 (3,000)
Equity in income of subsidiaries.......... 2,097,000 3,230,000 2,503,000
---------- ---------- ----------
Income before extraordinary item.......... 1,976,000 3,237,000 2,500,000
Extraordinary item, gain on extinguishment
of debt less applicable income taxes of
$142,000 in 1996......................... -- -- 220,000
---------- ---------- ----------
Net income................................ $1,976,000 $3,237,000 $2,720,000
========== ========== ==========
</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
--------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................. $ 1,976,000 $ 3,237,000 $ 2,720,000
Equity in income of subsidiaries....... (2,097,000) (3,230,000) (2,503,000)
Extraordinary item..................... -- -- (220,000)
Change in accounts payable and accrued
expenses.............................. 109,000 (109,000) 8,000
----------- ----------- ------------
Net cash provided by (used in)
operating activities.................. (12,000) (102,000) 5,000
FINANCING ACTIVITIES
Proceeds from sale of preferred stock.. 259,000 -- 7,500,000
Repurchase of preferred stock.......... -- -- (37,874,000)
Proceeds from notes payable............ -- 10,000,000 --
Payments on notes payable.............. -- -- (12,055,000)
Proceeds from sale of common stock..... -- -- 95,223,000
Proceeds from exercise of stock
options............................... -- -- 1,000
Repurchase of common stock warrants.... -- -- (945,000)
Loans to subsidiaries.................. (247,000) (9,893,000) (51,855,000)
----------- ----------- ------------
Net cash provided by (used in)
financing activities.................. 12,000 107,000 (5,000)
----------- ----------- ------------
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, 1996
1. BASIS OF PRESENTATION
Rental Service Corporation (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.
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year financial statement
presentation.
2. LONG-TERM DEBT
The note payable to Bank was 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.
On September 24, 1996, the Company repaid the note payable to Bank and
repurchased the related warrants for $13 million, utilizing proceeds from its
initial public offering. This redemption resulted in a reduction of additional
paid-in capital of $945,000 and a gain on extinguishment of debt of $362,000,
which has been classified as an extraordinary item, net of income taxes of
$142,000, in the accompanying condensed statements of operations for the year
ended December 31, 1996.
The Company has guaranteed its subsidiaries $125,000,000 revolving line of
credit with a bank, of which $56,042,000 and $67,867,000 is outstanding at
December 31, 1995 and 1996, respectively.
3. SUBSEQUENT EVENT
Effective January 31, 1997, the Company amended the Revolver to, among other
things, increase the availability to $200,000,000, increase the advance rates
on eligible rental equipment to 100%, decrease the interest rate margins by
0.50% and extend the maturity date to January 31, 2002. In addition, the
amended Revolver modifies certain covenants, including the restrictions on
investments, capital expenditures and acquisitions. In connection with the
implementation of the amended Revolver, the Company anticipates recording an
extraordinary loss on extinguishment of debt of $920,000, net of income taxes
of $386,000, in the first quarter of 1997 associated with the write-off of
unamortized debt issuance costs.
S-5
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
RENTAL SERVICE CORPORATION
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
CHARGED TO
BALANCE AT COSTS AND DEDUCTIONS -- BALANCE AT
DESCRIPTION BEGINNING OF YEAR EXPENSES ACQUISITIONS DESCRIBE END OF YEAR
- ------------------------ ----------------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1994
Deducted from assets
accounts:
Allowance for doubtful
accounts $ 379,000 $ 621,000 $ 236,000 $ 280,000(a) $ 956,000
Reserve for rental
equipment 97,000 92,000 -- 32,000(b) 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(a) $ 1,791,000
Reserve for rental
equipment 157,000 -- 519,000 165,000(b) 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
=========== ========== ========== ========== ===========
YEAR ENDED DECEMBER 31,
1996
Deducted from assets
accounts:
Allowance for doubtful
accounts $ 1,791,000 $1,692,000 $ 276,000 $1,594,000(a) $ 2,165,000
Reserve for rental
equipment 511,000 434,000 -- 22,000(b) 923,000
Reserve for resale
equipment 603,000 97,000 224,000 142,000(b) 782,000
Income tax valuation
allowance 7,858,000 -- -- 3,118,000(c) 4,740,000
----------- ---------- ---------- ---------- -----------
Total................... $10,763,000 $2,223,000 $ 500,000 $4,876,000 $ 8,610,000
=========== ========== ========== ========== ===========
</TABLE>
- -------
(a) Write-off of uncollectible accounts, net of recoveries.
(b) Write-off of physical inventory shortages or obsolescence.
(c) Decrease due to changes in the expected future utilization of net operating
loss carryforwards.
S-6
<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.
<TABLE>
<S> <C>
Commission Registration Fee.................................... $ 45,685
NASD Filing Fee................................................ 15,576
Accounting Fees and Expenses................................... 300,000
Legal Fees and Expenses (other than Blue Sky).................. 300,000
Printing and Engraving Expenses................................ 200,000
Miscellaneous Expenses......................................... 138,739
----------
Total.......................................................... $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Corporation Law") gives Delaware corporations broad powers to
indemnify their present and former directors and officers against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with threatened, pending or
completed actions, suits or proceedings to which they are parties or are
threatened to be made parties by reason of being or having been such directors
or officers, subject to specified conditions and exclusions; gives a director
or officer who successfully defends an action the right to be so indemnified;
and permits a corporation to buy directors' and officers' liability insurance.
Such indemnification is not exclusive of any other rights to which those
indemnified may be entitled under any by-law, agreement, vote of stockholders
or otherwise.
As permitted by Section 145 of the Delaware Corporation Law, Article VI of
the Bylaws of the Company provides for the indemnification by the Company of
its directors, officers, employees and agents against liabilities and expenses
incurred in connection with actions, suits or proceeds brought against them by
a third party or in the right of the corporation, by reason of the fact that
they were or are such directors, officers, employees or agents. Article
Twelfth of the Company's Certificate of Incorporation, which is incorporated
by reference in this Registration Statement, provides that to the fullest
extent permitted by the Delaware Corporation Law as the same exists or may
hereafter be amended, a director of the Company shall not be liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director.
The Company has entered into, or intends to enter into, agreements to
indemnify its directors and executive officers in addition to the
indemnification provided for in the Certificate of Incorporation and Bylaws.
These agreements, among other things, will indemnify the Company's directors
and executive officers for certain expenses (including attorneys' fees), and
all losses, claims, liabilities, judgments, fines and settlement amounts
incurred by such person arising out of or in connection with such person's
service as a director or officer of the Company to the fullest extent
permitted by applicable law.
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.
II-1
<PAGE>
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>
TITLE OF NUMBER OF
DATE SECURITIES SHARES(1) PURCHASER CONSIDERATION
---- ------------ --------- --------- -------------
<S> <C> <C> <C> <C>
July 25, 1995...... Common Stock 4,741 Martin R. Reid 47.41
July 25, 1995...... Common Stock 1,210 Douglas A. Waugaman 12.10
October 9, 1995.... Common Stock 242 Douglas A. Waugaman 2.42
</TABLE>
- --------
(1) Does not reflect 45-for-1 stock split effective August 21, 1996.
Since October 9, 1995, the Registrant has sold and issued the following
securities which were not registered under the Securities Act (items (a)
through (e) do not reflect 45-for-1 stock split effective August 21, 1996):
a. Pursuant to the Preferred Stock and Common Stock Purchase Agreement
dated as of January 4, 1996 by and between UST Private Equity Investors
Fund, Inc. and the Registrant, the Registrant sold and issued: (1) 10,000
shares of the Redeemable Preferred Stock at a cash purchase price of $100
per share, or $1,000,000 in the aggregate and (2) 3,160 shares of the
Common Stock at a cash purchase price of $316.44 per share, or $1,000,000
in the aggregate.
b. Pursuant to the Preferred Stock and Common Stock Purchase Agreement
dated as of January 4, 1996 by and among the purchasers listed on Schedule
I thereto and the Registrant, the Registrant sold and issued: (1) 15,000
shares of the Redeemable Preferred Stock at a cash purchase price of $100
per share, or $1,500,000 in the aggregate and (2) 4,740 shares of the
Common Stock at a cash purchase price of $316.44 per share, or $1,500,000
in the aggregate.
c. Pursuant to the Preferred Stock and Common Stock Purchase Agreement
dated as of January 4, 1996 by and among Nassau Capital Partners L.P. and
NAS Partners I L.L.C., and the Registrant, the Registrant sold and issued:
(1) 49,730 shares and 270 shares, respectively of the Redeemable Preferred
Stock at a cash purchase price of $100 per share, or $4,973,000 and
$27,000, respectively, in the aggregate and (2) 15,716 shares and 85
shares, respectively, of the Common Stock at a cash purchase price of
$316.44 per share, or $4,973,000 and $27,000, respectively, in the
aggregate. All of the Redeemable Preferred Stock listed in items (a)
through (c) was redeemed by the Registrant in September 1996 at the
redemption price of $100 per share, plus accrued and unpaid dividends to
the redemption date.
d. In July 1995, pursuant to its Stock Option Plan for Key Employees (the
"1995 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. In
April 1996, pursuant to the 1995 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. In January 1996, pursuant to the 1995 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.
All such options are not transferable, and complete exercisability is not
available prior to various dates from April 2000 through July 2001. Options
covering 762 such shares were exercised prior to December 23, 1996, when
the issuance of further shares pursuant to the 1995 Plan was registered
under the Securities Act of 1933.
e. Pursuant to a Note and Warrant Purchase Agreement by and between Acme
Acquisition Holdings Corp. and Citicorp USA, Inc., on September 12, 1995,
the Company issued and sold to Citicorp USA, Inc. (i) a Senior Secured
Promissory Note in the aggregate principal amount of $10,000,000, which
note bears interest at the rate of 13% per annum and is due and payable on
September 15, 2005 and (ii) a Warrant to purchase shares of the
Registrant's Common Stock at $217.35 per share. In September 1996, the
Registrant repaid the Senior Secured Promissory Note in full and
repurchased the Warrant.
II-2
<PAGE>
f. Pursuant to the Stock Purchase Agreement dated as of March 14, 1997 by
and among certain Sellers, Acme Dixie, Inc., the Registrant, Comtect, Inc.
and certain subsidiaries of Comtect, Inc., the Registrant issued 189,189
shares of the Common Stock on April 25, 1997 as partial consideration for
the acquisition by the Registrant of all the outstanding capital stock of
Comtect, Inc.
g. Pursuant to the Asset Purchase Agreement dated April 25, 1997 by and
among Brute Equipment Company, Rental Service Corporation, Walker Jones
Equipment Company and Thomas H. Foster, the Registrant issued 233,034
shares of Common Stock on June 5, 1997 as partial consideration for the
acquisition by the Registrant of substantially all of the assets of Brute
Equipment Company.
h. Pursuant to the Asset Purchase Agreement dated April 26, 1997 by and
among Central States Equipment Lessors, Inc. ("Central States"), Walker
Jones Equipment Company and certain stockholders, the Registrant issued
204,867 shares of Common Stock on June 17, 1997 as partial consideration
for the acquisition of substantially all of the assets of Central States.
i. As partial consideration for the acquisition of substantially all of
the assets of Roesch Equipment Company, the Registrant issued 8,506 shares
of Common Stock to Tharco, Inc. on October 24, 1997.
j. As partial consideration for the acquisition of substantially all of
the assets of Allen Equipment, Inc., the Registrant issued 4,267 shares of
Common Stock to Allen Equipment, Inc. on November 12, 1997.
k. As partial consideration for the acquisition of all of the outstanding
capital stock of Rent-It-Center, Inc. d/b/a Center Rentals & Sales and
substantially all of the assets of certain affiliated entities, the
Registrant issued 155,215 shares of Common Stock to The Lanoha Charitable
Remainder Trust; 74,952 shares of Common Stock to David P. Lanoha; 62,040
shares of Common Stock to the National Christian Charitable Foundation,
Inc.; 51,636 shares of Common Stock to Zuni Rental Enterprises, L.L.C.;
32,271 shares of Common Stock to Lanoha Leasing Limited Liability Company;
23,666 shares of Common Stock to Center Rental & Sales/Omaha, L.L.C.; and
17,991 shares of Common Stock to the Richard F. Lanoha Family Trust on
December 2, 1997.
l. As partial consideration for the acquisition of all of the outstanding
capital stock of Siems Rental & Sales Co., Inc., the Registrant issued
109,529 shares of Common Stock to Leonard A. Siems and 16,786 shares of
Common Stock to Marvin W. Abbott on December 12, 1997.
Any sale of securities described herein 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>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Company.(1)
3.2 Certificate of Amendment of Certificate of Incorporation.
3.3 Form of Amended and Restated Bylaws of the Company.(2)
*5.1 Opinion of Latham & Watkins as to the validity of the securities
being registered hereby.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
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.(1)
10.2 First Amendment to Credit Agreement dated as of September 26,
1995.(1)
10.3 Second Amendment and Consent to Credit Agreement dated as of
December 21, 1995.(1)
10.4 Amended and Restated Credit Agreement, dated as of September 24,
1996.(3)
10.5 First Amendment to Amended and Restated Credit Agreement, dated as
of January 31, 1997.(4)
10.6 Third Amendment, Consent and Limited Waiver to the Amended and
Restated Credit Agreement, dated as of May 22, 1997.(5)
10.7 Fourth Amendment to the Amended and Restated Credit Agreement,
dated as of August 1, 1997.(6)
10.8 Second Amended and Restated Credit Agreement, dated as of December
2, 1997.
10.9 Stock Purchase Agreement dated as of July 25, 1995, between Acme
Acquisition Holdings Corp. and Martin R. Reid.(1)
10.10 Stock Purchase and Severance Agreement dated as of July 25, 1995,
between Acme Acquisition Holdings Corp. and Douglas A.
Waugaman.(1)
10.11 Stock Purchase and Severance Agreement dated as of October 4, 1995
between Rental Service Corporation and Douglas A. Waugaman.(1)
10.12 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.(1)
10.13 Amendment to Corporate Development and Administrative Services
Agreement effective October 31, 1993.(1)
10.14 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.(1)
10.15 Letter Agreement dated June 7, 1996 between Nassau Capital Partners
L.P. and NAS Partners I L.L.C., and Rental Service Corporation.(1)
10.16 Stockholders' Agreement dated as of January 4, 1996 by and among
the parties listed on the signature page thereto and Rental
Service Corporation.(1)
10.17 Stock Option Plan for Key Employees.(1)
10.18 Form of Incentive Stock Option Agreement for Directors.(1)
10.19 Form of Incentive Stock Option Agreement for Region Managers.(1)
10.20 Form of Amended Incentive Stock Option Agreement for Region
Managers.(1)
10.21 Form of Amended Incentive Stock Option Agreement for Corporate
Office Personnel.(1)
10.22 Form of Incentive Stock Option Agreement for Other Corporate and
District Personnel.(1)
10.23 Form of Indemnification Agreement.(1)
10.24 Termination Agreement dated July 22, 1996, between Rental Service
Corporation and Brentwood Buyout Partners, L.P. providing for
termination of the Corporate Development and Administrative
Services Agreement.(1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
10.25 Letter Agreement dated June 1, 1996 between Rental Service
Corporation and David G. Ledlow.(1)
10.26 Form of Amendment to Amended Incentive Stock Option Agreement for
Region Managers.(1)
10.27 Form of Amendment to Amended Incentive Stock Option Agreement for
Region Managers.(1)
10.28 Form of Amendment to Amended Incentive Stock Option Agreement for
Region Managers.(1)
10.29 Form of Amendment to Amended Incentive Stock Option Agreement for
Corporate Office Personnel.(1)
10.30 1996 Equity Participation Plan of Rental Service Corporation.(8)
10.31 Form of Incentive Stock Option Agreement for Employees.(5)
10.32 Form of Non-Qualified Stock Option Agreement for Directors.(5)
10.33 Employee Qualified Stock Purchase Plan of Rental Service
Corporation.(9)
10.34 Stock Purchase Agreement by and among Andy G. Gessner; Larry R.
Bush; Stacy K. Bush; Larry R. Bush; Trustee of the Stacy K. Bush
Trust and Roy B. Bush as "Sellers," Acme Dixie Inc., as "Buyer,"
Rental Service Corporation as "Parent" and Comtect, Inc. and
Comtect, Inc.'s subsidiaries as the "Company," dated March 14,
1997.(10)
10.35 Asset Purchase Agreement by and among Brute Equipment Co. d/b/a
"Foxx Hy-Reach Company" as "Seller," Rental Service Corporation,
Walker Jones Equipment Company as "Buyer" and Thomas H. Foster,
dated April 25, 1997.(10)
10.36 Asset Purchase Agreement by and among Central States Equipment,
Inc. and Equipment Lessors, Inc. as "Sellers," Walker Jones
Equipment Company as "Buyer" and the stockholders of Sellers,
dated April 26, 1997.(10)
10.37 Stock Purchase Agreement by and among David P. Lanoha and The
Lanoha Charitable Remainder Trust and National Christian
Charitable Foundation and Richard F. Lanoha Family Trust as
"Sellers," RSC Acquisition Corp. as "Buyer," Rental Service
Corporation as "Parent" and Rent-It-Center, Inc. d/b/a Center
Rental and Sales, Inc. as the "Company," dated October 6,
1997.(7)
10.38 Asset Purchase Agreement by and among David P. Lanoha as "Seller,"
RSC Acquisition Corp. as "Buyer," Rental Service Corporation as
"Parent" and Lanoha Leasing Limited Liability Company as the
"Company," dated October 6, 1997.(7)
10.39 Asset Purchase Agreement by and among David P. Lanoha as "Seller,"
RSC Acquisition Corp. as "Buyer," Rental Service Corporation as
"Parent" and Zuni Rental Enterprises L.L.C. as the "Company,"
dated October 6, 1997.(7)
10.40 Asset Purchase Agreement by and among David P. Lanoha as "Seller,"
RSC Acquisition Corp. as "Buyer," Rental Service Corporation as
"Parent" and Center Rental & Sales/Omaha, LLC as the "Company,"
dated October 6, 1997.(7)
10.41 Stock Purchase Agreement by and among Leonard A. Siems, Marvin W.
Abbott and the Trustees (as defined) as "Sellers," RSC Alabama,
Inc. as "Buyer," Rental Service Corporation as "Parent" and Siems
Rental & Sales Co., Inc. as the "Company," dated October 31,
1997.(7)
11.1 Statement re: computation of per share earnings.(7)
21.1 Subsidiaries of Rental Service Corporation.(7)
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 McGladrey & Pullen, LLP
23.5 Consent of Ernst & Young LLP
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
23.6 Consent of Weintraub & Morrison, P.C.
23.7 Consent of Latham & Watkins (included in Exhibit 5.1).
*24.1 Powers of Attorney.
</TABLE>
- --------
* Previously filed.
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-05949, effective September 18, 1996), and
incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the three months ended September 30, 1996, and incorporated herein by
reference.
(4) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
January 31, 1997, and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-26753, effective May 29, 1997), and incorporated
herein by reference.
(6) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the three months ended June 30, 1997, and incorporated herein by
reference.
(7) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the three months ended September 30, 1997, and incorporated herein by
reference.
(8) Filed as an exhibit to the Company's Registration Statement on Form S-8
(Registration No. 22403) dated February 26, 1997, and incorporated herein
by reference.
(9) Filed with the Company's Proxy Statement on Schedule 14A filed March 26,
1997, and incorporated herein by reference.
(10) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
April 14, 1997, and incorporated herein by reference.
(b) Financial Statement Schedules
Report of Independent Auditors
Schedule I--Condensed Financial Information of Registrant
Condensed Balance Sheets--December 31, 1995 and 1996
Condensed Statements of Operations--for the years ended December 31,
1994, 1995 and 1996
Condensed Statements of Cash Flows--for the years ended December 31,
1994, 1995 and 1996
Notes to Condensed Financial Statements--December 31, 1996
Schedule II--Valuation and Qualifying Accounts--as of and for the years
ended December 31, 1994, 1995 and 1996
Other schedules are not included because the required information is not
present or is included in the consolidated financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-6
<PAGE>
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 public 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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Scottsdale, State of Arizona, on December 15, 1997.
RENTAL SERVICE CORPORATION
/s/ Martin R. Reid
By: _________________________________
Martin R. Reid
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in their capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Martin R. Reid Chairman of the Board and December 15, 1997
__________________________________ Chief Executive Officer
Martin R. Reid (Principal Executive
Officer)
/s/ Robert M. Wilson Chief Financial Officer, December 15, 1997
____________________________________ Secretary and Treasurer
Robert M. Wilson (Principal Financial and
Accounting Officer)
* Director December 15, 1997
____________________________________
William M. Barnum, Jr.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director December 15, 1997
____________________________________
James R. Buch
* Director December 15, 1997
____________________________________
Christopher A. Laurence
* Director December 15, 1997
____________________________________
Eric L. Mattson
* Director December 15, 1997
____________________________________
Britton H. Murdoch
* Director December 15, 1997
____________________________________
John M. Sullivan
*By: /s/ Martin R. Reid
____________________________________
Martin R. Reid
Attorney-in-fact
</TABLE>
II-9
<PAGE>
EXHIBIT 1.1
______________ SHARES
RENTAL SERVICE CORPORATION
COMMON STOCK, PAR VALUE $.01 PER SHARE
UNDERWRITING AGREEMENT
December __, 1997
Morgan Stanley & Co. Incorporated
William Blair & Company, L.L.C.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
William Blair & Co., L.L.C.
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London W1P 3AE
England
Dear Sirs and Mesdames:
RENTAL SERVICE CORPORATION, a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters (as defined below) shares
of its Common Stock, par value $.01 per share (the "Firm Shares").
<PAGE>
2
It is understood that, subject to the conditions hereinafter stated,
___________ Firm Shares (the "U.S. Firm Shares") will be sold to the several
U.S. Underwriters named in Schedule I hereto (the "U.S. Underwriters") in
connection with the offering and sale of such U.S. Firm Shares in the United
States and Canada to United States and Canadian Persons (as such terms are
defined in the Agreement Between U.S. and International Underwriters of even
date herewith), and __________ Firm Shares (the "International Shares") will be
sold to the several International Underwriters named in Schedule II hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated and
William Blair & Company, L.L.C. shall act as representatives (the "U.S.
Representatives") of the several U.S. Underwriters, and Morgan Stanley & Co.
International Limited and William Blair & Company, L.L.C. shall act as
representatives (the "International Representatives") of the several
International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the Underwriters.
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional ____________ shares of its Common
Stock, par value $.01 per share, and certain stockholders of the Company
(collectively, the "Selling Stockholders") named in Schedule III hereto
severally propose to sell to the several U.S. Underwriters the additional number
of shares of the Common Stock, par value $.01 per share, of the Company set
forth in Schedule III hereto opposite the name of each Selling Stockholder, for
a total of not more than an additional 750,000 shares to be sold by the Company
and such Selling Stockholders (the "Additional Shares"), if and to the extent
that the U.S. Representatives exercise, on behalf of the U.S. Underwriters, the
right to purchase such shares of common stock granted to the U.S. Underwriters
in Section 2 hereof. The Additional Shares, if any, purchased by the U.S.
Underwriters hereunder and the Firm Shares are hereinafter collectively referred
to as the "Shares." The shares of Common Stock, par value $.01 per share, of the
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the "Common Stock." The Company and the Selling
Stockholders are hereinafter sometimes collectively referred to as the
"Sellers."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-40707) relating
to the Shares. The registration statement contains two prospectuses to be used
in connection with the offering and sale of the Shares: the U.S. prospectus, to
be used in connection with the offering and sale of Shares in the United States
and Canada to United States and Canadian Persons, and the international
prospectus, to be used in connection with the offering and sale of Shares
outside the United States and Canada to persons other than United States and
Canadian Persons. The international prospectus is identical to the U.S.
prospectus except for the outside front cover page. The registration statement
as amended at the time it becomes effective, including the information (if any)
deemed to be part of the registration statement at
<PAGE>
3
the time of effectiveness pursuant to Rule 430A under the Securities Act of
1933, as amended (the "Securities Act"), is hereinafter referred to as the
"Registration Statement;" the U.S. prospectus and the international prospectus
in the respective forms first filed with the Commission pursuant to Rule 424(b),
or, if no filing pursuant to Rule 424(b) is made, in the form first used to
confirm sales of Shares, are hereinafter collectively referred to as the
"Prospectus." If the Company has filed an abbreviated registration statement to
register additional shares of Common Stock pursuant to Rule 462(b) under the
Securities Act (the "Rule 462(b) Registration Statement"), then any reference
herein to the term "Registration Statement" shall be deemed to include such Rule
462(b) Registration Statement.
1. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to and agrees with the several Underwriters that:
(a) The Registration Statement has become effective; no stop order
issued by the Commission suspending the effectiveness of the Registration
Statement is in effect, and, to our knowledge, no proceedings for such
purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder and (iii) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; except that the representations and
warranties set forth in this Section 1(b) do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has
the corporate power and authority to own its property and to conduct its
business as
<PAGE>
4
described in the Prospectus and is duly qualified to transact business as a
foreign corporation under the laws of, and is in good standing in, each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; and the Company has not received any notice of any proceeding
instituted in any such jurisdiction revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or
qualification.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business as a foreign corporation under
the laws of, and is in good standing in, each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires
such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole; and the Company has
not received any notice of any proceeding instituted in any such
jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit
or curtail, such power and authority or qualification.
(e) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(f) The shares of Common Stock (including the Shares to be sold by
the Selling Stockholders) outstanding immediately prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(g) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable; the
issuance of such Shares will not be subject to any preemptive rights.
(h) This Agreement has been duly authorized, executed and delivered
by the Company.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not breach or
contravene (i) any statute, rule or regulation applicable to the Company,
(ii) the certificate of incorporation or bylaws of the Company, or (iii)
any other agreement or instrument binding upon the Company or any of its
subsidiaries that is material to the
<PAGE>
5
Company and its subsidiaries, taken as a whole, or (iv) any judgment, order
or decree binding on the Company or any subsidiary of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, except for any breach or contravention which, singly or in the
aggregate, would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; and no consent, approval, authorization or
order of or qualification with any governmental body or agency is required
for the performance by the Company of its obligations under this Agreement,
except such as may be required by the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), securities or Blue
Sky laws in connection with the offer and sale of the Shares and clearance
with the National Association of Securities Dealers, Inc. ("NASD").
(j) There are no (i) legal or governmental proceedings pending or to
the Company's knowledge threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described, other
than proceedings that, if decided adversely to the Company or such
subsidiaries, would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole, or on the power or ability of the
Company to perform its obligations under this Agreement and (ii) material
documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
(k) Each of the Company and its subsidiaries has all necessary
consents, authorizations, approvals, orders, certificates and permits of
and from, and has made all declarations and filings with, all federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, to own, lease, license
and use its properties and assets and to conduct its business in the manner
described in the Prospectus, except to the extent that the failure to
obtain or file would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the rules and regulations
of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering of
the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" or an entity "controlled"
by an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended.
<PAGE>
6
(n) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(o) Neither the Company nor any of its subsidiaries is in violation
of its certificate of incorporation or bylaws or in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party or
by which it or any of its properties or assets may be bound, except for
such defaults as singly or in the aggregate do not and will not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(p) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens
(except liens for taxes not yet due and payable), encumbrances and defects,
except such as are described or reflected in the Prospectus, and such as do
not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and
its subsidiaries; and any material real property held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries, in each case
except as described or reflected in or contemplated by the Prospectus.
(q) The Company and its subsidiaries own or possess all right, title
and interest in and to, or have duly licensed from third parties, all
patents, patent rights, trade secrets, inventions, know-how, trademarks,
trade names, copyrights, service marks and other proprietary rights
(collectively, "Trade Rights"), if any, that are material to the business
of the Company and its subsidiaries, taken as a whole; neither the Company
nor any of its subsidiaries have received any notice of infringement,
misappropriation or conflict from any third party as to such material Trade
Rights that has not been resolved or disposed of and, to the knowledge of
the Company, neither
<PAGE>
7
the Company nor any of its subsidiaries has infringed, misappropriated or
otherwise conflicted with the material Trade Rights of any third parties,
except for such infringements, misappropriations or conflicts as, singly or
in the aggregate, would not have a material adverse effect on the Company
or its subsidiaries, taken as a whole.
(r) The Company and each of its subsidiaries are insured by insurers
against such losses and risks and in such amounts as the Company believes
are appropriate for the business in which they are engaged.
(s) There are no holders of securities of the Company having rights
to registration thereof or preemptive rights to purchase capital stock of
the Company, except as disclosed in the Prospectus; and holders of
registration rights who are not Selling Stockholders have received (or
waived receipt of) proper notice from the Company with respect to such
rights and have not exercised such rights with respect to the offering
being made by the Prospectus.
(t) The Company confirms that as of the date hereof is in compliance
with all provisions of Section 517.075, Florida Statutes (Chapter 92-198,
Laws of Florida).
(u) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as
contemplated by the Registration Statement, the Company and its
subsidiaries, taken as a whole, have not incurred any material liabilities
or obligations, direct or contingent, nor entered into any material
transactions not in the ordinary course of business and there has not been
any material adverse change in their condition (financial or otherwise) or
results of operations nor any material adverse change in their capital
stock, short-term debt or long-term debt.
(v) The consolidated financial statements together with the related
notes and schedules of the Company included in the Registration Statement
fairly present the consolidated financial position of the Company and the
consolidated results of operations and cash flows as of the dates and for
the periods therein specified, all in accordance with generally accepted
accounting principles consistently applied throughout the periods specified
therein (except as otherwise noted therein or as disclosed in the
Registration Statement and the supporting schedules included therein). The
selected financial data set forth in the Prospectus under the caption
"Selected Historical Consolidated Financial and Operating Data" fairly
present, on the basis stated in the Prospectus, the information included
therein.
(w) No labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the Company's knowledge, is threatened or
imminent that could reasonably be expected to result in a material adverse
effect on the Company
<PAGE>
8
and its subsidiaries, taken as a whole, except as described in or
contemplated by the Prospectus.
2. Representations and Warranties of the Selling Stockholders. Each
----------------------------------------------------------
Selling Stockholder, severally and not jointly, represents and warrants to, and
agrees with the Company and each of the Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered by
or on behalf of such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement signed by such Selling Stockholder and
Robert M. Wilson, as custodian (the "Custodian"), relating to the deposit
of the Shares to be sold by such Selling Stockholder (the "Custody
Agreement") and the Power of Attorney appointing Martin R. Reid and Robert
H. Wilson (individually and collectively, the "Agent") as such Selling
Stockholder's attorney-in-fact to the extent set forth therein, relating to
the transactions contemplated hereby and by the Registration Statement (the
"Power of Attorney"), will not contravene any provision of applicable law
or any agreement or other instrument binding upon such Selling Stockholder
or any judgment, order or decree of any governmental body, agency or court
having jurisdiction over such Selling Stockholder and which would have a
material adverse effect on such Selling Stockholder's ability to perform
its obligations under this Agreement, the Custody Agreement and the Power
of Attorney. No consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by such Selling Stockholder of its obligations under this
Agreement, the Custody Agreement or the Power of Attorney of such Selling
Stockholder, except for compliance with the Securities Act and such as may
be required by the Securities Act, Exchange Act, securities or Blue Sky
laws in connection with the offer and sale of such Shares and clearance
with the NASD.
(c) Such Selling Stockholder has, and on the Closing Date will have,
valid title to the Shares to be sold by such Selling Stockholder and the
legal right and power, and authority, to enter into this Agreement, the
Custody Agreement and the Power of Attorney and to sell, transfer and
deliver the Shares to be sold by such Selling Stockholder.
<PAGE>
9
(d) Delivery of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and clear of
any security interests, claims, liens, equities and other encumbrances.
(e) The Custody Agreement and the Power of Attorney have been duly
authorized, executed and delivered by such Selling Stockholder and are
valid and binding agreements of such Selling Stockholder.
(f) The Shares to be sold hereunder by such Selling Stockholder on
deposit with the Custodian are subject to the interests of the Company, the
Underwriters and the other Selling Stockholders, that the arrangements made
for such custody, and the appointment of agents pursuant to a Power of
Attorney, are to that extent irrevocable, and that obligations of such
Selling Stockholder hereunder and under the Power of Attorney and the
Custody Agreement shall not be terminated except as provided in this
Agreement, the Power of Attorney or the Custody Agreement by any act of
such Selling Stockholder, by operation of law or otherwise.
(g) As to each Selling Stockholder, (i) the Registration Statement,
when it became effective, did not contain and, as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (ii) the Prospectus, does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that the
representations and warranties set forth in this Section 2(g) only apply to
statements or omissions in the Registration Statement or the Prospectus
based upon information relating to any Selling Stockholder furnished to the
Company in writing by such Selling Stockholder through you expressly for
use therein.
<PAGE>
10
3. Agreements to Sell and Purchase. The Company hereby agrees to sell
-------------------------------
to the several Underwriters, and the Underwriters, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agree, severally and not jointly, to purchase from the
Company, the respective numbers of Firm Shares set forth in Schedules I and II
hereto opposite their names at $_____ a share (the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company and the Selling
Stockholders agree to sell to the U.S. Underwriters the Additional Shares, and
the U.S. Underwriters shall have a one-time right to purchase, severally and not
jointly, up to _________ Additional Shares at the Purchase Price. If the U.S.
Representatives, on behalf of the U.S. Underwriters, elect to exercise such
option, the U.S. Representatives shall so notify the Selling Stockholders in
writing not later than 30 days after the date of this Agreement, which notice
shall specify the number of Additional Shares to be purchased by the U.S.
Underwriters and the date on which such shares are to be purchased. Such date
may be the same as the Closing Date (as defined below) but not earlier than the
Closing Date, not later than ten business days after the date of such notice.
Additional Shares may be purchased as provided in Section 5 hereof solely for
the purpose of covering overallotments made in connection with the offering of
the Firm Shares. If any Additional Shares are to be purchased, each U.S.
Underwriter agrees, severally and not jointly, to purchase the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
the U.S. Representatives may determine) that bears the same proportion to the
total number of Additional Shares to be purchased as the number of Firm Shares
set forth in Schedule I hereto opposite the name of such U.S. Underwriter bears
to the total number of U.S. Firm Shares.
Each Seller hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 90 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase, lend,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence does not apply (A) to
the Shares to be sold hereunder, (B) to the issuance by the Company of shares of
Common Stock upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof of which the Underwriters have been
advised in
<PAGE>
11
writing or which have been described in the Prospectus, (C) to any options
granted or shares of Common Stock issued pursuant to benefit plans of the
Company existing on the date hereof of which the Underwriters have been advised
in writing, (D) with respect to any Selling Stockholder, to any sale of shares
of Common Stock which are subject to an existing pledge or other security
arrangement on the date hereof of which the Underwriters have been advised in
writing, in good faith pursuant to the terms of such pledge or arrangement, or
(E) the issuance of shares of Common Stock in pursuant to the Center Acquisition
Agreements or in connection with other acquisitions.
4. Terms of Public Offering. The Sellers are advised by you that the
------------------------
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
U.S.$____ a share (the "Public Offering Price") and to certain dealers selected
by you at a price that represents a concession not in excess of U.S.$____ a
share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of U.S.$____ a share, to
any Underwriter or to certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares shall be made by
--------------------
federal or other funds immediately available in New York City against delivery
of such Firm Shares for the respective accounts of the several Underwriters at
the office of Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles,
California, at 10:00 A.M., New York time, on __________, 1997, or at such other
time on the same or such other date, not later than __________, 1998, as shall
be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Closing Date."
<PAGE>
12
Payment for any Additional Shares shall be made, for Additional Shares
sold by the Company to the Company, and, for Additional Shares sold by the
Selling Stockholders, to the Custodian for the benefit of the Selling
Stockholders, in federal or other funds immediately available in New York City
against delivery of such Additional Shares for the respective accounts of the
several U.S. Underwriters at the office of Latham & Watkins, 633 West Fifth
Street, Suite 4000, Los Angeles, California, at 10:00 A.M., New York time, on
the date specified in the notice, delivered pursuant to Section 3 hereof, from
the U.S. Underwriters to the Selling Stockholders of their determination to
purchase Additional Shares (the "Option Closing Date").
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the purchase price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of
-------------------------------------------
the Company and the several obligations of the Underwriters hereunder are
subject to the condition that the Registration Statement shall have become
effective not later than the date hereof.
The several obligations of the Underwriters hereunder are subject to
the following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have occurred any change, or any
development involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, from that set forth in the Prospectus
that, in your judgment, is material and adverse and that makes it, in your
judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect that the representations and warranties of the
Company contained in this
<PAGE>
13
Agreement are true and correct as of the Closing Date and that the Company
has complied with all of the agreements and satisfied all of the conditions
on its part to be performed or satisfied hereunder on or before the Closing
Date.
The officer signing and delivering such certificate may rely upon the
best of his knowledge as to proceedings threatened.
(c) You shall have received on the Closing Date an opinion of Latham
& Watkins, counsel for the Company, dated the Closing Date, to the effect
that
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of
Delaware with corporate power and authority to own its properties and
conduct its business as described in the Registration Statement and
Prospectus; and, based solely on certificates from public officials,
counsel shall confirm that the Company is qualified to do business in
each state set forth in Schedule I to such opinion;
(ii) an opinion to the same general effect as clause (i) of this
subparagraph in respect of RSC Holdings Inc., RSC Acquisition Corp.,
RSC Industrial Corporation, RSC Duval Inc. and RSC Rents, Inc., the
direct and indirect Delaware and California subsidiaries of the
Company (collectively, the "Identified Subsidiaries" and each an
"Identified Subsidiary");
(iii) the issued and outstanding shares of capital stock of each
Identified Subsidiary are as set forth in Schedule II to such opinion
(the "Subsidiary Shares"). The Subsidiary Shares have been duly
authorized, validly issued and are fully paid and nonassessable.
Except as disclosed in the Registration Statement (including contracts
filed as exhibits to the Registration Statement), the Company owns of
record directly or indirectly all of the Subsidiary Shares and all of
the outstanding shares of capital stock of each of RSC Alabama, Inc.,
The Air & Pump Company, Inc. and Walker Jones Equipment, Inc.
(collectively with the Identified Subsidiaries, the "Subsidiaries"),
and to the knowledge of such counsel, owns such stock of the
Subsidiaries free and clear of any adverse claim (as defined in
Section 8-302 of the Uniform Commercial Code);
(iv) the authorized capital stock of the Company consists of
40,000,000 shares of Common Stock and 500,000 shares of preferred
stock, par value $.01 per share, of which, based solely upon a review
of a certificate of the transfer agent and registrar of the Company
and upon issuance, delivery and payment by you and the other
Underwriters for shares of Common Stock to be issued pursuant to and
in accordance with the terms of the Underwriting
<PAGE>
14
Agreement, ________ shares of Common Stock are outstanding as of the
Closing Date (the "Capital Stock"); and such Capital Stock conforms as
to legal matters in all material respects to the description thereof
in the Prospectus under the caption "Description of Capital Stock";
(v) the Firm Shares and the Shares have been duly authorized
and, upon issuance, delivery and payment by you and the other
Underwriters therefor pursuant to and in accordance with the terms of
the Underwriting Agreement, will be validly issued and is fully paid
and nonassessable;
(vi) the form of certificates for the Shares to be delivered
hereunder are in due and proper form under the Delaware General
Corporation Law (the "DGCL");
(vii) the Registration Statement has become effective under the
Securities Act and, to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued under the Securities Act and no proceedings therefor have been
by the Commission;
(viii) (1) the Registration Statement and the Prospectus comply
as to form in all material respects with the requirements for
registration statements on Form S-1 under the Securities Act; it being
understood, however, that such counsel need express no opinion with
respect to the financial statements, the notes thereto, and the
related schedules and other financial, numerical, statistical or
accounting data included in the Registration Statement or the
Prospectus; (2) such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or
any of its subsidiaries is a party or to which any of the properties
of the Company or any of its subsidiaries is subject that are required
to be described in the Registration Statement or the Prospectus and
are not so described, other than proceedings that, if decided
adversely to the Company or such subsidiaries, would not have a
material adverse effect on the Company and its subsidiaries, taken as
a whole, or on the power or ability of the Company to perform its
obligations under this Agreement; and (3) to such counsel's knowledge
there are no leases, contracts or documents of a character required to
be described in the Registration Statement or Prospectus or to be
filed as exhibits to the Registration Statement which are not
described or filed, as required. In passing upon the compliance as to
form of the Registration Statement and the Prospectus, such counsel
may assume that the statements made therein are correct and complete;
<PAGE>
15
(ix) the statements (1) under the caption "Management --401(k)
Plan," "Management -- Equity Participation Plans," "Management--
Executive Incentive Bonus Plan," "Management -- Employee Qualified
Stock Purchase Plan," "Certain Relationships and Related
Transactions," "Description of Capital Stock" and "Shares Eligible for
Future Sale" in the Prospectus and (2) in the Registration Statement
in Items 14 and 15, insofar as such statements constitute a summary of
the terms of the Company's capital stock, legal matters or documents
referred to therein, are accurate in all material respects;
(x) this Agreement has been duly authorized, executed and
delivered by the Company; and to such counsel's knowledge, no consent,
approval, authorization or order of, or filing with, any federal or
New York or Delaware court or governmental agency or body is required
for the consummation of the issuance and sale of the Shares by the
Company pursuant to this Agreement, except such as have been obtained
under the federal securities laws and such as may be required under
the state securities laws in connection with the purchase and
distribution of such Shares by the Underwriters;
(xi) the execution of this Agreement and the issuance of the
Shares by the Company pursuant to this Agreement will not (i) result
in a breach of or a default under, any agreement, franchise, license,
indenture, mortgage, deed of trust, or other instrument of the Company
or any of its subsidiaries or by which the property of any of them is
bound which is filed as an exhibit to the Registration Statement; or
(ii) violate any of the provisions of the Company's certificate of
incorporation or bylaws or the DGCL or any federal or New York
statute, rule or regulation known to such counsel to be applicable to
the Company (other than federal securities laws, as to which such
counsel states no opinion); and
(xii) the Company is not, and after giving effect to the
offering of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as
such term is defined in the Investment Company Act of 1940, as
amended.
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company
and representatives of the Underwriters, at which the contents of the
Registration Statement and the Prospectus and related matters were
discussed and, although such counsel is not passing upon, and does not
assume any responsibility for, the accuracy, completeness or fairness
<PAGE>
16
of the statements contained in the Registration Statement and the
Prospectus (other than as expressly set forth above in paragraphs 4
and 9) and has not made any independent check or verification thereof,
during the course of such participation (relying as to materiality to
a large extent upon the statements of officers and other
representatives of the Company), no facts have come to the attention
of such counsel that caused such counsel to believe that either the
Registration Statement, at the time it became effective, contained an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus, as of its date and as
of the Closing Date, contained an untrue statement of a material fact
or omitted to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; it being understood that such counsel expresses no belief
with respect to the financial statements, the notes thereto and the
related schedules and other financial, numerical, statistical or
accounting data included in the Registration Statement or the
Prospectus.
(d) You shall have received on the Option Closing Date an opinion of
counsel for each of the Selling Stockholders, dated the Option Closing
Date, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered or on behalf of the Selling Stockholders;
(ii) the execution and delivery by each Selling Stockholder of,
and the performance by each Selling Stockholder of its obligations
under, this Agreement, the Custody Agreement and the Power of Attorney
of such Selling Stockholder will not contravene any provision of
applicable law or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon such Selling Stockholder
or, to the best of such counsel's knowledge, any judgment or decree
of any governmental body, agency or court having jurisdiction over
such Selling Stockholder and which would have a material adverse
effect on such Selling Stockholder's ability to perform its
obligations under this Agreement, the Custody Agreement and the Power
of Attorney. No consent, approval, authorization or order of or
qualification with any governmental body or agency is required for the
performance by such Selling Stockholder of its obligations under this
Agreement, the Custody Agreement or the Power of Attorney of such
Selling Stockholder except for compliance with the Securities Act and
such as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Shares by
the Underwriters;
(iii) each of the Selling Stockholders has the legal right and
power, and authority, to enter into this Agreement, the Custody
Agreement and the Power of Attorney of such Selling Stockholder and to
sell, transfer and deliver the Shares to be sold by such Selling
Stockholder;
(iv) the Custody Agreement and the Power of Attorney of such
Selling Stockholder have been duly authorized, executed and delivered
by such Selling Stockholder and are valid and binding obligations of
such Selling Stockholder; and
(v) delivery of the Shares to be sold by each Selling
Stockholder pursuant to this Agreement will pass good and marketable
title to such Shares free and clear of any security interests, claims,
liens, equities and other encumbrances; provided that counsel may
--------
assume that purchasers of Shares to be sold by each Selling
Stockholder are bona fide purchasers.
(e) You shall have received on the Closing Date an opinion of Shearman
& Sterling, special counsel for the Underwriters, dated the Closing Date,
covering the matters referred to in subparagraphs (v), (ix) (but only as to
the statements in the Prospectus under "Description of Capital Stock" and
"Underwriters"), (x) and (xiii) of paragraphs (c) above.
With respect to subparagraph (xiii) of paragraph (c) above, Latham &
Watkins and Shearman & Sterling may state that their opinions and beliefs
are based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and
review and discussion of the contents thereof, but are without independent
check or verification except as specified. With respect to paragraph (d)
above, counsel for each of the Selling Stockholders may rely upon an
opinion or opinions of counsel for any Selling Stockholders and, with
respect to factual matters and to the extent such counsel deems
appropriate, upon the representations of each Selling Stockholder contained
herein and in the Custody Agreement and Power of Attorney of such Selling
Stockholder and in other documents and instruments; provided that (A) each
such counsel for the Selling Stockholders is satisfactory to your counsel,
(B) a copy of each opinion so relied upon is delivered to you and is in
form and substance satisfactory to your counsel, (C) copies of such Custody
Agreements and Powers of Attorney and of any such other documents and
instruments shall be delivered to you and shall be in form and substance
satisfactory to your counsel and (D) counsel for each of the Selling
Stockholders shall state in their opinion that they are justified in
relying on each such other opinion.
The opinions of Latham & Watkins and counsel for each of the Selling
Stockholders described in paragraphs (c) and (d) above (and any opinions of
counsel for any Selling Stockholder referred to in the immediately
preceding paragraph) shall be rendered to you at the request of the Company
or one or more of the Selling Stockholders, as the case may be, and shall
so state therein.
(f) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to you, from each of Ernst
& Young LLP, McGladrey & Pullen, LLP and Weintraub & Morrison, P.C.,
independent public accountants, containing statements and information of
the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
<PAGE>
17
(g) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain stockholders, officers and
directors of the Company listed on Schedule IV hereto relating to sales of
shares of common stock of the Company or any securities convertible into or
exercisable or exchangeable for such common stock, delivered to you on or
before the date hereof, shall be in full force and effect on the Closing
Date.
(h) You shall receive such further certificates and documents relating
to the Company, its subsidiaries and the Selling Stockholders as you may
reasonably request.
The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the
due authorization and issuance of the Additional Shares and other matters
related to the issuance of the Additional Shares.
7. Covenants of the Company. In further consideration of the
------------------------
agreements of the Underwriters herein contained, the Company covenants as
follows:
(a) To furnish to you, without charge, three (3) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and, during the period mentioned in paragraph
(c) below, as many copies of the Prospectus and any supplements and
amendments thereto or to the Registration Statement as you may reasonably
request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and to file no such proposed amendment or supplement to which
you reasonably object.
(c) If, during such period after the first date of the public offering
of the Shares the Prospectus is required by law to be delivered under the
Securities Act in connection with sales by an Underwriter or dealer, any
event shall occur or condition exist as a result of which it is necessary
to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the
<PAGE>
18
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with law,
forthwith to prepare, file with the Commission and furnish, at its own
expense, to the Underwriters and to the dealers (whose names and addresses
you will furnish to the Company) to which Shares may have been sold by you
on behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request and to pay all expenses (including fees and disbursements of
counsel) in connection with such qualification and in connection with any
review of the offering of the Shares by the NASD. The Company shall not be
required to qualify as a foreign corporation or to file a general consent
to service of process in any such jurisdiction where it is not currently
qualified or where it would be subject to taxation as a foreign
corporation.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earnings statement covering the twelve-
month period ending December 31, 1998 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and delivery
of the Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) the cost of printing or producing any Blue Sky
memorandum in connection with the offer and sale of the Shares under state
securities laws and all expenses in connection with the qualification of
the Shares for offer and sale under state securities laws as provided in
Section 7(d) hereof, including filing fees and the reasonable fees and
reasonable disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and disbursements of counsel to the
Underwriters incurred in connection with the review and qualification of
the offering of the Shares by the National Association of Securities
Dealers, Inc., (v) all fees and expenses in connection with the preparation
and filing of the registration statement on Form 8-A relating to the Common
Stock and all costs and expenses incident to listing the Shares on the New
York Stock Exchange, (vi) the cost of printing certificates representing
the Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to
investor presentations on any "road show" undertaken in connection with the
marketing of the offering of the Shares, including, without limitation,
expenses associated with the production of road show slides and graphics,
fees and expenses of any consultants engaged in connection with the road
show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and any
such consultants, excluding the cost of any aircraft chartered in
connection with the road show which shall be at the Underwriters' expense,
and (ix) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise
made in this Section. It is understood, however, that except as provided in
this Section, Section 8 entitled "Indemnity and Contribution," and the last
paragraph of Section 10 below, the Underwriters will pay all of their costs
and expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
8. Indemnity and Contribution. (a) The Company agrees to indemnify
--------------------------
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred by any Underwriter or any such controlling person
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such
<PAGE>
19
Underwriter through you expressly for use therein; provided, however, that the
-------- -------
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages or liabilities purchased Securities, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Securities to such person, and if the Prospectus
(as so amended or supplemented) would have cured the defect giving rise to such
losses, claims, damages or liabilities.
(b) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, and each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to such
Selling Stockholder furnished in writing by or on behalf of such Selling
Stockholder expressly for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements thereto; provided,
--------
however, that the foregoing indemnity agreement with respect to any preliminary
- -------
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Securities, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Securities to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such losses, claims, damages or liabilities.
Notwithstanding the foregoing, the liability of any Selling Stockholder pursuant
to this paragraph (b) shall be limited to an amount equal to the total net
proceeds received by such Selling Stockholder from the sale of Shares by such
Selling Stockholder.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Selling Stockholders, the directors of the
Company, the
<PAGE>
20
officers of the Company who sign the Registration Statement and each person, if
any, who controls the Company or any Selling Stockholder within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act to the
same extent as the foregoing indemnity from the Company to such Underwriter, but
only with reference to information relating to such Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either of the three preceding paragraphs, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Underwriters and such control persons of Underwriters,
such firm shall be designated in writing by Morgan Stanley & Co. Incorporated.
In the case of any such separate firm for the Company, and such directors,
officers and control persons of the Company, such firm shall be designated in
writing by the Company. In the case of any such separate firm for the Selling
Stockholders, such firm shall be designated in writing by the persons named as
attorneys-in-fact for the Selling Stockholders under the Powers of Attorney. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after
<PAGE>
21
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(e) If the indemnification provided for in the first, second or third
paragraph of this Section 8 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Sellers on the one hand and the Underwriters
on the other hand from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Sellers on the one
hand and of the Underwriters on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Sellers on the one hand and the Underwriters on the other hand
in connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by each Seller and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate public
offering price of the Shares. The relative fault of the Sellers on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Sellers or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 8 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(f) The Sellers and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
<PAGE>
22
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Article IX are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity. The liability of any
Selling Stockholder pursuant to this paragraph (f) shall be limited to an amount
equal to the total net proceeds received by such Selling Stockholder from the
sale of Shares by such Selling Stockholder.
(g) The indemnity and contribution provisions contained in this
Article IX and the representations and warranties of the Company and the Selling
Stockholders contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, any Selling Stockholder or any person controlling any Selling
Stockholder, or the Company, its officers or directors or any person controlling
the Company and (iii) acceptance of and payment for any of the Shares.
9. Termination. This Agreement shall be subject to termination by
-----------
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event singly or
<PAGE>
23
together with any other such event makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
10. Effectiveness; Defaulting Underwriters. This Agreement shall
--------------------------------------
become effective upon the later of (x) execution and delivery hereof by the
parties hereto and (y) release of notification of the effectiveness of the
Registration Statement by the Commission.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Firm Shares set forth opposite the names of all such
nondefaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to Section
2 be increased pursuant to this Section 10 by an amount in excess of one-ninth
of such number of Shares without the written consent of such Underwriter. If, on
the Closing Date or the Option Closing Date, as the case may be, any Underwriter
or Underwriters shall fail or refuse to purchase Shares and the aggregate number
of Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to you and the Company for the purchase of such Shares are not made
within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Stockholders. In any such case either you or the Company shall have the
right to postpone the Closing Date or the Option Closing Date, as the case may
be, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and in the Prospectus or in any
other documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Seller will reimburse the Underwriters
<PAGE>
24
or such Underwriters as have so terminated this Agreement with respect to
themselves, severally, for all out-of-pocket expenses (including the fees and
disbursements of their counsel) reasonably incurred by such Underwriters in
connection with this Agreement or the offering contemplated hereunder.
11. Counterparts. This Agreement may be signed in two or more
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. Headings. The headings of the sections of this Agreement have been
--------
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
13. Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the internal laws of the State of New York.
<PAGE>
Very truly yours,
RENTAL SERVICE CORPORATION
By
----------------------------
Name:
Title:
The Selling Stockholders named in
Schedule II hereto, acting severally
By
----------------------------
[________________]
Attorney-in-fact
Accepted, ___________, 1997
MORGAN STANLEY & CO.
INCORPORATED
WILLIAM BLAIR & COMPANY, L.L.C.
Acting severally on behalf of themselves
and the several U.S. Underwriters
named in Schedule I hereto.
By Morgan Stanley & Co.
Incorporated
By
----------------------------
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
WILLIAM BLAIR & COMPANY, L.L.C.
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By Morgan Stanley & Co.
International Limited
By
----------------------------
<PAGE>
SCHEDULE I
U.S. Underwriters
-----------------
<TABLE>
<CAPTION>
Number of
U.S. Firm Shares
Underwriter To Be Purchased
- ----------- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated
William Blair & Company, L.L.C.
</TABLE>
<PAGE>
2
SCHEDULE II
International Underwriters
--------------------------
<TABLE>
<CAPTION>
Number of
International Shares
Underwriter To Be Purchased
- ----------- --------------------
<S> <C>
Morgan Stanley & Co. International
Limited
William Blair & Company, L.L.C.
</TABLE>
<PAGE>
SCHEDULE III
Selling Stockholders
--------------------
<TABLE>
<CAPTION>
Number of
Additional Shares
Selling Stockholder To Be Sold
- ------------------- -----------------
<S> <C>
Thomas Foster 69,910
Equipment Lessors Inc. 30,730
UST Private Equity Investors Fund Inc. 14,129
Martin R. Reid 44,407
</TABLE>
<PAGE>
SCHEDULE IV
Persons Delivering Lock-up Agreements
-------------------------------------
Brentwood RSC Partners, L.P.
Ronald Halchishak
David G. Ledlow
Douglas A. Waugaman
Robert M. Wilson
David B. Harrington
Bruce A. Lisanti
William M. Barnum, Jr.
James R. Buch
Christopher A. Laurence
Eric L. Mattson
Britton H. Murdoch
John M. Sullivan
David P. Lanoha
<PAGE>
EXHIBIT A
---------
Form of Lock-up Agreement
-------------------------
_____________, 199_
Morgan Stanley & Co. Incorporated
William Blair & Company, L.L.C.
c/o Morgan Stanley & Co., Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley"), as U.S. Representative of the several U.S. Underwriters, and
Morgan Stanley & Co. International Limited ("Morgan Stanley International"), as
International Representative of the several International Underwriters, proposes
to enter into an underwriting agreement (the "Underwriting Agreement") with
Rental Service Corporation (the "Company") and certain stockholders of the
Company (the "Selling Stockholders") providing for the public offering (the
"Public Offering") by the several Underwriters, including Morgan Stanley and
Morgan Stanley International (the "Underwriters"), of ___________ shares of
Common Stock, par value $.01 per share, of the Company (the "Firm Shares") to be
issued and sold by the Company and up to an additional __________ shares of
Common Stock, par value $.01 per share, of the Company (the "Additional Shares")
to be sold by the Selling Stockholders. The Firm Shares and the Additional
Shares are hereinafter referred to as the "Shares."
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 90 days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (provided that such shares or securities are either now owned by
the undersigned or are hereafter acquired prior to or in connection with the
Public Offering), or (2) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of such shares of Common Stock, whether any such transaction described in clause
(1) or (2) above is to be
<PAGE>
2
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (a) the sale of any Shares
to the Underwriters pursuant to the Underwriting Agreement or (b) transactions
relating to the grant of stock options and purchase rights to employees of the
Company under the 1995 Plan, the 1996 Plan and the QSP Plan (each, as defined in
the Prospectus), the sale of any shares of Common Stock that are subject to an
existing pledge or other security arrangement in good faith pursuant to the
terms of such pledge or arrangement, or the issuance of shares of Common Stock
in connection with the Center Acquisitions (as defined in the Prospectus) and
other acquisitions. In addition, the undersigned agrees that, without the prior
written consent of Morgan Stanley on behalf of the Underwriters, it will not,
during the period commencing on the date hereof and ending 90 days after the
date of the Prospectus, make any demand for or exercise any right with respect
to the registration of shares of Common Stock or any security convertible into
or exercisable or exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company, the Selling Stockholders and the Underwriters.
Very truly yours,
----------------------------------
Name:
Address:
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
RENTAL SERVICE CORPORATION
Rental Service Corporation, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
1. The Board of Directors of said corporation, by unanimous written consent
of its members, filed with the minutes of the Board, adopted a resolution
proposing and declaring advisable a proposed amendment to the Certificate of
Incorporation of said corporation. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Corporation's Amended and Restated Certificate of
Incorporation be amended by changing the Fourth Article thereof so that, as
amended, said article shall read in its entirety as follows:
"FOURTH: The total number of shares of stock which the Corporation
shall have authorized to issue is forty million five hundred thousand
(40,500,000), consisting of forty million (40,000,000) shares of
Common Stock, par value $.01 per share (hereinafter referred to as
"Common Stock") and five hundred thousand (500,000) shares of
Preferred Stock, par value $.01 per share (hereinafter referred to as
"Preferred 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 of 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."
2. In lieu of a meeting and vote of stockholders, the holders of
outstanding stock of said corporation having the requisite number of votes
required by statute have given written consent to said amendment in accordance
with the provisions of Section 228 of the General Corporation Law of the State
of Delaware,
<PAGE>
3. The aforesaid amendment was duly adopted in accordance with Sections
242 and 228 of the General Corporation Law of the State of Delaware.
dated this 11th day of December, 1997.
RENTAL SERVICE CORPORATION
/s/ MARC P. PADWE
-----------------------------------
Marc P. Padwe
Assistant Secretary
<PAGE>
EXHIBIT 10.8
================================================================================
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
$600,000,000
among
THE AIR & PUMP COMPANY,
RSC ALABAMA, INC.,
RSC DUVAL INC.,
RSC INDUSTRIAL CORPORATION,
RSC RENTS, INC.,
AND
WALKER JONES EQUIPMENT, INC.,
as Borrowers,
RENTAL SERVICE CORPORATION,
RSC ACQUISITION CORP.,
AND
RSC 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 DECEMBER 2, 1997
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS
<S> <C> <C> <C>
1.1 General Definitions............................................................... 3
1.2 Accounting Terms and Determinations............................................... 32
1.3 Computation of Time Periods....................................................... 33
1.4 Other Terms; Headings............................................................. 33
ARTICLE 2
LOANS
2.1 Commitments....................................................................... 34
2.2 Borrowing of Loans................................................................ 35
2.3 Disbursement of Loans............................................................. 37
2.4 Notices of Borrowing.............................................................. 38
2.5 Authorized Officers and Agents.................................................... 38
2.6 Periodic Settlement of Agent Advances and Repayments.............................. 39
2.7 Sharing of Payments............................................................... 40
2.8 Defaulting Lenders................................................................ 40
ARTICLE 3
LETTERS OF CREDIT
3.1 Issuance of Letters of Credit..................................................... 41
3.2 Terms of Letters of Credit........................................................ 42
3.3 Notice of Issuance................................................................ 42
3.4 Revolving Credit Lenders' Participation........................................... 42
3.5 Payment of Amounts Drawn Under Letters of Credit.................................. 43
3.6 Payment by Revolving Credit Lenders............................................... 43
3.7 Nature of Issuing Bank's Duties................................................... 43
3.8 Obligations Absolute.............................................................. 43
3.9 Agent's Execution of Applications and Other Issuing Bank Documentation;
Reliance on Credit Agreement by Issuing Bank...................................... 44
3.10 Additional Payments............................................................... 44
ARTICLE 4
COMPENSATION, REPAYMENT AND REDUCTION
OF COMMITMENTS AND LOANS
4.1 Interest on Prime Rate Loans...................................................... 45
4.2 Interest on Eurodollar Rate Loans................................................. 45
4.3 Interest on Other Obligations..................................................... 46
4.4 Unused Line Fee................................................................... 46
4.5 Letter of Credit Fees............................................................. 47
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
4.6 Interest After Event of Default................................................... 47
4.7 Expenses.......................................................................... 48
4.8 Mandatory Payment of Revolving Loans; Reduction of Revolving Credit
Commitments....................................................................... 48
4.9 Amortization and Prepayment of Term Loans......................................... 49
4.10 Maintenance of Loan Account....................................................... 51
4.11 Payment Procedures................................................................ 51
4.12 Collection of Accounts............................................................ 53
4.13 Calculations...................................................................... 54
4.14 Special Provisions Relating to Eurodollar Rate Loans.............................. 55
4.15 Indemnification in Certain Events................................................. 58
4.16 Taxes............................................................................. 59
4.17 Obligation of Lenders and Issuing Banks to Mitigate: Replacement of Lenders....... 62
ARTICLE 5
CONDITIONS PRECEDENT
5.1 Conditions to Effectiveness....................................................... 63
5.2 Conditions Precedent to All Loans and Letters of Credit........................... 67
5.3 Conditions to Effectiveness of Consent to Siems Acquisition....................... 68
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 Organization and Qualification.................................................... 70
6.2 Authority......................................................................... 70
6.3 Enforceability.................................................................... 70
6.4 No Conflict....................................................................... 70
6.5 Consents and Filings.............................................................. 70
6.6 Government Regulation............................................................. 70
6.7 Solvency.......................................................................... 71
6.8 Rights in Collateral.............................................................. 71
6.9 Financial Data.................................................................... 71
6.10 Subsidiaries; Ownership of Stock.................................................. 72
6.11 No Judgments or Litigation........................................................ 72
6.12 No Defaults....................................................................... 73
6.13 Labor Matters..................................................................... 73
6.14 Compliance with Law............................................................... 73
6.15 ERISA............................................................................. 73
6.16 Compliance with Environmental Laws................................................ 73
6.17 Intellectual Property; Real Property.............................................. 74
6.18 Licenses and Permits.............................................................. 74
6.19 Taxes and Tax Returns............................................................. 74
6.20 Material Contracts................................................................ 75
6.21 Approved Acquisitions............................................................. 75
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
6.22 Securities Activities............................................................. 75
6.23 Accuracy and Completeness of Information.......................................... 75
6.24 No Change......................................................................... 76
6.25 Fairness.......................................................................... 76
ARTICLE 7
AFFIRMATIVE COVENANTS
7.1 Financial Reporting............................................................... 76
7.2 Collateral and Other Reporting.................................................... 77
7.3 Notification Requirements......................................................... 78
7.4 Corporate Existence............................................................... 80
7.5 Books and Records; Inspections.................................................... 80
7.6 Insurance......................................................................... 80
7.7 Taxes............................................................................. 81
7.8 Compliance With Laws.............................................................. 81
7.9 Use of Proceeds................................................................... 82
7.10 Fiscal Year....................................................................... 82
7.11 Maintenance of Property........................................................... 82
7.12 ERISA Documents................................................................... 82
7.13 Compliance With Environmental Laws................................................ 83
7.14 Compliance with Operating Leases.................................................. 83
7.15 Compliance with Material Contracts................................................ 84
7.16 Maintenance of Separate Existence................................................. 84
7.17 Real Property; Landlord Waivers................................................... 84
7.18 Consolidation of Non-Borrower Subsidiaries........................................ 84
7.19 Delivery of Documents After Effective Date........................................ 85
7.20 Further Assurances................................................................ 85
ARTICLE 8
NEGATIVE COVENANTS
8.1 Minimum Rental Equipment Utilization.............................................. 85
8.2 Minimum Interest Coverage Ratio................................................... 86
8.3 Maximum Total Indebtedness Ratio.................................................. 86
8.4 Minimum EBITDA.................................................................... 87
8.5 Capital Expenditures.............................................................. 89
8.6 Additional Indebtedness........................................................... 91
8.7 Liens............................................................................. 93
8.8 Contingent Obligations............................................................ 94
8.9 Sale of Assets.................................................................... 94
8.10 Restricted Payments............................................................... 95
8.11 Fundamental Changes............................................................... 96
8.12 Accounting Changes................................................................ 97
8.13 Termination of Material Contracts; Modifications of Governing Documents........... 97
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C> <C>
8.14 Restriction on Operating Leases................................................. 97
8.15 Sale and Leaseback Transactions................................................. 97
8.16 Affiliate Transactions.......................................................... 97
8.17 Additional Deposit and Securities Accounts...................................... 98
8.18 Excess Cash..................................................................... 98
8.19 Additional Negative Pledges..................................................... 98
8.20 Additional Subsidiaries......................................................... 98
8.21 Changes to Permitted Subordinated Indebtedness.................................. 100
ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES
9.1 Events of Default............................................................... 100
9.2 Acceleration and Cash Collateralization......................................... 102
9.3 Rescission of Acceleration and Termination...................................... 103
9.4 Remedies........................................................................ 104
9.5 Right of Setoff................................................................. 105
9.6 License for Use of Software and Other Intellectual Property..................... 105
9.7 No Marshaling; Deficiencies; Remedies Cumulative................................ 105
ARTICLE 10
GUARANTY OF PARENT GUARANTORS
10.1 Guaranty........................................................................ 106
10.2 Guaranty Absolute............................................................... 108
10.3 Enforcement; Application of Payments............................................ 109
10.4 Waivers......................................................................... 109
10.5 Financial Information........................................................... 111
10.6 Reinstatement................................................................... 112
10.7 Subrogation, Contribution, Etc.................................................. 112
10.8 Subordination................................................................... 113
10.9 Waivers......................................................................... 114
10.10 Termination..................................................................... 114
10.11 Advice of Counsel............................................................... 114
10.12 Collateral...................................................................... 115
ARTICLE 11
THE AGENT
11.1 Appointment of Agent............................................................ 115
11.2 Nature of Duties of Agent....................................................... 115
11.3 Lack of Reliance on Agent....................................................... 115
11.4 Certain Rights of the Agent..................................................... 115
11.5 Reliance by Agent............................................................... 116
11.6 Indemnification of Agent........................................................ 116
11.7 The Agent in its Individual Capacity............................................ 116
11.8 Successor Agent................................................................. 116
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C> <C>
11.9 Collateral Matters; Releases from Credit Documents.............................. 117
11.10 Actions with Respect to Defaults................................................ 118
11.11 Proofs of Claim................................................................. 118
ARTICLE 12
MISCELLANEOUS
12.1 GOVERNING LAW................................................................... 119
12.2 SUBMISSION TO JURISDICTION...................................................... 119
12.3 SERVICE OF PROCESS.............................................................. 120
12.4 JURY TRIAL...................................................................... 120
12.5 LIMITATION OF LIABILITY......................................................... 120
12.6 Delays.......................................................................... 121
12.7 Notices......................................................................... 121
12.8 Assignments and Participations.................................................. 121
12.9 Confidentiality................................................................. 123
12.10 Indemnification................................................................. 124
12.11 Amendments and Waivers.......................................................... 124
12.12 Counterparts; Effectiveness..................................................... 127
12.13 Severability.................................................................... 127
12.14 Maximum Rate.................................................................... 127
12.15 Intercreditor Provisions........................................................ 128
12.16 Entire Agreement; Successors and Assigns........................................ 129
12.17 Schedules and Exhibits.......................................................... 130
</TABLE>
v
<PAGE>
ANNEX
Annex I - List of Lenders and Commitment Amounts
EXHIBITS
Exhibit A - Form of Collateral Access Agreement
Exhibit B-1 - Form of Collateral Assignment of Acquisition Agreement
(Stock Acquisition)
Exhibit B-2 - Form of Collateral Assignment of Acquisition Agreement
(Asset Acquisition)
Exhibit C - Form of Guaranty and Contribution Agreement
Exhibit D-1 - Form of Notice of Borrowing (Revolving Loans)
Exhibit D-2 - Form of Notice of Borrowing (Term Loans)
Exhibit E - Form of Notice of Continuation
Exhibit F - Form of Notice of Conversion
Exhibit G - Pro Forma
Exhibit H - Projections
Exhibit I - Form of Revolving Credit Note
Exhibit J - Form of Security Agreement
Exhibit K - Form of Subsidiary Guaranty and Contribution Agreement
Exhibit L - Form of Subsidiary Security Agreement
Exhibit M - Form of Term Note
Exhibit N - Form of Trademark Security Agreement
Exhibit O - Form of Letter of Credit Request
Exhibit P-1 - Form of Lockbox Agreement
Exhibit P-2 - Form of Restricted Account Agreement
Exhibit Q - Form of Compliance Certificate
Exhibit R - Form of Borrowing Base Certificate
Exhibit S - Acquisition Document List
Exhibit T - Form of Intercompany Subordinated Note
Exhibit U - New Subsidiary Document List
Exhibit V-1 - Form of Assignment and Assumption Agreement
(Revolving Credit Commitments)
Exhibit V-2 - Form of Assignment and Assumption Agreement (Term
Loans)
SCHEDULES
Schedule A - Closing Document List
Schedule B - Real Property Locations
Schedule C - Insurance Policies and Programs
Schedule D - Disclosure Schedule
vi
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT is entered into as
of December 2, 1997, among THE AIR & PUMP COMPANY, a Texas corporation which
will change its name after the Effective Date (as defined below) to RSC Center,
Inc. ("RSC Center"), RSC ALABAMA, INC., an Alabama corporation formerly known as
----------
Acme Alabama, Inc. ("RSC Alabama"), RSC DUVAL INC., a Delaware corporation
-----------
formerly known as Acme Duval Inc. ("RSC Duval"), RSC INDUSTRIAL CORPORATION, a
---------
Delaware corporation formerly known as Acme Dixie Inc. ("RSC Industrial"), RSC
--------------
RENTS, INC., a California corporation formerly known as Acme Rents, Inc. ("RSC
---
Rents") and WALKER JONES EQUIPMENT, INC., a Mississippi corporation ("Walker
- ----- ------
Jones"; RSC Alabama, RSC Center, RSC Duval, RSC Industrial, RSC Rents, Walker
- -----
Jones and any Subsidiary of any Credit Party (as defined below) which becomes a
party hereto in accordance with Section 8.20 are referred to herein individually
------------
from time to time as a "Borrower" and collectively as the "Borrowers"), RENTAL
-------- ---------
SERVICE CORPORATION, a Delaware corporation formerly known as Acme Acquisition
Holdings Corp. ("RSC"), RSC ACQUISITION CORP., a Delaware corporation formerly
---
known as Acme Acquisition Corp. ("RSC Acquisition") and RSC HOLDINGS, INC., a
---------------
Delaware corporation formerly known as Acme Holdings Inc. ("RSC Holdings"; RSC,
------------
RSC Acquisition and RSC 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, RSC owns all of the issued and outstanding capital stock of
RSC Acquisition and RSC Holdings;
WHEREAS, RSC Acquisition owns all of the issued and outstanding
capital stock of each of RSC Alabama, RSC Center and Walker Jones;
WHEREAS, RSC Holdings owns all of the issued and outstanding capital
stock of each of RSC Rents, RSC Industrial and RSC Duval;
WHEREAS, the Borrowers and the Parent Guarantors (other than RSC)
entered into the Credit Agreement dated as of September 12, 1995 (as amended,
supplemented or otherwise modified prior to September 24, 1996, the "Original
--------
Credit Agreement") with the Agent, the Issuing Bank and the financial
- ----------------
institutions parties thereto as lenders pursuant to which the Agent, the Issuing
Bank and such lenders, as applicable, made "Loans" and "Letters
1
<PAGE>
of Credit" (in each case as defined therein) and other financial accommodations
available to the Borrowers on the terms and conditions set forth therein;
WHEREAS, the Original Credit Agreement was amended and restated in its
entirety pursuant to the Amended and Restated Credit Agreement dated as of
September 24, 1996 (the Original Credit Agreement, as so amended and restated,
and the Amended and Restated Credit Agreement, as amended, supplemented or
otherwise modified prior to the date hereof, collectively the "Existing Credit
---------------
Agreement") among the Borrowers, the Parent Guarantors, the Agent, the Issuing
- ---------
Bank and the financial institutions parties thereto as lenders (the "Existing
--------
Lenders") pursuant to which the Agent, the Issuing Bank and the Existing
- -------
Lenders, as applicable, made "Loans" and "Letters of Credit" (in each case as
defined therein) and other financial accommodations available to the Borrowers
on the terms and conditions set forth therein;
WHEREAS, RSC Center plans to acquire all of the issued and outstanding
capital stock of Rent-it-Center, Inc., a Colorado corporation ("Rent-it-Center")
--------------
and substantially all of the assets of the Affiliates of Rent-it-Center
operating under the "Center Rental & Sales, Inc." name (the "Rent-it-Center
--------------
Acquisition");
- -----------
WHEREAS, the Borrowers and the Parent Guarantors have requested that
the Term Loan Lenders make senior secured term loans to RSC Center, RSC Alabama,
RSC Duval, RSC Industrial and Walker Jones (each a "Term Loan Borrower" and,
------------------
collectively, the "Term Loan Borrowers") in an aggregate principal amount of
-------------------
$100,000,000 to finance, in part, the Rent-it-Center Acquisition and that the
Lenders consent to the Rent-it-Center Acquisition;
WHEREAS, the Borrowers and the Parent Guarantors have requested that
the Existing Credit Agreement be amended and restated, effective upon
consummation of the Rent-it-Center Acquisition, to, among other things, (i)
increase the "Commitments," (ii) extend the "Expiration Date," (iii) modify the
definitions of "Applicable Eurodollar Rate Margin," "Applicable Prime Rate
Margin" and "Borrowing Base" on the terms and conditions described herein, (iv)
modify the "Financial Covenants" (in each case as defined therein) and certain
other covenants in the Existing Credit Agreement, (v) incorporate the terms and
conditions of the senior secured term loans described above and add the Term
Loan Lenders as parties to this Second Amended and Restated Credit Agreement and
as beneficiaries of the Credit Documents and (vi) provide for the consent of the
Lenders, subject to the satisfaction of certain conditions after the date
hereof, to the Siems Acquisition (as defined below);
WHEREAS, the Borrowers, the Parent Guarantors, the Agent, the Lenders
and the Issuing Bank desire to amend and restate the Existing Credit Agreement
in its entirety to give effect to the terms and conditions set forth in this
Second Amended and Restated Credit Agreement (the Existing Credit Agreement, as
so amended and restated, and the Second Amended and Restated Credit Agreement,
as amended, restated, supplemented or otherwise modified from time to time,
collectively, this "Credit Agreement"), it being understood and
----------------
2
<PAGE>
agreed that (i) with respect to any date or time period occurring and ending
prior to the Effective Date, the rights and obligations of the parties thereto
shall be governed by the Existing Credit Agreement (including without limitation
the Exhibits and Schedules thereto) and other Credit Documents (as defined
therein), which for such purposes shall remain in full force and effect, (ii)
with respect to any date or time period occurring or ending on or after the
Effective Date, the rights and obligations of the parties hereto shall be
governed by this Credit Agreement (including without limitation the Exhibits and
Schedules hereto) and the other Credit Documents (as defined herein) and (iii)
it is the intent of the Borrowers, the Parent Guarantors, the Agent, the Lenders
and the Issuing Bank that the Lenders and all other Holders are beneficiaries of
the Collateral Documents and the Obligations owing to such Persons are secured
thereby;
NOW, THEREFORE, in consideration of the foregoing premises (each of
which is incorporated herein) and the mutual conditions and agreements set forth
herein, the parties hereto agree as follows:
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:
Accounts means (i) with respect to any Borrower or any Parent
--------
Guarantor, "Accounts" as defined in the Security Agreement and (ii) with respect
to any Subsidiary Guarantor, "Accounts" as defined in the Subsidiary Security
Agreement to which such Subsidiary Guarantor is a party.
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).
3
<PAGE>
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).
-------------- --------------
all or substantially all has the meaning ascribed to such phrase in
------------------------
the Revised Model Business Corporation Act.
Applicable Eurodollar Rate Margin means, with respect to any Revolving
---------------------------------
Loan accruing interest in accordance with Section 4.2(b), a rate per annum equal
-------------- --- -----
to (i) for the period commencing on the Effective Date and ending on March 31,
1998, 1.75%; and (ii) from and after April 1, 1998, 2.00%, provided that, from
--------
and after April 1, 1998, if the Total Indebtedness Ratio for the applicable
period ending on the then most recent Quarterly Determination Date (as shown on
the quarterly Compliance Certificate delivered pursuant to Section 7.1(c)) is
--------------
within the ranges set out below and no Default or Event of Default exists as of
such Quarterly Determination Date, the Applicable Eurodollar Rate Margin shall
be the per annum rate set out opposite the applicable range indicated below:
--- -----
<TABLE>
<CAPTION>
TOTAL INDEBTEDNESS RATIO APPLICABLE EURODOLLAR
RATE MARGIN
================================ =====================
<S> <C>
Less than or equal 1.75%
to 2.75:1 and greater than
than 2.50:1
Less than or equal 1.50%
to 2.50:1 and greater than
than 2.25:1
Less than or equal 1.25%
to 2.25:1
========================================================
</TABLE>
In the event of the delivery of a Compliance Certificate showing an increase or
decrease in the Total Indebtedness Ratio which requires a change in the
Applicable Eurodollar Rate Margin, the change in the Applicable Eurodollar Rate
Margin shall be effective from the first day of the calendar month immediately
following receipt of the Compliance Certificate (provided that the Compliance
--------
Certificate is received by the Agent no later than 3:00 P.M. New York City time
at least one (1) Business Day prior to the first day of such calendar month)
until the next such
4
<PAGE>
date on which the Applicable Eurodollar Rate Margin is subject to change
following the delivery of (or failure to deliver) a Compliance Certificate
showing an increase or decrease in the Total Indebtedness Ratio which requires a
change in the Applicable Eurodollar Rate Margin. The failure to deliver any
Compliance Certificate by the date required under the Credit Agreement (after
giving effect to any applicable grace period) shall automatically cause the
Applicable Eurodollar Rate Margin to be the maximum per annum rate for the
--- -----
applicable period described above, effective as of the first day of the
calendar month immediately following the date on which the delivery of the
Compliance Certificate was otherwise required.
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.
Applicable Prime Rate Margin means, with respect to any Revolving Loan
----------------------------
accruing interest in accordance with Section 4.1(a), a rate per annum equal to
-------------- --- -----
(i) for the period commencing on the Effective Date and ending on March 31,
1998, 0.25%; and (ii) from and after April 1, 1998, 0.50%, provided that, from
--------
and after April 1, 1998, if the Total Indebtedness Ratio for the applicable
period ending on the then most recent Quarterly Determination Date (as shown on
the quarterly Compliance Certificate delivered pursuant to Section 7.1(c)) is
--------------
within the ranges set out below and no Default or Event of Default exists as of
such Quarterly Determination Date, the Applicable Prime Rate Margin shall be the
per annum rate set out opposite the applicable range indicated below:
- --- -----
<TABLE>
<CAPTION>
APPLICABLE PRIME
TOTAL INDEBTEDNESS RATIO RATE MARGIN
=========================== ================
<S> <C>
Less than or equal 0.25%
to 2.75:1 and greater
than 2.50:1
Less than or equal -0-
to 2.50:1 and greater
than 2.25:1
Less than or equal (0.25%)
to 2.25:1
===============================================
</TABLE>
In the event of the delivery of a Compliance Certificate showing an increase or
decrease in the Total Indebtedness Ratio which requires a change in the
Applicable Prime Rate Margin, the change in the Applicable Prime Rate Margin
shall be effective from the first day of the calendar month immediately
following receipt of the Compliance Certificate (provided that the Compliance
--------
Certificate is received by the Agent no later than 3:00 P.M. New York City time
at least one (1) Business Day prior to the first day of such calendar month)
until the next such date on which the Applicable Prime Rate Margin is subject to
change following the delivery of (or failure to deliver) a Compliance
Certificate showing an increase or decrease in the Total
5
<PAGE>
Indebtedness Ratio which requires a change in the Applicable Prime Rate Margin.
The failure to deliver any Compliance Certificate by the date required under the
Credit Agreement (after giving effect to any applicable grace period) shall
automatically cause the Applicable Prime Rate Margin to be the maximum per annum
--- -----
rate for the applicable period described above, effective as of the first day of
the calendar month immediately following the date on which the delivery of the
Compliance Certificate was otherwise required.
Approved Acquisitions means the Rent-it-Center Acquisition and the
---------------------
Siems Acquisition, in each case subject to the satisfaction of the applicable
conditions set forth in Section 5.1 or 5.3, as the case may be.
----------- ---
Approved Fund means, with respect to any Lender that is a fund, any
-------------
other fund that makes or invests in commercial loans of the same type as the
Loans made under this Credit Agreement and is managed by the same investment
advisor as such Lender or by an Affiliate of such investment advisor.
Asset Sale means any sale, lease, assignment, transfer or other
----------
disposition of assets by any Credit Party or any Subsidiary of any Credit Party
(including the capital stock of any Subsidiary of any Credit Party) which
requires the consent of the Requisite Lenders or any sale and leaseback
transaction (whether permitted by Section 8.15 or otherwise consented to by the
------------
Requisite Lenders).
Assignment and Assumption Agreement is defined in Section 12.8(b).
----------------------------------- ---------------
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.
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.
- -- ---
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 Term Loans or Revolving Loans of the same Type made,
continued or converted on the same day.
Borrowing Base of a Borrower means the sum of:
--------------
6
<PAGE>
(i) eighty-five percent (85%) of the value of Eligible Accounts of
the Borrower, plus
----
(ii) (A) from the Effective Date through December 31, 1998, one
hundred percent (100%) of the value of the Eligible Rental Equipment of the
Borrower, (B) from January 1, 1999 through December 31, 1999, ninety
percent (90%) of the value of the Eligible Rental Equipment of the
Borrower, (C) from January 1, 2000 through December 31, 2000, eighty-five
percent (85%) of the value of the Eligible Rental Equipment of the Borrower
and (D) from January 1, 2001 through the Revolving Credit Expiration Date,
eighty percent (80%) of the value of the Eligible Rental Equipment of the
Borrower, minus
-----
(iii) the aggregate amount of reserves, if any, established by the
Agent under Section 2.1(a)(ii) 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.
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 Equivalents means any of the following: (i) securities issued,
----------------
guaranteed 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 Rating Group, a division of McGraw Hill, Inc. ("S&P") and at least P-1 or
---
the equivalent by Moody's
7
<PAGE>
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 S&P 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 S&P 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) Any Person or group (within the meaning of Rule 13d-5, as in
effect on the Effective Date, under the Securities Exchange Act of 1934, as
amended) shall become the beneficial owner of more than 30% of the total
voting power of all issued and outstanding shares of capital stock of RSC
entitled to vote generally in the election of directors other than such
shares issued pursuant to (i) the Stock Option Plan for Key Employees, the
1996 Equity Participation Plan of Rental Service Corporation or the Rental
Service Corporation Employee Qualified Stock Purchase Plan, which were
approved pursuant to the Existing Credit Agreement or (ii) any other
employee stock option plan adopted after the date hereof in form and
substance satisfactory to the Agent and the Majority Lenders;
(ii) During any period of 12 consecutive calendar months ending after
the Effective Date, individuals who at the beginning of any such 12-month
period constituted the board of directors of RSC (together with any new
directors whose election by such board or whose nomination for election by
the shareholders of RSC was approved by a vote of a majority of the
directors still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) shall cease for any reason to constitute a majority of the board
of directors of RSC then in office; or
(iii) RSC shall cease to be the legal and beneficial owner, directly
or indirectly, of all of the issued and outstanding capital stock of any
other 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 a Credit Party is merged into another Credit Party as permitted or
required under this Credit Agreement.
8
<PAGE>
Closing Document List is defined in Section 5.1(a)(i).
--------------------- -----------------
Code is defined in Section 1.4.
---- -----------
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
acknowledgment 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 Assignment of Acquisition Agreement means, with respect to
----------------------------------------------
any Approved Acquisition and any Acquisition permitted by Section 8.5(g) the
--------------
consideration for which is $10,000,000 or more, a collateral assignment executed
by the Credit Party or Credit Parties party to such Acquisition in favor of the
Agent, for the benefit of the Holders, and, if the related purchase agreement(s)
or escrow agreement(s) do not expressly permit such assignment, acknowledged by
each Person selling shares or property in such Acquisition or any escrow agent,
with respect to such Credit Party's or Credit Parties' rights under such
purchase agreement(s) and such escrow agreement(s), in each case in
substantially the form of Exhibit B (with such modifications as may be necessary
---------
to reflect the structure of such Acquisition), as any of the same may be
amended, restated, supplemented or otherwise modified in accordance with the
terms hereof and thereof.
Collateral Documents means the Security Agreement, the Trademark
--------------------
Security Agreement, each Subsidiary Security Agreement, each Lockbox Agreement,
each Restricted Account Agreement, each Collateral Assignment of Acquisition
Agreement and all other contracts, instruments and other documents pursuant to
which Liens or Control have been, are concurrently herewith being or hereafter
will be granted by any Credit Party 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 Term Loan Commitment, if any, and its
----------
Revolving Credit Commitment, if any, in each case as adjusted in accordance with
the terms of
9
<PAGE>
this Credit Agreement, and Commitments means, collectively, the Term Loan
-----------
Commitments and Revolving Credit Commitments of all Lenders.
Commitment Letters means the commitment letters addressed to the
------------------
Borrowers and the Parent Guarantors from BTCC, each dated October 14, 1997.
Compliance Certificate is defined in Section 7.1(a).
---------------------- --------------
Concentration Account is defined in Section 4.12.
--------------------- ------------
Consummation Date means, with respect to any Acquisition or the
-----------------
acquisition or formation of any Subsidiary of any Credit Party, the date such
Acquisition or acquisition is consummated or the date when such Subsidiary has
been formed.
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 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.
Control means "control" over Investment Property within the meaning of
-------
Section 8-106 of the Code.
Credit Agreement is defined in the recitals to this Credit Agreement.
----------------
Credit Documents means, collectively, this Credit Agreement, the
----------------
Notes, the Letters of Credit, each Guaranty and Contribution Agreement, each
Subsidiary Guaranty and Contribution Agreement, each Collateral Document and all
other documents, agreements, instruments, opinions and certificates which have
been, are concurrently herewith being or hereafter will be executed and
delivered by, on behalf of, or at the direction of, any Credit Party 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, the Subsidiary Guarantors and any other parties to the Credit
Documents (except the Lenders, the
10
<PAGE>
Issuing Bank, the Agent, landlords, mortgagees, bailees, warehousemen or
processors parties to Collateral Access Agreements 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(a).
----------------- --------------
Disbursement Account means the operating account maintained with the
--------------------
Disbursement Account Bank.
Disbursement Account Bank means Bankers Trust (Delaware).
-------------------------
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 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 the Credit
Parties 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.
Effective Date is defined in Section 5.1.
-------------- -----------
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
11
<PAGE>
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 or any merger of a Person into a Borrower
substantially simultaneously with an Acquisition of Such Person permitted
hereunder) then, subject to (a) such arrangements as the Agent may reasonably
request to insure that the proceeds are so used, (b) the Borrower's compliance
with Section 9 of the Security Agreement, (c) in the case of an Acquisition, the
satisfaction of the conditions set forth in Section 8.5(g), and (d) the
--------------
satisfaction of all other conditions of eligibility, such Accounts shall 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
(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
12
<PAGE>
(ix) the sale to the account debtor is on a bill-and-hold, guaranteed
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 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, other financial institution or fund
-----------------
that makes or invests in commercial loans of the same type as the Loans made
under this Credit Agreement, in each case 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
13
<PAGE>
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) of the Original Credit Agreement,
-------------------
Section 7.2(b) of the Existing Credit Agreement or Section 7.2(b) of this
- -------------- --------------
Agreement. 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 or any merger of a Person into a Borrower
substantially simultaneously with an Acquisition of such Person permitted
hereunder) then, subject to (a) such arrangements as the Agent may reasonably
request to insure that the proceeds are so used, (b) compliance by the Borrower
with Section 9 of the Security Agreement, (c) in the case of an Acquisition, the
---------
satisfaction of the conditions set forth in Section 8.5(g), and (d) the
--------------
satisfaction of all other conditions of eligibility, such Rental Equipment shall
be 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 for which certificates of title are not required to
be delivered pursuant to the Security Agreement and which are not 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 means (i) with respect to any Borrower or any Parent
---------
Guarantor "Equipment" as defined in the Security Agreement and (ii) with respect
to any Subsidiary Guarantor, "Equipment" as defined in the Subsidiary Security
Agreement to which such Subsidiary Guarantor is a party.
14
<PAGE>
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 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.
---------------- ---------
Existing Credit Agreement is defined in the recitals to this Credit
-------------------------
Agreement.
Existing Lenders is defined in the recitals to this Credit Agreement.
----------------
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
15
<PAGE>
preparing and recording Collateral Documents, releases of Collateral, and
waivers, amendments, and terminations of any of the Credit Documents.
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 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 RSC 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 and the letters addressed to the Credit Parties from BTCC
dated October 14, 1997.
Financial Covenants means the covenants set forth in Sections 8.1,
------------------- ------------
8.2, 8.3, 8.4, 8.5(f), 8.5(g) and 8.10.
- --- --- --- ------ ------ ----
Financial Officer means, with respect to any Credit Party, its chief
-----------------
financial officer, chief accounting officer, treasurer or other officer of such
Credit Party designated as such by its chief financial officer, chief accounting
officer or treasurer in a written notice to the Agent.
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
RSC and its Subsidiaries for the period specified, prepared in accordance with
GAAP (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 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.
16
<PAGE>
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 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 Agreements means (i) the Amended and
------------------------------------
Restated Guaranty and Contribution Agreement dated as of the Effective Date
originally executed by RSC Industrial, RSC Duval, RSC Rents, RSC Center and
Walker Jones with respect to the Obligations of RSC Alabama, (ii) the Amended
and Restated Guaranty and Contribution Agreement dated as of the Effective Date
originally executed by RSC Alabama, RSC Duval, RSC Rents, RSC Center and Walker
Jones with respect to the Obligations of RSC Industrial, (iii) the Amended and
Restated Guaranty and Contribution Agreement dated as of the Effective Date
originally executed by RSC Alabama, RSC Industrial, RSC Rents, RSC Center and
Walker Jones with respect to the Obligations of RSC Duval, (iv) the Amended and
Restated Guaranty and Contribution Agreement dated as of the Effective Date
originally executed by RSC Alabama, RSC Industrial, RSC Duval, RSC Center and
Walker Jones with respect to the Obligations of RSC Rents, (v) the Amended and
Restated Guaranty and Contribution Agreement dated as of the Effective Date
originally executed by RSC Alabama, RSC Industrial, RSC Duval, RSC Rents and
Walker Jones with respect to the Obligations of RSC Center (vi) the Amended and
Restated Guaranty and Contribution Agreement dated as of the Effective Date
originally executed by RSC Alabama, RSC Industrial, RSC Duval, RSC Rents and RSC
Center 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.
17
<PAGE>
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
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 Loans, obligations and liabilities of the Borrowers to
the Lender, including, without limitation, 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.
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, 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
----------
18
<PAGE>
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.
Interest Expense means the consolidated expense of 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 with respect to a Revolving Loan
that ends after the Revolving Credit Expiration Date or any Interest Period with
respect to a Term Loan that ends after the Term Loan Maturity 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.
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 means (i) with respect to any Borrower or any Parent
---------
Guarantor "Inventory" as defined in the Security Agreement and (ii) with respect
to any Subsidiary Guarantor, "Inventory" as defined in the Subsidiary Security
Agreement to which such Subsidiary Guarantor is a party.
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
19
<PAGE>
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.
---
Investment Property of a Credit Party means all investment property
-------------------
(as defined in Section 9-114 of the Code) of such Credit Party, including,
without limitation, all securities, whether certificated or uncertificated,
dividends, cash, instruments, equity securities, financial assets and other
interests which are, or are of a type, dealt in or traded on financial markets,
or which are recognized in any way as a medium for investment, any property held
by a financial or securities intermediary for such Credit Party, securities
accounts to which any of the foregoing are credited and warrants, options, puts
and calls, and other rights or securities entitlements from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the foregoing, and all other products and proceeds thereof.
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 Fee is 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 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.
20
<PAGE>
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 means any Revolving Loan or any Term Loan, and Loans means,
---- -----
collectively, the Revolving Loans and the Term Loans.
Loan Account is defined in Section 4.10.
------------ ------------
Lockboxes, Lockbox Agreements and Lockbox Banks are defined in Section
--------- ------------------ ------------- -------
4.12.
- ----
Majority Lenders means, at any particular time, those Lenders whose
----------------
Overall Proportionate Shares, in the aggregate, are greater than fifty percent
(50%).
Majority Revolving Credit Lenders means, at any particular time, those
---------------------------------
Revolving Credit Lenders whose Revolving Credit Proportionate Shares, in the
aggregate, are greater than fifty percent (50%).
Majority Term Loan Lenders means, at any particular time, those Term
--------------------------
Loan Lenders whose Term Loan Proportionate Shares, in the aggregate, are greater
than fifty percent (50%).
Mandatory Redeemable Obligation means an obligation of 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 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, RSC 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 RSC 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 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
21
<PAGE>
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.
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 Asset Sale relating to
-----------------
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.
Notes means, collectively, the Revolving Credit Notes and the Term
-----
Notes, and Note means any Revolving Credit Note or any Term Note.
----
Notice of Borrowing means (i) a notice with respect to the Borrowing
-------------------
of Revolving Loans substantially in the form of Exhibit D-1 or (ii) a notice
-----------
with respect to the Borrowing of Term Loans substantially in the form of Exhibit
-------
D-2.
- ---
Notice of Continuation means a notice substantially in the form of
----------------------
Exhibit E.
- ---------
Notice of Conversion means a notice substantially in the form of
--------------------
Exhibit F.
- ---------
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, (vi) the
Obligations of the Subsidiary
22
<PAGE>
Guarantors under the Subsidiary Guaranty and Contribution Agreements and (vii)
all obligations and liabilities of the Borrowers to any Lender in respect of
Interest Rate Agreements permitted hereunder.
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.
Original Credit Agreement is defined in the recitals to this Credit
-------------------------
Agreement.
Original Lenders is defined in the recitals to this Credit Agreement.
----------------
Overall Proportionate Share of a Lender means, at any particular time,
---------------------------
a fraction, expressed as a percentage, obtained by dividing:
(i) the sum of (A) the Term Loan Commitment of such Lender or, after
the funding of the Term Loans, the Term Loan Outstandings of such Lender,
plus (B) the Revolving Credit Commitment of such Lender or, if the
----
Revolving Credit Commitments have then been terminated, the sum of (I) the
outstanding Revolving Loans made by such Revolving Credit Lender, plus (II)
----
the amount of such Revolving Credit Lender's unfunded participations in
outstanding Letters of Credit, plus (III) the amount of all payments made
----
by such Revolving Credit Lender to the Issuing Bank in respect of its
participations in Letters of Credit for which a Borrower has not reimbursed
such Revolving Credit Lender (other than with respect to outstanding
Revolving Loans deemed requested pursuant to Section 3.5); by
-----------
(ii) the sum of (A) the Term Loan Commitments or, after the funding of
the Term Loans, the Term Loan Outstandings, plus (B) the Revolving Credit
----
Commitments or, if the Revolving Credit Commitments have then been
terminated, the sum of (I) the aggregate amount of all Revolving Loans then
outstanding, plus (II) the amount of all Revolving Credit Lenders' unfunded
----
participations in outstanding Letters of Credit, plus (III) the amount of
----
all payments made by all Revolving Credit Lenders to the Issuing Bank in
respect of their respective participations in Letters of Credit for which a
Borrower has not reimbursed the Revolving Credit Lenders (other than with
respect to outstanding Loans deemed requested pursuant to Section 3.5).
-----------
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
Revolving Credit 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
23
<PAGE>
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.
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.
-------------- -----------
Permitted Subordinated Indebtedness means unsecured Indebtedness of
-----------------------------------
RSC subordinated in right of payment to the Obligations, with respect to which
(i) the principal amount thereof shall not exceed $150,000,000, (ii) the
effective interest rate thereon shall not exceed 12% per annum and (iii) the
--- -----
other terms (including subordination terms) and conditions thereof shall have
been approved in writing by the Agent, the Majority Revolving Credit Lenders and
the Majority Term Loan Lenders prior to the incurrence thereof, as the same may
be amended, supplemented or otherwise modified in accordance with Section 8.21
------------
or otherwise with the prior written consent of the Majority Revolving Credit
Lenders and the Majority Term Loan Lenders.
Person means any natural person, corporation, limited liability
------
company, limited partnership, general partnership, joint stock company, joint
venture, association, company,
24
<PAGE>
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.
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 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 assets of a kind then used or usable in the
-----------------
business of a Credit Party as in existence on the Effective Date or in lines of
business reasonably related thereto (which shall include assets consisting of
the capital stock of an entity acquired in an Acquisition permitted hereunder).
Pro Forma means the unaudited pro forma consolidated balance sheet of
---------
RSC, dated as of September 30, 1997, and giving effect to the Approved
Acquisitions, the other acquisitions and transactions described therein and the
extensions of credit contemplated by this Credit Agreement, attached hereto as
Exhibit G.
- ---------
Projections means the forecasted (i) condensed consolidated
-----------
balance sheet of RSC, (ii) condensed consolidated income statements of RSC,
(iii) condensed consolidated cash flow statements of RSC, (iv) consolidated
capitalization statements of RSC and (v) compliance with the Financial
Covenants, all prepared by management of the Credit Parties on a basis
consistent with the Credit Parties' historical Financial Statements for the
period commencing on the Effective Date and ending in 2004, together with
appropriate supporting details and a statement of underlying assumptions,
attached hereto as Exhibit H.
---------
Purchase Money Liens is defined in Section 8.6.
-------------------- -----------
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(c).
-------- ---------------
25
<PAGE>
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.
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 Credit Parties attributable to the rental of Rental Equipment owned or
leased by the Credit Parties during such twelve-month period by (ii) the average
amount for such twelve-month period of Rental Equipment owned or leased by the
Credit Parties as of the last day of each month during such twelve-month period,
determined on the basis of the applicable Credit Party's original cost of such
Rental Equipment.
Rental Equipment Utilization Cure Date is defined in Section 8.1.
-------------------------------------- -----------
Rent-it-Center is defined in the recitals to this Credit Agreement.
--------------
Rent-it-Center Acquisition is defined in the recitals to this Credit
--------------------------
Agreement.
Rent-it-Center Acquisition Agreements means (i) the Stock Purchase
-------------------------------------
Agreement dated as of October 6, 1997 by and among David P. Lanoha, The Lanoha
Charitable Remainder Trust, National Christian Charitable Foundation and Richard
F. Lanoha Family Trust, as "Sellers," RSC Center (as assignee of RSC
Acquisition), as "Buyer," RSC, as "Parent," and Rent-it-Center, as the
"Company," (ii) the Asset Purchase Agreement dated as of October 6, 1997 by and
among David P. Lanoha, as "Seller," RSC Center (as assignee of RSC Acquisition),
as "Buyer," RSC, as "Parent," and Lanoha Leasing Limited Liability Company, as
the "Company," (iii) the Asset Purchase Agreement dated as of October 6, 1997 by
and among David P. Lanoha, as "Seller," RSC Center (as assignee of RSC
Acquisition), as "Buyer," RSC, as "Parent," and Zuni Rental Enterprises L.L.C.,
as the "Company"and (iv) the Asset Purchase Agreement dated as of October 6,
1997 by and among David P. Lanoha, as "Seller," RSC Center (as assignee of RSC
Acquisition), as "Buyer," RSC, as "Parent," and Center Rental & Sales/Omaha,
LLC, as the "Company."
Rent-it-Center Acquisition Documents means the Rent-it-Center
------------------------------------
Acquisition Agreements and all other agreements, documents and instruments
relating to the Rent-it-Center Acquisition.
Reportable Event means any of the events described in Section 4043 of
----------------
ERISA and the regulations thereunder.
26
<PAGE>
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.
Requisite Lenders means:
-----------------
(i) all of the Lenders, with respect to (A) any matter described in
Section 12.11(a) and (B) subject to Section 11.9(b), any matter pertaining
---------------- ---------------
to all or substantially all of the Collateral;
(ii) the Majority Revolving Credit Lenders and the Majority Term Loan
Lenders, with respect to (A) any matter described in Section 12.11(b), (B)
----------------
the approval of the terms and conditions of any Permitted Subordinated
Indebtedness incurred by RSC and (C) subject to clause (i) above and
----------
Section 11.9(b), so long as no Event of Default has occurred and is
---------------
continuing, any matter pertaining to the Collateral;
(iii) all of the Revolving Credit Lenders, with respect to any matter
described in Section 12.11(c);
----------------
(iv) the Majority Revolving Credit Lenders, with respect to (A) any
matter described in Section 12.11(d), (B) subject to clause (i) above and
---------------- ----------
Section 11.9(b), after the occurrence and during the continuance of an
---------------
Event of Default and prior to the time that all Obligations owing to the
Revolving Credit Lenders have been Paid In Full and the Revolving Credit
Commitments have been terminated, any matter pertaining to the Collateral,
(C) any matter described in Section 2.2(b), 2.8(c), 4.14(c)(ii), 9.2 or
-------------- ------ ----------- ---
9.3(b) which provides for the consent or waiver of, or instructions by, the
------
Majority Revolving Credit Lenders and (D) subject to clause (iii) above,
------------
any other matter which directly affects the rights or obligations of the
Revolving Credit Lenders (and not the Term Loan Lenders);
(v) all of the Term Loan Lenders, with respect to any matter
described in Section 12.11(e);
----------------
(vi) Term Loan Lenders whose Term Loan Proportionate Shares, in the
aggregate, are greater than sixty-six percent (66%), with respect to any
matter described in Section 12.11(f);
----------------
(vii) the Majority Term Loan Lenders, with respect to (A) any matter
described in Section 12.11(g), (B) any matter described in Section 2.8(c),
---------------- --------------
4.14(c)(ii) or 9.2 which provides for the consent or waiver of, or
----------- ---
instructions by, the Majority Term Loan Lenders and (C) subject to clauses
-------
(v) and (vi) above, any other matter which directly
--- ----
27
<PAGE>
affects the interests of the Term Loan Lenders (and not the Revolving Credit
Lenders); and
(viii) the Majority Lenders, in all other cases.
Restricted Account, Restricted Account Agreements and Restricted
------------------ ----------------------------- ----------
Account Banks are defined in Section 4.12.
- ------------- ------------
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.
Revolving Credit Commitment of a Revolving Credit Lender means its
---------------------------
commitment to make Revolving 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 in the Assignment and Assumption Agreement(s) pursuant to which such
- -------
Revolving Credit Lender purchased and assumed all or any portion of such
commitment, as such amount may be reduced from time to time, and Revolving
---------
Credit Commitments means the aggregate principal amount of the Revolving Credit
- ------------------
Commitments of all of the Revolving Credit Lenders, the maximum amount of which
shall be $500,000,000.
Revolving Credit Expiration Date means the fifth anniversary of
--------------------------------
the Effective Date (or, if not a Business Day, the immediately preceding
Business Day).
Revolving Credit Lender means, at any particular time, each Lender
-----------------------
which has a Revolving Credit Commitment at such time or, if the Revolving Credit
Commitments have then been terminated, each Lender which has outstanding
Revolving Loans and participations in Letters of Credit (or unreimbursed
payments with respect thereto).
Revolving Credit Note means a promissory note of a Borrower payable to
---------------------
the order of any Revolving Credit Lender, substantially in the form of Exhibit
-------
I.
- -
Revolving Credit Proportionate Share of a Revolving Credit Lender
------------------------------------
means, at any particular time, a fraction, expressed as a percentage, obtained
by dividing its Revolving Credit Commitment by the aggregate Revolving Credit
Commitments of all the Revolving Credit Lenders or, if the Revolving Credit
Commitments have then been terminated, by dividing (i) the sum of (A) the
outstanding Revolving Loans made by such Revolving Credit Lender, plus (B) the
----
amount of such Revolving Credit Lender's unfunded participations in outstanding
Letters of Credit, plus (C) the amount of all payments made by such Revolving
----
Credit Lender to the Issuing Bank in respect of its participations in Letters of
Credit for which a Borrower has not reimbursed such Revolving Credit Lender
(other than with respect to outstanding Revolving Loans deemed requested
pursuant to Section 3.5), by (ii) the sum of (A) the aggregate amount of all
-----------
Revolving Loans then outstanding, plus (B) the aggregate amount
----
28
<PAGE>
of all Revolving Credit Lenders' unfunded participations in outstanding Letters
of Credit, plus (C) the aggregate amount of all payments made by all Revolving
----
Credit Lenders to the Issuing Bank in respect of their respective participations
in Letters of Credit for which a Borrower has not reimbursed the Revolving
Credit Lenders (other than with respect to outstanding Loans deemed requested
pursuant to Section 3.5).
-----------
Revolving Loans is defined in Section 2.1(a)(i).
--------------- -----------------
RSC is defined in the preamble to this Credit Agreement.
---
RSC Acquisition is defined in the preamble to this Credit Agreement.
---------------
RSC Acquisition Borrowers is defined in Section 10.1(b).
------------------------- ---------------
RSC Alabama is defined in the preamble to this Credit Agreement.
-----------
RSC Center is defined in the preamble to this Credit Agreement.
----------
RSC Duval is defined in the preamble to this Credit Agreement.
---------
RSC Holdings is defined in the preamble to this Credit Agreement.
------------
RSC Holdings Borrowers is defined in Section 10.1(a).
---------------------- ---------------
RSC Industrial is defined in the preamble to this Credit Agreement.
--------------
RSC Preferred Stock means any series of preferred stock of RSC with
-------------------
respect to which there is no obligation of RSC or any of its Subsidiaries of the
type described in the first sentence of the definition of Mandatory Redeemable
Obligation other than the mandatory redemption obligations of RSC contained in,
and subject to the conditions set forth in, RSC's Governing Documents as in
effect on the Effective Date.
RSC Rents is defined in the preamble to this Credit Agreement.
---------
Security Agreement means the Second Amended and Restated Security and
------------------
Pledge Agreement of even date herewith among the Parent Guarantors, the
Borrowers and the Agent, for the benefit of the Holders, in substantially the
form of Exhibit J, 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(a).
--------------- --------------
Siems means Siems Rental & Sales Co., a Maryland corporation.
-----
29
<PAGE>
Siems Acquisition means the acquisition by RSC Alabama of all of the
-----------------
issued and outstanding capital stock of Siems.
Siems Acquisition Agreement means the Stock Purchase Agreement dated
---------------------------
as of October 31, 1997 by and among Leonard A. Siems, Marvin W. Abbott and
Leonard A. Siems, Marvin W. Abbott, Michael E. Mullen and Porter Siems, as
trustees of the Siems Employee Stock Ownership Plan, as "Sellers," RSC Alabama,
as "Buyer," RSC, as "Parent," and Siems, as the "Company.".
Siems Acquisition Documents means the Siems Acquisition Agreement and
---------------------------
all other agreements, documents and instruments relating to the Siems
Acquisition.
Siems Acquisition Effective Date is defined in Section 5.3.
-------------------------------- -----------
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.
Subsidiary Group means any Borrower which forms or acquires a
----------------
Subsidiary after the Effective Date which does not become a Borrower pursuant to
Section 8.20, together with such formed or acquired Subsidiary and any other
- ------------
direct or indirect Subsidiary of the Borrower which is formed or acquired
substantially simultaneously therewith.
Subsidiary Guarantors means any direct or indirect Subsidiary of any
---------------------
Borrower formed or acquired after the Effective Date (other than Rent-it-Center
and Siems)which does not become a Borrower pursuant to Section 8.20, in each
------------
case until such time as the separate existence of such Persons ceases due to a
merger or liquidation required by Section 7.18.
------------
Subsidiary Guaranty and Contribution Agreement means any Subsidiary
----------------------------------------------
Guaranty and Contribution Agreement executed after the date hereof by any
Subsidiary Guarantor with respect to the Obligations of the Borrower which is
part of the same Subsidiary Group, in each case in favor of the Agent, the
Issuing Bank and the Lenders and in substantially the form of Exhibit K, as any
---------
of the same may be amended, restated, supplemented or otherwise modified in
accordance with the terms hereof and thereof.
Subsidiary Security Agreement means any Subsidiary Security and Pledge
-----------------------------
Agreement executed after the date hereof by any Subsidiary Guarantor and the
Agent, for the benefit of the Holders, in each case in substantially the form of
Exhibit L, as any of the same may be amended, restated, supplemented or
- ---------
otherwise modified from time to time in accordance with the terms hereof and
thereof.
30
<PAGE>
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 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.
Term Loan Borrower is defined in the recitals to this Credit
------------------
Agreement.
Term Loan Commitment of a Term Loan Lender means its commitment to
--------------------
make Term Loans on the Effective Date pursuant to the terms and conditions of
this Credit Agreement, up to the principal amount set forth opposite its name on
Annex I, and Term Loan Commitments means the aggregate principal amount of the
- ------- ---------------------
Term Loan Commitments of all of the Term Loan Lenders, the maximum amount of
which shall be $100,000,000.
Term Loan Lender means, at any particular time, each Lender which has
----------------
a Term Loan Commitment at such time or, after the date of the funding of the
Term Loans, each Lender which has any Term Loan Outstandings owing to it at such
time.
Term Loan Maturity Date means the seventh anniversary of the
-----------------------
Effective Date (or, if not a Business Day, the immediately preceding Business
Day).
Term Loan Outstandings means, with respect to any Term Loan Lender at
----------------------
any particular time, the aggregate outstanding principal balance of the Term
Loans owing to such Term Loan Lender.
Term Loan Proportionate Share of a Term Loan Lender means, at any
-----------------------------
particular time, a fraction, expressed as a percentage, obtained by dividing its
Term Loan Commitment by the aggregate Term Loan Commitments of all the Term Loan
Lenders or, after the date of the funding of the Term Loans, by dividing (i) the
Term Loan Outstandings of such Term Loan Lender, by (ii) the aggregate Term Loan
Outstandings of all Term Loan Lenders.
Term Loans is defined in Section 2.1(b).
---------- --------------
Term Note means a promissory note of a Term Loan Borrower payable to
---------
the order of any Term Loan Lender, substantially in the form of Exhibit M.
---------
31
<PAGE>
Total Indebtedness Ratio as of a Quarterly Determination Date means,
------------------------
solely for purposes of determining the Applicable Eurodollar Rate Margin and the
Applicable Prime Rate Margin, the ratio of (i) the aggregate amount of all
Indebtedness of the Credit Parties outstanding on such Quarterly Determination
Date, to (ii) EBITDA, as determined as of such Quarterly Determination Date for
the twelve-month period ending on such Quarterly Determination Date, provided,
--------
however, that (A) if any Credit Party or Subsidiary of a Credit Party shall have
- -------
consummated any Asset Sale or any sale, lease, assignment, transfer or other
disposition of assets permitted by Section 8.9(vi) (each, an "Asset
--------------- -----
Disposition") during such twelve-month period, the EBITDA for such period shall
- -----------
be reduced by an amount equal to the EBITDA (if positive) directly attributable
to the assets that are the subject of any such Asset Disposition for such period
or increased by an amount equal to the EBITDA (if negative) directly
attributable thereto for such period and (B) if any Credit Party or Subsidiary
of a Credit Party shall have consummated any Acquisition during such twelve-
month period, EBITDA for such period shall be calculated after giving pro forma
effect thereto (including the pro forma expenses and cost reductions calculated
on a basis consistent with Regulation S-X of the Securities Act of 1933, as
amended) as if such Acquisition had been consummated on the first day of such
period. Whenever any adjustment pursuant to clause (A) or (B) above is to be
---------- ---
made, the calculations in respect thereof shall be as determined in good faith
by a Financial Officer of the applicable Credit Party based on reasonable
assumptions. All such calculations and assumptions shall be set forth in an
attachment to the quarterly Compliance Certificate(s) delivered pursuant to
Section 7.1(c) covering the period(s) for which such adjustments are applicable
- --------------
and shall be in form and substance, reasonably satisfactory to the Agent.
Trademark Security Agreement means the Second Amended and Restated
----------------------------
Trademark Security Agreement of even date herewith among the Parent Guarantors,
the Borrowers and the Agent, for the benefit of the Holders, in substantially
the form of Exhibit N, 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.
--------------- -----------
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 audited Financial Statements for the Fiscal Year ending
December 31, 1996. All accounting determinations for purposes of determining
compliance with the Financial Covenants and any other provision of this
Agreement shall be made in accordance with GAAP as in effect on the Effective
Date and applied on a basis consistent in all material respects with the audited
Financial Statements for the Fiscal Year ending December 31, 1996. The
Financial Statements
32
<PAGE>
required to be delivered hereunder on and after the Effective 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 the Credit Parties, and may be prepared
without footnotes. If GAAP shall change from the basis used in preparing the
audited Financial Statements for the Fiscal Year ending December 31, 1996
delivered to the Agent, the Compliance Certificate required to be delivered
pursuant to Section 7.1(c) 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 Sections 8.6(d), 8.9(vi) and 8.14 and whether
--------------- ------- ----
the Adjusted Eurodollar Rate Margin and Adjusted Prime Rate Margin are to be
adjusted due to a change in the Total Indebtedness Ratio, in each case based
upon GAAP as in effect on the Effective Date.
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.
33
<PAGE>
ARTICLE 2
LOANS
-----
2.1 Commitments.
-----------
(a) Revolving Credit Commitments.
----------------------------
(i) Subject to the terms and conditions set forth in this
Credit Agreement, on and after the Effective Date and until the Revolving Credit
Expiration Date, each Revolving Credit Lender severally agrees to make revolving
loans and advances to the Borrowers ("Revolving Loans") in an amount not to
---------------
exceed at any time its Revolving Credit Proportionate Share of the lesser of (A)
-------------
the total Revolving Credit Commitments and (B) 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 Revolving 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. The Loans outstanding under (and as defined in) the Existing
Credit Agreement on the Effective Date shall automatically, without further
action, be deemed to be Revolving Loans outstanding under this Credit Agreement.
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.
(ii) The Agent, in the exercise of its Permitted Discretion,
may (A) establish and increase or decrease reserves against Eligible Accounts
and Eligible Rental Equipment, (B) 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 (C) 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." In addition, the Agent, in its reasonable
discretion, may establish and increase reserves against Eligible Accounts and
Eligible Rental Equipment to the extent that the Credit Parties have not
obtained Uniform Commercial Code termination statements within 90 days after (x)
the Effective Date with respect to each Uniform Commercial Code financing
statement or other filing listed on Schedule D, Part 8.7 and marked with a
--------------------
footnote indicating that a termination statement with respect to such financing
statement or filing is forthcoming or reflected on the Uniform Commercial Code
searches designated on the Closing Document List as items to be delivered after
the Effective Date and (y) the Consummation Date for any Acquisition consummated
after the Effective Date with respect to each Uniform Commercial Code financing
statement or other filing covering assets to be acquired, directly or
indirectly, by any Credit Party in such Acquisition, as shown on the Uniform
Commercial Code searches delivered in connection with such Acquisition pursuant
to Section 8.5(g) (other than filings certified by the Credit Parties as
--------------
evidencing Liens which are permitted by Section 8.7(c) and which secure
--------------
Indebtedness permitted by Section 8.6(d)).
--------------
34
<PAGE>
(iii) Subject to the provisions of this Credit Agreement,
each Borrower may repay any outstanding Revolving 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)(i) at the time of such Borrowing,
-----------------
to the Revolving Credit Expiration Date.
(b) Term Loan Commitments. Subject to the terms and conditions
---------------------
set forth in this Credit Agreement, on the Effective Date, each Term Loan Lender
severally agrees to make a term loan to each Term Loan Borrower ("Term Loans")
----------
in an aggregate amount equal to its Term Loan Proportionate Share of the total
Term Loan Commitments. The aggregate principal amount of the Term Loan to be
advanced to each Term Loan Borrower is set out opposite such Term Loan
Borrower's name below:
<TABLE>
<CAPTION>
======================================================
TERM LOAN PRINCIPAL AMOUNT OF
BORROWER TERM LOAN
<S> <C>
------------------------------------------------------
RSC Alabama $20,000,000
------------------------------------------------------
RSC Center $20,000,000
------------------------------------------------------
RSC Duval $20,000,000
------------------------------------------------------
RSC Industrial $20,000,000
------------------------------------------------------
Walker Jones $20,000,000
======================================================
</TABLE>
2.2 Borrowing of Loans.
------------------
(a) Generally. Revolving Loans may be made available to the
---------
Borrower requesting (or deemed to have requested) the Revolving Loans by the
Revolving Credit Lenders pursuant to Section 2.2(c) ("Lender Advances") and by
-------------- ---------------
the Agent acting on behalf of the Revolving Credit Lenders pursuant to Section
-------
2.2(b) ("Agent Advances"). Term Loans may be made available to the Term Loan
- ------ --------------
Borrowers by the Term Loan Lenders pursuant to Section 2.2(d). 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 Effective
Date, in the case of a Borrowing on the Effective 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 Effective
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 Effective 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 Effective 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
35
<PAGE>
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
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 Term Loans and new
Revolving Loans made on the Effective 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. All Revolving Loans outstanding
-----------
on the Effective Date and not repaid under the Existing Credit Agreement shall
remain outstanding hereunder as the same Type of Loan, but shall bear interest
at the rates provided herein from the Effective Date.
(b) Agent Advances of Revolving Loans. After the Effective Date,
---------------------------------
the Agent is authorized by the Revolving Credit 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 Revolving Credit 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 Revolving Credit 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 Revolving Credit 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 Revolving 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
36
<PAGE>
shall give each Revolving Credit Lender prompt notice by telephone or facsimile
transmission of a Notice of Borrowing that requests Lender Advances of Revolving
Loans. Subject to the reasonable determination by the Agent and the Revolving
Credit Lenders that the applicable conditions for borrowing contained in Article
-------
5 are satisfied, each Revolving Credit Lender shall make available to the Agent
- -
at the Agent's address specified in Annex I its Revolving Credit 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 Revolving Credit Lender will make
available its Revolving Credit Proportionate Share of the Borrowing and in
reliance upon that assumption, but without any obligation to do so, may advance
such Revolving Credit Proportionate Share on behalf of the Revolving Credit
Lender.
(d) Borrowings of Term Loans. Upon the Agent's receipt of a Notice
------------------------
of Borrowing with respect to the Term Loans to be made on the Effective Date,
the Agent shall give each Term Loan Lender prompt notice by telephone or
facsimile transmission of such Notice of Borrowing. Subject to the reasonable
determination by the Agent and the Term Loan Lenders that the applicable
conditions for borrowing contained in Article 5 are satisfied, each Term Loan
---------
Lender shall make available to the Agent at the Agent's address specified in
Annex I its Term Loan Proportionate Share of such Borrowing in immediately
- -------
available funds no later than 2:00 P.M. New York City time on the Effective
Date. Unless the Agent receives contrary written notice prior to the Effective
Date, it is entitled to assume that each Term Loan Lender will make available
its Term Loan Proportionate Share of the Borrowing and in reliance upon that
assumption, but without any obligation to do so, may advance such Term Loan
Proportionate Share on behalf of the Term Loan Lender.
2.3 Disbursement of Loans.
---------------------
(a) Revolving Loans. The proceeds of Revolving Loans shall be
---------------
transmitted by the Agent (i) 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, (ii) in the circumstances
- ----------
described in Section 3.5, directly to the applicable Issuing Bank, (iii) in the
-----------
circumstances described in Section 4.11(c), directly to the applicable Holder
---------------
and (iv) in all other circumstances, as requested by the Borrower in its Notice
of Borrowing.
(b) Term Loans. The proceeds of the Term Loans shall be
----------
transmitted by the Agent as requested by the Term Loan Borrowers in the Notices
of Borrowing.
2.4 Notices of Borrowing.
--------------------
(a) Generally. Notices of Borrowing may be given by telephone
---------
or facsimile transmission or in writing, and, if by telephone, confirmed by a
written Notice of
37
<PAGE>
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. Once given, a
Notice of Borrowing that requests a Term Loan or a Lender Advance is irrevocable
by and binding on the Credit Parties.
(b) Revolving Loans. Each Notice of Borrowing with respect to
---------------
Revolving Loans 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 Revolving Loans and Letter of Credit Obligations of all
Borrowers as of the date of such Notice of Borrowing, (iv) the aggregate
principal amount of Revolving 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.
(c) Term Loans. Each Notice of Borrowing with respect to Term
----------
Loans shall specify (i) the proposed Borrowing date (which shall be a Business
Day), (ii) the amount of the proposed Borrowing, (iii) instructions for the
disbursement of the proceeds of the proposed Borrowing and (iv) whether the
conditions for the requested Borrowing are satisfied.
2.5 Authorized Officers and Agents. On the Effective 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 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 any such Loan, Letter of Credit, conversion or continuation
until the Agent receives written notice to the contrary. None of the Agent, any
Lender 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, Notice of Continuation, or any other document, and, with respect
to an oral request for such a Loan, Letter of Credit, conversion or
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, any Lender 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.
38
<PAGE>
2.6 Periodic Settlement of Agent Advances and Repayments.
----------------------------------------------------
(a) The Settlement Date. The amount of each Revolving Credit
-------------------
Lender's Revolving Credit Proportionate Share of Revolving Loans shall be
computed weekly (or more frequently in the Agent's discretion) and shall be
adjusted upward or downward based on all Revolving 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 Revolving Credit Lenders promptly after the
Settlement Date a summary statement of the amount of outstanding Revolving 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 Revolving Credit Lender shall transfer to the Agent, or the Agent shall
transfer to each Revolving Credit Lender, such amounts as are necessary to
insure that, after giving effect to all such transfers (including each Revolving
Credit Lender's Revolving Credit Proportionate Share of repayments received by
the Agent during the period covered by the summary statement), the amount of
Revolving Loans made by each Revolving Credit Lender shall be equal to such
Revolving Credit Lender's Revolving Credit Proportionate Share of the aggregate
amount of Revolving Loans outstanding as of such Settlement Date. If the
summary statement requires transfers to be made to the Agent by the Revolving
Credit 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 Revolving Credit Lender to transfer
such funds is irrevocable, unconditional and without recourse to or warranty by
the Agent.
(c) Distribution of Interest and Unused Line Fees. Interest on
---------------------------------------------
the Revolving Loans (including Agent Advances) together with the amount of the
Unused Line Fee, shall be allocated by the Agent to each Revolving Credit Lender
in accordance with the Revolving Credit Proportionate Share of Revolving Loans
actually advanced by and repaid to each Revolving Credit Lender, and shall
accrue from the date such Revolving Loans are so advanced and to the date such
Revolving 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 Revolving Credit Lender its Revolving Credit 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. Subject to Sections 2.8 and 4.11(b), if any
------------------- ------------ -------
Lender obtains any payment in excess of its Term Loan Proportionate Share or
Revolving Credit Proportionate Share, as applicable, of payments on account of
the Loans or Letter of Credit Obligations owing to such Lender, or interest
thereon, it will immediately purchase, without
39
<PAGE>
warranty or recourse, from the other Term Loan Lenders or Revolving Credit
Lenders, as applicable, an undivided interest and participation (which it shall
be deemed to have done simultaneously upon the receipt of such payment) in their
respective Term Loans or Revolving Loans and Letter of Credit participations, as
applicable, sufficient to cause that Lender to share the excess payment ratably
with all the other Term Loan Lenders or Revolving Credit Lenders, as applicable;
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 Term Loan
Proportionate Share or Revolving Credit Proportionate Share, as applicable, 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
(in either case, in accordance with the terms of this Agreement), 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 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 Term Loan
Proportionate Share or Revolving Credit Proportionate Share, as applicable, of
any Loan (including Agent Advances) shall not relieve any other Lender of its
obligation to fund its Term Loan Proportionate Share or Revolving Credit
Proportionate Share, as applicable, of such Loan. Conversely, no Lender shall be
responsible for the failure of another Lender to fund its Term Loan
Proportionate Share or Revolving Credit Proportionate Share, as applicable, 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
40
<PAGE>
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 Term Loan Proportionate Shares and Revolving Credit
Proportionate Shares, as applicable, such Defaulting Lender shall be deemed not
to be a "Lender" and, for such purposes solely, such Lender's Revolving Credit
Commitment and Term Loan Outstandings, as applicable, shall be deemed to be zero
(-0-). This Section 2.8 shall remain effective with respect to such Lender
-----------
until the earlier of (w) such Lender shall have cured such default, (x) the
Obligations under this Credit Agreement shall have been declared or shall have
become immediately due and payable, (y) in the case of the Revolving Credit
Lenders, the Revolving Credit Commitments shall have been terminated or (z) the
Majority Revolving Credit Lenders (in the case of a default by a Revolving
Credit Lender) or the Majority Term Loan Lenders (in the case of a default by a
Term Loan Lender), the Agent and the applicable 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 Letters of
Credit outstanding under (and as defined in) the Existing Credit Agreement on
the Effective Date shall automatically, without further action, be deemed to be
Letters of Credit outstanding under this Credit Agreement. 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 Revolving Loans plus the Letter of Credit Obligations
----
then outstanding to exceed the lesser of (x) the total Revolving Credit
-------------
Commitments then in effect and (y) the aggregate of the Borrowing Bases then in
effect or (iii) would cause the sum of the Revolving 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
Effective Date.
41
<PAGE>
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 Revolving Credit 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 O, 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 Revolving Credit 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 Revolving 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 Revolving 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.
3.4 Revolving Credit Lenders' Participation. Immediately upon
---------------------------------------
issuance or amendment of any Letter of Credit, each Revolving Credit 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
Revolving Credit Lender's Revolving Credit 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 Revolving Loans constituting 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
-----------
Revolving Loans shall be applied directly by the Agent to reimburse the Issuing
Bank for the amount of such drawing.
42
<PAGE>
3.6 Payment by Revolving Credit Lenders. If Revolving 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 Revolving Credit Lender
of the unreimbursed amount of such drawing and of such Revolving Credit Lender's
respective participation therein. Each Revolving Credit 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 Revolving Credit Lender fails to
make available to the Agent the amount of such Revolving Credit Lender's
participation, the Issuing Bank shall be entitled to recover such amount on
demand from such Revolving Credit 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
Revolving Credit Lender which has funded the amount of its participation its
Revolving Credit 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 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. As
among such Persons, the Borrowers also assume all risk of 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 Revolving Credit 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 Revolving Credit
Lenders such
43
<PAGE>
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 Revolving
Credit 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 Revolving
Credit Lender; or
(ii) there shall be imposed on the Issuing Bank or any Revolving
Credit 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 Revolving Credit 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 Revolving Credit Lender, then, and in any such case, the
Issuing Bank or such Revolving Credit 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 Revolving Credit Lender or Issuing Bank
shall not be limited to such 180-day period so long as such Revolving Credit
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 Revolving
Credit Lender or Issuing Bank), and the Borrowers shall pay on demand such
amounts as the Issuing Bank or such Revolving Credit Lender may specify to be
necessary to compensate the Issuing Bank or such Revolving Credit 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 Revolving Credit 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.
44
<PAGE>
ARTICLE 4
COMPENSATION, REPAYMENT AND REDUCTION
-------------------------------------
OF COMMITMENTS AND LOANS
------------------------
4.1 Interest on Prime Rate Loans.
----------------------------
(a) Revolving Loans. Subject to Sections 4.6 and 4.14(b), each
--------------- ------------ -------
Borrower shall pay to the Agent for the account of the Revolving Credit Lenders
in accordance with their respective Revolving Credit Proportionate Shares, on
the first Business Day of each month and on the Revolving Credit Expiration
Date, interest on Revolving Loans (or portions thereof) constituting 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 the
--------- ----
Applicable Prime Rate Margin on the average net balances owing to the Agent and
the Revolving Credit Lenders at the close of business each day during such
month. The rate hereunder shall change each day the Prime Lending Rate or the
Applicable Prime Rate Margin changes.
(b) Term Loans. Subject to Sections 4.6 and 4.14(b), each Term
---------- ------------ -------
Loan Borrower shall pay to the Agent for the account of the Term Loan Lenders in
accordance with their respective Term Loan Proportionate Shares, on the first
Business Day of each month and on the Term Loan Maturity Date, interest on Term
Loans (or portions thereof) constituting Prime Rate Loans made to or for the
account of the Term Loan Borrower, calculated monthly in arrears at an interest
rate per annum equal to the Prime Lending Rate plus 1.00% per annum on the
--------- ---- --- -----
average net balances owing to the Agent and the Term Loan 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.
---------------------------------
(a) Generally. 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 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. 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 applicable 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.
(b) Revolving Loans. Revolving Loans (or portions thereof)
---------------
constituting Eurodollar Rate Loans shall accrue interest at a rate per annum
---------
equal during the
45
<PAGE>
Interest Period for such Eurodollar Rate Loans to the Adjusted Eurodollar Rate
for the Interest Period in effect for such Eurodollar Rate Loans plus the
----
Applicable Eurodollar Rate Margin. The interest rate for Revolving Loans
hereunder shall change each day the Applicable Eurodollar Rate Margin changes.
(c) Term Loans. Term Loans (or portions thereof) constituting
----------
Eurodollar Rate Loans shall accrue interest at a 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 the 2.50%
----
per annum.
- ---------
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
Agent, the Issuing Bank and the Lenders, ratably, based on the amount of all
other Obligations owing to such Persons, on the first Business Day of each
month, interest on all other Obligations owing to such Persons, calculated
monthly in arrears at an interest rate per annum equal to the Prime Lending Rate
---------
on the average net balances owing to the Agent, the Issuing Bank 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 Revolving Credit Lenders in accordance
with their respective Revolving Credit Proportionate Shares, a fee (the "Unused
------
Line Fee"), accruing at the rate of 0.25% per annum on the average daily amount
- -------- ---------
by which the Revolving Credit Commitments at the close of business on such day
exceeds the sum of (a) the outstanding principal amount of the Revolving Loans,
plus (b) the outstanding Letter of Credit Obligations, for the period commencing
- ----
on the Effective Date and ending on the Revolving Credit Expiration Date, such
Unused Line Fee being payable (i) monthly, in arrears, commencing on the first
day of the calendar month immediately following the Effective Date and (ii) on
the Revolving Credit 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 Revolving Credit Lenders
in accordance with their respective Revolving Credit Proportionate Shares, on
the first day of each month a fee (the "Letter of Credit Fee"), calculated at a
--------------------
rate per annum equal to the Applicable Eurodollar Rate Margin 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. The rate hereunder shall change each day the
Applicable Eurodollar Rate Margin changes. 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 a rate equal to 4.00% per annum.
---------
46
<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.
-------------------------------
(a) Revolving Loans. From the date of occurrence of an Event of
---------------
Default until the earlier of (i) the date all Revolving Loans owing to the
Revolving Credit Lenders have been Paid In Full and (ii) the date as of which
such Event of Default is waived or cured, each Borrower shall be obligated to
pay to the Revolving Credit Lenders interest on all outstanding Revolving Loans
(other than Revolving Loans constituting Eurodollar Rate Loans) calculated at a
rate per annum equal to the Prime Lending Rate plus 2.50%, payable upon demand.
--------- ----
In the case of Revolving Loans constituting 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 Revolving Credit Lenders interest on
all such 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 4.00%, payable at the end of such Interest
----
Period. 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 2.50%. Nothing in this Section 4.6(a) prohibits the right of the Revolving
- ---- --------------
Credit Lenders to waive any such increase in the interest rate applicable to
Revolving Loans.
(b) Term Loans. From the date of occurrence of an Event of
----------
Default until the earlier of (i) the date all Term Loan Outstandings have been
Paid In Full and (ii) the date as of which such Event of Default is waived or
cured, each Term Loan Borrower shall be obligated to pay to the Term Loan
Lenders interest on all Term Loan Outstandings (other than Term Loans
constituting Eurodollar Rate Loans) calculated at a rate per annum equal to the
---------
Prime Lending Rate plus 3.00%, payable upon demand. In the case of Term Loans
----
constituting Eurodollar Rate Loans, at the time any such increase in the
interest rate is effective under this Section 4.6, each Term Loan Borrower shall
-----------
be obligated to pay to the Term Loan Lenders interest on all such 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 4.50%, payable at the end of such Interest Period.
----
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
---------
47
<PAGE>
equal to the Prime Lending Rate plus 3.00%. Nothing in this Section 4.6(b)
---- --------------
prohibits the right of the Term Loan Lenders to waive any such increase in the
interest rate applicable to Term Loans.
(c) Other Obligations. From the date of occurrence of an Event
-----------------
of Default until the earlier of (i) the date all Obligations have been Paid in
Full and (ii) the date as of which such Event of Default is waived or cured,
each Borrower shall be obligated to pay to the Agent, for the ratable benefit of
the Agent, the Issuing Bank and the Lenders, interest on all outstanding
Obligations (other than the principal amount of Loans) calculated at a rate per
---
annum equal to the Prime Lending Rate plus 2.00%, payable upon demand. Nothing
- ----- ----
in this Section 4.6(c) prohibits the right of the Agent, the Issuing Bank or the
--------------
Lenders, as applicable, to waive any such increase in the interest rate
applicable to the Obligations owing to such Person(s).
4.7 Expenses. The Borrowers jointly and severally agree to reimburse
--------
the Agent's Expenses promptly upon demand.
4.8 Mandatory Payment of Revolving Loans; Reduction of Revolving
------------------------------------------------------------
Credit Commitments.
- ------------------
(a) Mandatory Payment of Revolving Loans. Except during the
------------------------------------
Agent Advance Period, each Borrower shall, without notice or demand of any kind,
immediately make such repayments of the Revolving Loans to the extent necessary
to reduce (i) the aggregate outstanding principal amount of all Revolving Loans
(together with, in the case of Revolving Loans constituting Eurodollar Rate
Loans, any payment required to be made pursuant to Section 4.14(d) as a result
---------------
of such payment) to an amount less than or equal to the lesser of (A) the total
-------------
Revolving Credit 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 Revolving
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 Obligations with respect to Letters of Credit issued for the account
of that Borrower.
(b) Reduction of Revolving Credit Commitments. On the Revolving
-----------------------------------------
Credit Expiration Date, the Commitment of each Revolving Credit 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 Revolving Credit Lender), the Borrowers may permanently reduce
in part or terminate in whole the Revolving Credit 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 Revolving Loans, plus the Letter of Credit Obligations to an
----
amount less than or equal to the Revolving Credit Commitments as reduced or
terminated (together with, in the case of Revolving Loans constituting
Eurodollar Rate Loans, any payment required to be made pursuant to Section
-------
4.14(d) as a result of such payment). Any
- -------
48
<PAGE>
partial reduction must be in an aggregate amount for all the Revolving Credit
Lenders of not less than $1,000,000 (and in increments of $500,000 in excess of
such amount), and shall reduce the Revolving Credit Commitment of each Revolving
Credit Lender proportionately in accordance with its Revolving Credit
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 Revolving Credit Commitments may be reinstated.
(c) Mandatory Reductions relating to Asset Sales. Upon
--------------------------------------------
consummation of any Asset Sale, the Credit Parties shall commit in writing
within 270 days after the consummation of such Asset Sale to reinvest the Net
Cash Proceeds resulting therefrom and/or reduce the Revolving Credit Commitments
and shall so reinvest such Net Cash Proceeds or reduce the Commitments within
365 days after the consummation of such Asset Sale, 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 clause (i) above prior to the date
----------
which is 365 days after the consummation of such Asset Sale, the Revolving
Credit Commitments shall be automatically reduced as of the 365th day after such
consummation 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 Amortization and Prepayment of Term Loans.
-----------------------------------------
(a) Amortization of Term Loans. The Term Loans shall be
--------------------------
repayable by the Term Loan Borrowers in seven (7) consecutive annual
installments beginning on the first anniversary of the Effective Date and
continuing thereafter on each anniversary thereof through the Term Loan Maturity
Date. Each of the first six (6) installments shall be in the aggregate amount of
$1,000,000, apportioned among the Term Loan Borrowers as follows: (i) RSC
Alabama, $200,000; (ii) RSC Center, $200,000; (iii) RSC Duval, $200,000; (iv)
RSC Industrial, $200,000; and (v) Walker Jones, $200,000. The final installment
shall be in the aggregate amount of the Term Loan Outstandings of each Term Loan
Borrower as of the Term Loan Maturity Date.
(b) Voluntary Prepayment of Term Loans.
----------------------------------
(i) Upon not less than three (3) Business Days' prior
written notice to the Agent (which the Agent shall promptly transmit to each
Term Loan Lender) and so long as no Event of Default has occurred and is then
continuing, the Term Loan Borrowers may prepay all or any portion of the Term
Loan Outstandings, provided that, in the case of Term Loans constituting
--------
Eurodollar Rate Loans, any payment required to be made pursuant to Section
-------
4.14(d) as a result of such prepayments shall have been or concurrently
- -------
therewith be made. Unless the aggregate Term Loan Outstandings are to be
prepaid in full, voluntary prepayments of the Term Loans shall be in an
aggregate minimum amount of $1,000,000 and in increments of $500,000 in excess
of such amount. Each voluntary
49
<PAGE>
prepayment shall be applied to the unpaid installments of the Term Loans in the
inverse order of maturity and shall permanently reduce the Term Loan
Outstandings of each Term Loan Lender ratably in accordance with its Term Loan
Proportionate Share. Any notice of prepayment given to the Agent under this
Section 4.9(b) shall specify the date (which shall be a Business Day) of
- --------------
prepayment, the aggregate principal amount of the prepayment and any allocation
of such amount among Prime Rate Loans and Eurodollar Rate Loans. When notice of
prepayment is delivered as provided herein, the principal amount of the Term
Loans specified in the notice shall become due and payable on the prepayment
date specified in such notice.
(ii) The prepayments of the Term Loans described in clause
------
(i) above may be made without premium or penalty (except as provided in Section
- --- -------
4.14(d)); provided, however, that if the Term Loan Borrowers prepay all or any
- ------- -------- -------
portion of the Term Loans pursuant to clause (i) on or prior to the second
----------
anniversary of the Effective Date, the Term Loan Borrowers shall pay a
prepayment penalty to the Agent, for the benefit of the Term Loan Lenders based
upon their respective Term Loan Proportionate Shares, on the date of such
prepayment in an amount equal to (i) two percent (2.00%) of the principal amount
so prepaid, if such prepayment is made on or prior to the first anniversary of
the Effective Date or (ii) one percent (1.00%) of the principal amount so
prepaid, if such prepayment is made after such first anniversary and on or prior
to the second anniversary of the Effective Date.
(c) Mandatory Prepayments relating to Asset Sales. If the
---------------------------------------------
Revolving Credit Commitments have been terminated and all Obligations payable to
the Revolving Credit Lenders have been Paid In Full, to the extent and on the
date the Borrowers would otherwise be required to effect a reduction in the
Revolving Credit Commitments as a result of an Asset Sale pursuant to Section
-------
4.8(c) if the Revolving Credit Commitments were still in effect, the Term Loan
- ------
Borrowers shall make a mandatory prepayment of the Term Loans which mandatory
prepayment shall be applied to the unpaid installments of the Term Loans in the
inverse order of maturity and shall permanently reduce the Term Loan
Outstandings of each Term Loan Lender ratably in accordance with its Term Loan
Proportionate Share.
(d) No Readvance of Term Loans. Any repayment or prepayment of
--------------------------
all or any portion of the principal amount of the Term Loans shall constitute a
permanent reduction in the Term Loan Outstandings and may not be readvanced to
any Term Loan Borrower.
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
50
<PAGE>
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
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 Sections 2.8,
------------
4.11(b)(ii) and 4.11(b)(iii), 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 Term Loan Proportionate Shares or Revolving Credit Proportionate
Shares, as applicable, or as otherwise provided herein.
(ii) Except as provided in Section 4.11(b)(iii) 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, (A) if such payment or amount is in respect of principal or
-----
interest on the Revolving Loans, to pay principal of and interest on any portion
of the Revolving Loans to the Borrower which the Agent may have advanced on
behalf of any Revolving Credit Lender (including Agent Advances) for which the
Agent has not then been reimbursed by such Revolving Credit Lender or the
Borrower or (B) if such payment or amount is in respect of principal or interest
on the Term Loans, to pay principal of and interest on any portion of the Term
Loans to the Term Loan Borrower which the Agent may have advanced on behalf of
any Term Loan Lender for which the Agent has not then been reimbursed by such
Term Loan Lender or the Term Loan Borrower, second, to pay the principal of the
------
Loans (or any installment thereof) 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 such Loans,
third, to pay all other
- -----
51
<PAGE>
ratably, and fourth, as Obligations then due and payable by the Borrower, 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, upon the
-----------
termination of the Revolving Credit Commitments or the acceleration of the
Obligations pursuant to Section 9.2 and until such time, if any, as such
-----------
termination or acceleration has been rescinded pursuant to Section 9.3, all
-----------
payments and all 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 (in its capacity as such) 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 (in its capacity as
such) under any of the Credit Documents; third, to the payment of any Fees,
-----
Expenses or indemnification Obligations due and payable to the Lenders under any
of the Credit Documents, ratably, based on the outstanding balances of such
Fees, Expenses and indemnification Obligations; fourth, to the payment of
------
interest due on the Loans, ratably, in accordance with the Lenders' respective
Overall Proportionate Shares; fifth, to the payment of principal due on the
-----
Revolving Loans, ratably, in accordance with the Revolving Credit Lenders'
respective Revolving Credit Proportionate Shares; sixth, to the payment of
-----
principal due on the Term Loans, ratably, in accordance with the Term Loan
Lenders' respective Term Loan Proportionate Shares; seventh, to the payment of
-------
all other Obligations due and payable to the Lenders, ratably, based on the
outstanding balances of such Obligations; and eighth, to the payment of all
------
other Obligations owing to any Holder, ratably, based on the outstanding
balances of such Obligations.
(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 Requisite 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 Section 4.11(b)(iii) and this Section 4.11(c), may
-------------------- ---------------
pay from the proceeds of Revolving 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 to the Revolving Credit Lenders hereunder and under
the other Credit Documents if and to the extent such
52
<PAGE>
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
Revolving Credit Lenders to make Revolving 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 Revolving Loans on behalf of a Borrower as described in the immediately
preceding sentence by notifying the Revolving Credit 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 Revolving Loan, the Revolving Credit Lenders shall make the requested
Revolving 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
--------------
Revolving Credit Lenders with respect to such payments shall be discharged by
the Agent's receipt of the proceeds of such Revolving 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 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. Each Borrower shall maintain at all
----------------------
times 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 P-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 date on which any Borrower opens for
-------- -------
business (whether through an Acquisition or otherwise) a new rental yard in an
area not previously served by a rental yard of a Borrower until the earlier of
(i) the 120th day thereafter and (ii) the date a Lockbox for such new rental
yard is established, that Borrower may maintain accounts into which such
Borrower deposits Collections and proceeds of Collateral for the new rental yard
(individually, a "Restricted Account" and collectively, the "Restricted
------------------ ----------
Accounts") with the financial institutions selected by such Borrower and
- --------
acceptable to the Agent (the "Restricted
----------
53
<PAGE>
Account Banks" of such Borrower), and, within 15 Business Days after the
- -------------
opening of any such Restricted Account, such Borrower, the Agent and such
financial institutions shall enter into agreements with respect to the
respective Restricted Accounts substantially in the form of Exhibit P-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 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, with respect to rental yards for which a Lockbox has
not yet been established, into such Borrower's Restricted Accounts for those
rental yards) 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 here under
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
54
<PAGE>
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, (iii) whether the Loans
to be continued as Eurodollar Rate Loans constitute Revolving Loans or Term
Loans and (iv) 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 (x) Borrowings
--------------- --------
of Term Loans may not be combined with Borrowings of Revolving Loans and (y) 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 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
Revolving Credit Lender and Term Loan Lender, as the case may be, prompt notice
by telephone or facsimile transmission of each Notice of Continuation submitted
with respect to Revolving Loans and Term Loans, respectively. 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 any Borrowing
- ---------------
consisting of Prime Rate Loans made to or for the account of the Borrower into a
Borrowing consisting of 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. The applicable Borrower may elect to convert more than one Borrowing
consisting of Prime Rate Loans into Eurodollar Rate Loans by combining such
Borrowings into one Borrowing and selecting an Interest Period pursuant to this
Section 4.14(b), provided that Borrowings of Term Loans may not be combined with
- --------------- --------
Borrowings of Revolving Loans. 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, (iii) whether the Loans to be
converted into Eurodollar Rate Loans constitute Revolving Loans or Term Loans
and (iv) 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
55
<PAGE>
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.
(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:
(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 Revolving Credit Lenders (in the case
of a requested Borrowing, continuation or conversion of Revolving Loans) or
the Majority Term Loan Lenders (in the case of a requested Borrowing,
continuation or conversion of Term Loans) shall, at least one Business Day
before the date of such requested Borrowing, continuation or conversion,
notify the Agent (whereupon the Agent will notify the applicable Borrowers)
that the Eurodollar Rate for Revolving Loans or Term Loans, as applicable,
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 such Borrowers to select Eurodollar Rate Loans for such Borrowing
shall be suspended until the Agent shall notify such Borrowers and the
Revolving Credit Lenders or the Term Loan Lenders, as applicable, 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 such Borrowers to select Eurodollar Rate Loans
-------
for such Borrowing will continue if such 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
56
<PAGE>
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) There shall not be outstanding at any one time more
than six Borrowings of Eurodollar Rate Loans for any Borrower or more than
30 Borrowings of Eurodollar Rate Loans for all Borrowers.
(v) No Agent Advance shall be made as a Eurodollar Rate
Loan.
(vi) Subject to the limits set forth in this Section 4.14,
------------
each Borrower 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 made as,
or converted into, Eurodollar Rate Loans requested by the other Borrowers
for such Business Day).
(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
57
<PAGE>
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 date hereof,
---------------------------------
either (i) any change in or in the interpretation, 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 Lender's 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 its Loans 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 not later than 180 days from the date such adoption, change or
compliance became applicable to such Person).
58
<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, the Loans 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 in lieu of such other
income 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 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)
59
<PAGE>
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 Effective 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
Bor rowers and the Agent, from time to time, a true and accurate 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;
60
<PAGE>
(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 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
61
<PAGE>
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 Revolving Credit Lenders if such Lender is a Revolving Credit
Lender or to the Majority Term Loan Lenders if such Lender is a Term Loan
Lender), so long as (i) no Default or Event of Default shall have occurred and
be continuing, (ii) the applicable Borrowers have obtained a commitment from
another Lender or an Eligible Assignee to purchase at par such Lender's Loans,
Revolving Credit 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 applicable Borrowers, upon 30 days'
prior written notice to such Lender and the Agent, such Borrowers may require,
at such Borrowers' expense and subject to Section 4.14(d), the Lender giving
---------------
such notice to assign, without recourse, all of its Loans, Revolving Credit
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
62
<PAGE>
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 applicable 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
repayment of such replaced Lender's Loans and the termination of such replaced
Lender's Revolving Credit Commitment) through such date of replacement, (y) the
applicable 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 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 and other supporting
documents, shall have been fulfilled.
ARTICLE 5
CONDITIONS PRECEDENT
--------------------
5.1 Conditions to Effectiveness. This Credit Agreement shall become
---------------------------
effective on the date (the "Effective Date") on or before December 15, 1997 on
--------------
which all of the following conditions precedent shall have been satisfied or
waived:
(a) Documents. The Agent shall have received on or before the
---------
Effective Date all of the following, each in form and substance reasonably
satisfactory to the Agent (and the Agent shall not have received notice from any
Lender party hereto on the Effective Date that the same are not satisfactory to
such Lender):
(i) this Credit Agreement, the Notes, the Rent-it-Center
Acquisition Agreements and all other agreements, documents, instruments,
certificates and opinions (other than those designated on Schedule A as
----------
items to be delivered after the Effective Date) 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, on behalf of all of the Credit Parties, hereby directs their
respective 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 a Financial Officer of each Credit Party,
dated the Effective Date and giving effect to the Approved Acquisitions and
the financing transactions contemplated under this Credit Agreement;
63
<PAGE>
(iii) a Notice of Borrowing executed by each Term Loan
Borrower, dated the Effective Date, with respect to the Term Loans to be
advanced to such Borrower and a Notice of Borrowing executed by each
Borrower which desires to borrow Revolving Loans on the Effective Date,
dated the Effective Date, with respect to such Revolving Loans;
(iv) a certificate of the chief executive officer or a
Financial Officer of each Credit Party executed and delivered on behalf of
such Credit Party certifying that all conditions precedent set forth in
this Sections 5.1 and 5.2 have been satisfied and that, after giving effect
------------ ---
to the Rent-it-Center Acquisition and the financing transactions
contemplated under this Credit Agreement, all representations and
warranties in the this Credit Agreement and the other Credit Documents are
true and correct, no Default or Event of Default has occurred and is
continuing and no change, occurrence, event or development, or event
involving a prospective change that is reasonably likely to have a Material
Adverse Effect has occurred and is continuing;
(v) appraisals of all Rental Equipment acquired in the
Rent-it-Center Acquisition, containing the information required by Section
-------
7.2(b);
------
(vi) a Borrowing Base Certificate for each Borrower, dated
as of the Effective Date and giving effect to the Rent-it-Center
Acquisition and the financing transactions contemplated under this Credit
Agreement, adequately supporting the Loans requested to be made or
outstanding, and the Letters of Credit requested to be issued or
outstanding, on the Effective 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; 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
Effective Date shall constitute evidence that the documents delivered pursuant
to this Section 5.1(a) are satisfactory to such Lender.
--------------
(b) The Rent-it-Center Acquisition.
------------------------------
(i) The Agent shall be satisfied in all material respects
with the terms, conditions, form and substance of the Rent-it-Center
Acquisition and the Rent-it-Center Acquisition Documents, including,
without limitation, the equity and corporate structure of the Credit
Parties after giving effect thereto and the resolutions with respect to the
Rent-it-Center Acquisition adopted by the respective boards of directors
(or equivalent) and, if applicable, the shareholders (or equivalent) of
RSC, RSC Acquisition, RSC Center and the other parties to the respective
Rent-it-Center Acquisition Agreements.
64
<PAGE>
(ii) Substantially simultaneously with the funding of the
Term Loans, RSC Center shall have acquired all of the capital stock of
Rent-it-Center and substantially all of the assets of each of its
Affiliates operating under the "Center Rental & Sales, Inc." name pursuant
to the Rent-it-Center Acquisition Documents, in each case in compliance in
all material respects with all applicable Requirements of Law, and the
Agent shall have received such evidence as it may reasonably request (A) of
the consummation of the Rent-it-Center Acquisition for a purchase price
consisting of approximately 482,315 shares of RSC common stock and not more
than $100,881,000 in cash (excluding cash issued in lieu of fractional
shares of RSC common stock), (B) that the parties to the Rent-it-Center
Acquisition Agreements have complied in all material respects with all
applicable Requirements of Law in connection with the Rent-it-Center
Acquisition, (C) that all conditions precedent to, and all consents
necessary to permit, the Rent-it-Center Acquisition pursuant to the Rent-
it-Center Acquisition Documents shall have been satisfied or delivered, or
waived with the prior written consent of the Agent to the extent the waiver
of such conditions precedent or the absence of such consents could
reasonably be expected to affect adversely the rights of the Agent, the
Issuing Bank or any Lender, (D) that all representations and warranties in
the Rent-it-Center Acquisition Documents are true and correct in all
material respects and (E) that the Rent-it-Center Acquisition Agreements
have not been amended or modified without the prior written consent of the
Agent, to the extent such amendment or modification could reasonably be
expected to affect adversely the rights of the Agent, the Issuing Bank or
any Lender, and are in full force and effect.
(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) and (v) below to the extent
------------- ---- ---
the same relate to the assets of Rent-it-Center or assets otherwise acquired in
the Rent-it-Center Acquisition) in such a manner so that the 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 or its designee 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 or its designee of all other instruments (duly endorsed
where appropriate) evidencing the Collateral; (ii) delivery to the Agent of
Uniform Commercial Code Lien searches in the jurisdictions set forth in the
Closing Document List (other than those searches designated on the Closing
Document List as searches to be delivered after the Effective Date) which shall
disclose no Liens on any Collateral other than Permitted Liens and Liens with
respect to which fully executed release agreements, Uniform Commercial Code
termination statements or, with respect to assets acquired in the Rent-it-Center
Acquisition, payoff letters, in each case in form and substance satisfactory to
the Agent, shall have been delivered to the Agent; (iii) delivery to the Agent
of Uniform Commercial Code financing statements as to the Collateral for all
jurisdictions designated by the Agent as necessary or desirable to perfect the
Liens granted to
65
<PAGE>
the Agent, for the benefit of the Holders, in the Collateral; (iv) 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 (v)
delivery to the Agent of such other documents and instruments that the Agent
notifies the Credit Parties are 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) Evidence of Insurance. Schedule C shall set forth as of the
--------------------- ----------
Effective 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 and (vi) the annual premium with respect thereto. 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 reasonably 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.
-----------
(e) 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 Rent-it-Center Acquisition
or the transactions evidenced by the Credit 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.
(f) Financial Statements. Complete and accurate copies of the
--------------------
Pro Forma and the Projections shall have been delivered to the Agent. After
review of the foregoing, the Agent shall be satisfied, in its sole discretion,
that (i) 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 Letters
and (ii) the Credit Parties will be able to comply with the Financial Covenants.
(g) No Change in Financial Markets. Since the date of the
------------------------------
Commitment Letters, 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.
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<PAGE>
(h) 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 Effective Date shall have been paid.
5.2 Conditions Precedent to All Loans and Letters of Credit. The
-------------------------------------------------------
obligation of each Term Loan Lender to fund its Term Loan Proportionate Share of
Term Loans on the Effective Date, and the obligation of each Revolving Credit
Lender to fund its Revolving Credit Proportionate Share of any requested Loan or
of the Agent to cause the Issuing Bank to issue any requested Letter of Credit
on or after the Effective Date is subject to the conditions precedent set forth
below. Each Notice of Borrowing and each Letter of Credit Request, and each
issuance by a 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) Representations and Warranties. 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. 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;
(c) No Material Adverse Effect. 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; and
(d) Required Acquisition Document Deliveries. To the extent
----------------------------------------
all or any portion of the proceeds of any Loan shall be used to finance, in
whole or in part, or any Letter of Credit is to be issued in connection with (i)
the Siems Acquisition, the Siems Acquisition Effective Date shall have occurred,
or (ii) any other Acquisition, the Agent shall have received on or before the
date such Acquisition is consummated, all documents which, pursuant to Section
-------
8.5(g), are required to be delivered on or before such date, in each case in
- ------
form and substance reasonably satisfactory to the Agent (and, to the extent that
the consent of the Majority Lenders is required for the applicable Credit
Parties to consummate such Acquisition, such consent has been obtained and the
Agent shall have received evidence that all other conditions precedent set forth
in such consent have been satisfied).
5.3 Conditions to Effectiveness of Consent to Siems Acquisition. The
-----------------------------------------------------------
Lenders hereby consent to the Siems Acquisition effective as of the date (the
"Siems
-----
67
<PAGE>
Acquisition Effective Date") on or before December 31, 1997 on which all of the
- --------------------------
following conditions precedent shall have been satisfied or waived:
(a) Documents. The Agent shall have received on or before the
---------
Siems Acquisition Effective Date all agreements, documents, instruments,
certificates and opinions relating to the Siems Acquisition and described as
such in the Closing Document List (other than those designated thereon as items
to be delivered after the Siems Acquisition Effective Date), each duly executed
where appropriate and in form and substance reasonably satisfactory to the Agent
(and the Agent shall not have received notice from any Lender party hereto on
the Siems Acquisition Effective Date that the Siems Acquisition Agreement is not
satisfactory to such Lender).
(b) The Siems Acquisition.
---------------------
(i) The Agent shall be satisfied in all material respects
with the terms, conditions, form and substance of the Siems Acquisition and
the Siems Acquisition Documents, including, without limitation, the equity
and corporate structure of the Credit Parties after giving effect thereto
and the resolutions with respect to the Siems Acquisition adopted by the
respective boards of directors (or equivalent) and, if applicable, the
shareholders (or equivalent) of RSC, RSC Alabama and the other parties to
the Siems Acquisition Agreement.
(ii) Substantially simultaneously with the funding of any
requested Revolving Loans, RSC Alabama shall have acquired all of the
capital stock of Siems in compliance in all material respects with all
applicable Requirements of Law, and the Agent shall have received such
evidence as it may reasonably request (A) of the consummation of the Siems
Acquisition for a purchase price consisting of approximately $3,000,000 in
shares of RSC common stock and not more than $8,000,000 in cash (excluding
cash issued in lieu of fractional shares of RSC common stock), (B) that
the parties to the Siems Acquisition Agreement have complied in all
material respects with all applicable Requirements of Law in connection
with the Siems Acquisition, (C) that all conditions precedent to, and all
consents necessary to permit, the Siems Acquisition pursuant to the Siems
Acquisition Documents shall have been satisfied or delivered, or waived
with the prior written consent of the Agent to the extent the waiver of
such conditions precedent or the absence of such consents could reasonably
be expected to affect adversely the rights of the Agent, the Issuing Bank
or any Lender, (D) that all representations and warranties in the Siems
Acquisition Documents are true and correct in all material respects and (E)
that the Siems Acquisition Agreement has not been amended or modified
without the prior written consent of the Agent, to the extent such
amendment or modification could reasonably be expected to affect adversely
the rights of the Agent, the Issuing Bank or any Lender, and is in full
force and effect.
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<PAGE>
(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 of the types described in clauses (iii), (iv) and (v) of
------------- ---- ---
Section 5.1(c)) in such a manner so that the Agent, for the benefit of the
- --------------
Holders, has a valid and perfected first priority Lien as of such date in all
personal property of Siems and any other personal property acquired in the Siems
Acquisition (subject only to Permitted Liens). Such actions shall include,
without limitation, deliveries of items of the types described in clauses (i)
-----------
through (v) of Section 5.1(c)).
--- --------------
(d) 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 Siems Acquisition, 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.
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 Effective Date.
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.
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<PAGE>
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 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 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
and the other Credit Documents.
6.7 Solvency. After giving effect to the transactions contemplated
--------
by this Credit Agreement and the consummation of any Acquisition, (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 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. On the Effective Date,
---------------------------------------
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 taking of possession of
the share certificates and stock powers delivered to the Agent pursuant to
Section 5.1(b), 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
70
<PAGE>
Liens granted to the Agent, for the benefit of the Holders, pursuant to the
Credit Documents constitute valid and enforceable first, prior and 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 Effective 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 RSC and its Subsidiaries as of December
31, 1996, (b) the unaudited financial statements of RSC and its Subsidiaries as
of September 30, 1997, (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 RSC 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 RSC and its Subsidiaries as of September
- -----
30, 1997 but after giving effect to the consummation of the Approved
Acquisitions and the other acquisitions and transactions described therein, and
reflects on a pro forma basis those liabilities reflected in the notes thereto
--- -----
and resulting from consummation of the Approved Acquisitions and the other
acquisitions and transactions described therein and the transactions
contemplated by the Credit 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. RSC is the record and beneficial owner of all of the shares of capital
- ----
stock of each of the other Parent Guarantors. RSC has no direct Subsidiaries
other than the other Parent Guarantors. RSC Acquisition is the record and
beneficial owner of all of the shares of capital stock of each of RSC Alabama,
RSC Center and Walker Jones, and RSC Acquisition has no other direct
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).
- ------------ ------------
RSC Holdings is the record and beneficial owner of all of the shares of capital
stock of each of RSC Industrial, RSC Duval and RSC Rents, and RSC Holdings has
no other direct 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 Rent-it-Center Acquisition, RSC
Center will be the record and beneficial owner of all of the shares of capital
stock of Rent-it-Center. After giving effect to the Siems Acquisition, RSC
Alabama will be the record and beneficial owner of all of the shares of capital
stock of Siems. None of the Borrowers have any other direct or indirect
Subsidiaries (other than Subsidiaries permitted to be created or acquired
71
<PAGE>
under Section 8.20, as to which all actions required by Section 8.20 and, in
------------ ------------
the case of an acquisition, Section 8.5(g) have been taken). There are no
--------------
proxies, irrevocable or otherwise, with respect to the shares of capital stock
of any Credit Party (other than RSC), and no equity securities of any such
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
any Credit Party are owned by such Person free and clear of any Liens, other
than Liens granted to the Agent, for the benefit of the Holders, pursuant to the
Credit 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 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 against 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) occurred within the ordinary course of
business.
6.12 No Defaults. None of 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
72
<PAGE>
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 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 sets forth all Real Property of the Credit Parties as of the
- ----------
Effective Date.
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, each Credit
---------------------
Party has 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.
73
<PAGE>
(b) All taxes (including gross receipts, capital and franchise
taxes), assessments, fees and other governmental charges for periods beginning
prior to the Effective Date have been timely paid and none of 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 assessed by any
taxing or other Governmental Authority against 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 the Credit Parties has 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 any
of the Credit Parties.
(d) Except as set forth on Schedule D, Part 6.19, none of 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 Approved Acquisitions.
---------------------
(a) As of the Effective Date, all conditions precedent to, and
all consents necessary to permit, the Rent-it-Center Acquisition pursuant to the
Rent-it-Center Acquisition Documents have been satisfied or delivered (except
for such conditions precedent and consents which, if not satisfied or obtained,
could not reasonably be expected to affect adversely the rights of the Agent,
the Issuing Bank or any Lender), and no material breach of any term or provision
of any Rent-it-Center Acquisition Document has occurred and no action has been
taken by any competent authority which restrains, prevents or imposes material
adverse conditions upon, or seeks to restrain, prevent or impose material
adverse conditions upon, the Rent-it-Center Acquisition or the making of any
Loans in connection therewith. As of the Effective Date, RSC Center has acquired
all of the issued and outstanding capital stock of Rent-it-Center and
substantially all of the assets of each of its Affiliates operating under the
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"Center Rental & Sales, Inc." name pursuant to the Rent-it-Center Acquisition
Documents, in each case in compliance in all material respects with all
applicable Requirements of Law.
(b) As of the Siems Acquisition Effective Date, all conditions
prece dent to, and all consents necessary to permit, the Siems Acquisition
pursuant to the Siems Acquisition Documents have been satisfied or delivered
(except for such conditions precedent and consents which, if not satisfied or
obtained, could not reasonably be expected to affect adversely the rights of the
Agent, the Issuing Bank or any Lender), and no material breach of any term or
provision of any Siems Acquisition Document has occurred and no action has been
taken by any competent authority which restrains, prevents or imposes material
adverse conditions upon, or seeks to restrain, prevent or impose material
adverse conditions upon, the Siems Acquisition or the making of any Loans in
connection therewith. As of the Siems Acquisition Effective Date, RSC Alabama
has acquired all of the issued and outstanding capital stock of Siems pursuant
to the Siems Acquisition Documents, in compliance in all material respects with
all applicable Requirements of Law.
6.22 Securities Activities. None of the Credit Parties is engaged in
---------------------
the business of extending credit for the purpose of purchasing or carrying
Margin Stock.
6.23 Accuracy and Completeness of Information. All factual
----------------------------------------
information furnished by or on behalf of any of the Credit Parties in writing to
the Agent, any Lender, or the Auditors for purposes of or in connection with the
Original Credit Agreement, the Existing Credit Agreement, 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.
6.24 No Change. 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.
6.25 Fairness. The transactions contemplated by the Credit Documents
--------
are fair to 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:
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(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 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 a Financial Officer of each Credit Party; and (v)
a certificate substantially in the form of Exhibit Q with an attached schedule
---------
of calculations demonstrating compliance with the Financial Covenants and
Sections 8.6(d), 8.9(vi) and 8.14 and determining whether the Applicable
- --------------- ------- ----
Eurodollar Rate Margin and the Applicable Prime Rate Margin are to be adjusted
due to a change in the Total Indebtedness Ratio (the "Compliance Certificate").
----------------------
(b) Annual Projections. Not later than 45 days after the end
------------------
of each Fiscal Year, beginning with the Fiscal Year ended 1996, (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
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 Term Loan Maturity
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 the 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 a Financial
Officer 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 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 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
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financial forecasts delivered pursuant to Section 7.1(b)) for such period,
--------------
prepared by a Financial Officer of each Credit Party.
7.2 Collateral and Other Reporting. The Credit Parties shall timely
------------------------------
deliver to the Agent the following certificates and reports:
(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 R (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 a Financial Officer 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 Effective Date and each
anniversary thereof, a report of Rental Equipment of the Credit Parties 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 Credit Party's Rental Equipment by category
and by item (in reasonable detail) and report the original cost, net book value,
fair market value, auction value and orderly liquidation value thereof.
(c) Monthly Acquisition Reports. As soon as available, but
---------------------------
not later than 30 days after the end of each calendar month in each Fiscal Year,
and at any other time requested by the Agent, a report summarizing each
Acquisition consummated by any Credit Party during such calendar month, which
report shall include the following information with respect to each such
Acquisition: (i) any corporate, trade or fictitious trade name to be used by
such Credit Party as a result of such Acquisition and the jurisdictions in which
such corporate, trade or fictitious name shall be used; (ii) exact street
addresses of all offices and locations of all property acquired by such Credit
Party (including, without limitation, records with respect to Accounts and
general intangibles and originals of chattel paper) (other than locations of
customers of the Credit Parties); (iii) to the extent located in States
different from those described in clause (ii) above, each State where lessees of
-----------
the Rental Equipment acquired by such Credit Party are located (to the best
knowledge of the Credit Parties); (iv) names and addresses of any lessor or
sublessor (other than the Credit Parties) of any location of any Credit Party
described in clause (ii) above or of any mortgagee holding a Lien on real
-----------
property owned by any Credit Party with respect to any location described in
clause (ii) above; (v) legal name and address of each bailee, processor,
- -----------
warehouseman, consignee, carrier, shipper or other Person in possession with
respect to any Equipment or Inventory acquired, together with the address where
such Equipment or Inventory is held (other than Equipment or Inventory described
in clauses (i) through (iv) of Section 6(c) of the Security Agreement or the
applicable Subsidiary Security Agreement); and (vi) any registered trademarks,
trademark applications,
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service marks, service mark applications, patents, patent applications,
copyrights or other intellectual property acquired in such Acquisition. The
information reported by the Credit Parties shall be deemed to modify the
exhibits to the Security Agreement, the Subsidiary Security Agreement and the
Trademark Security Agreement, as applicable.
(d) 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 any Credit
Party to holders of their respective Indebtedness or securities or filed with
the Commission and all press releases made available generally by any Credit
Party to the public concerning material developments in the business of any such
Person, and all notifications received by any Credit Party pursuant to the
Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder.
(e) Further Assurances. When requested by the Agent, any
------------------
further information regarding the Collateral, business affairs and financial
condition of 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 or Financial Officer of each Credit
Party specifying the nature thereof and the Credit Parties' proposed response
thereto, each in reasonable detail.
(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 a
Financial Officer of such Credit
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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 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 any Credit Party.
(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).
(f) Governing Documents. Subject to Section 8.20, within 10
------------------- ------------
Business Days after the filing thereof with any Governmental Authority, copies
of any new Governing Document (or any amendment or modification of an existing
Governing Document).
(g) Permitted Subordinated Indebtedness. As soon as
-----------------------------------
practicable, copies of all material written notices given or received by any
Credit Party with respect to any Permitted Subordinated Indebtedness and, within
two Business Days after any Credit Party obtains knowledge of any matured or
unmatured event of default with respect to any Permitted Subordinated
Indebtedness, notice of such event of default.
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 its 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 its operations to, the
same general lines of business as conducted by the
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Credit Parties and such Subsidiaries on the Effective 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 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 (or, in the case of non-payment of premiums, at least 10 days' written
notice) before any such policy or policies of insurance shall be altered
adversely to the interests of the Holders or canceled, 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
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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 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 proceeds of the Term Loans shall be used to
---------------
pay a portion of the Rent-it-Center Acquisition purchase price, related fees and
expenses and, to the extent of any surplus, for the purposes set forth in the
immediately following sentence. The proceeds of Revolving Credit Loans shall be
used by the Borrowers for working capital, Investments, loans, dividends and
distributions from the Borrowers to 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.
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.
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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 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
canceled 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 separate and apart from each
Parent Guarantor, including, without limitation, (a) practicing and adhering to
corporate formalities, such as maintaining appropriate corporate books and
records; (b) assuring that RSC 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 each Parent Guarantor; (d) maintaining all of its
financial records separate and apart from those of any other Person and ensuring
that any of RSC's consolidated Financial Statements or public
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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 each Parent Guarantor; and
(f) accounting for all of its liabilities separately from those of each Parent
Guarantor.
7.17 Real Property; Landlord Waivers. Within 30 days after the
-------------------------------
Effective Date, the Credit Parties shall prepare and deliver to the Agent a list
of all leasehold interests of the Credit Parties in any Real Property as of the
Effective Date which shall include a list of all Collateral Access Agreements
which have been delivered with respect to such Real Property. Each Credit Party
having a leasehold interest in Real Property shall 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
acquired after the Effective Date.
7.18 Consolidation of Non-Borrower Subsidiaries.
------------------------------------------
(a) Approved Acquisition Subsidiaries. As soon as possible
---------------------------------
and in any event within two Business Days after the Effective Date or the Siems
Acquisition Effective Date, as applicable, RSC Center shall cause Rent-it-Center
to be merged into RSC Center (with RSC Center being the surviving corporation),
and RSC Alabama shall cause Siems to be merged into RSC Alabama (with RSC
Alabama being the surviving corporation).
(b) Other Subsidiaries. Within 90 days after any Borrower's
------------------
formation or acquisition of any Subsidiary which does not become a Borrower
pursuant to Section 8.20, such Borrower shall cause such Subsidiary and all
other Subsidiaries within the same Subsidiary Group to be merged into such
Borrower (or merged into another Person within the same Subsidiary Group) or to
cause the liquidation of such Subsidiaries and the transfer of all assets of
such Subsidiaries to such Borrower (or to another Person within the same
Subsidiary Group) such that, after giving effect to all such mergers and
liquidations involving Persons within such Subsidiary Group, such Borrower shall
be the only member of such Subsidiary Group.
7.19 Delivery of Documents After Effective Date. Each Credit
------------------------------------------
Party shall execute and deliver, or shall cause the execution and delivery of,
(a) the agreements, documents, instruments, certificates and opinions designated
on the Closing Document List as items to be delivered after the Effective Date
or after the Siems Acquisition Effective Date, as applicable, within the time
periods with respect to such items, as set forth on the Closing Document List
and (b) the agreements, documents, instruments, certificates and opinions
required to be delivered after the Consummation Date of an Acquisition, within
the time periods with respect to such items, as required by Section 8.5(g), and
--------------
any other agreements, documents, instruments, certificates and opinions which
the Agent may reasonably request in connection with such Acquisition which are
not required to be delivered pursuant to Section 8.5(g) (including, without
--------------
limitation, in response to the information delivered by the Credit
84
<PAGE>
Parties pursuant to Section 7.2(c)), within the time periods specified by the
Agent in such request.
7.20 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 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 shall cause each of its Subsidiaries to comply with, the following
covenants:
8.1 Minimum Rental Equipment Utilization. The Credit Parties 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 54%. 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 Credit Parties cause Rental Equipment
- -------------------------------
Utilization, as determined for the twelve-month period ending on the Rental
Equipment Utilization Cure Date, to be at least 54%.
8.2 Minimum Interest Coverage Ratio. The Credit Parties shall not
-------------------------------
permit the ratio of (i) EBITA to (ii) Interest Expense 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:
<TABLE>
<CAPTION>
PERIOD MINIMUM RATIO
============================================
<S> <C> <C>
Effective Date through 2.0x
March 31, 1998
--------------------------------------------
April 1, 1998 through 2.1x
September 30, 1998
--------------------------------------------
October 1, 1998 through 2.2x
September 30, 1999
--------------------------------------------
</TABLE>
85
<PAGE>
<TABLE>
PERIOD MINIMUM RATIO
============================================
<S> <C> <C>
October 1, 1999 through 2.3x
September 30, 2000
--------------------------------------------
October 1, 2000 through 2.5x
September 30, 2001
--------------------------------------------
October 1, 2001 through 2.7x
September 30, 2002
--------------------------------------------
October 1, 2002 through 2.9x
September 30, 2003
--------------------------------------------
October 1, 2003 3.0x
and thereafter
=============================================
</TABLE>
8.3 Maximum Total Indebtedness Ratio. The Credit Parties shall not
--------------------------------
permit the ratio of (i) the aggregate amount of all Indebtedness of the Credit
Parties outstanding at any time during the periods set out below, to (ii)
EBITDA, as determined as of each Quarterly Determination Date occurring during
such periods 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:
<TABLE>
<CAPTION>
===========================================
PERIOD MAXIMUM RATIO
===========================================
<S> <C> <C>
Effective Date through 5.5x
March 30, 1998
-------------------------------------------
March 31, 1998 through 4.5x
June 29, 1998
-------------------------------------------
June 30, 1998 through 4.0x
September 29, 1998
-------------------------------------------
September 30, 1998 through 3.8x
March 30, 1999
-------------------------------------------
March 31, 1999 through 3.6x
September 29, 1999
-------------------------------------------
September 30, 1999 through 3.4x
September 29, 2000
-------------------------------------------
September 30, 2000 through 3.2x
September 29, 2001
-------------------------------------------
</TABLE>
86
<PAGE>
<TABLE>
===========================================
PERIOD MAXIMUM RATIO
===========================================
<S> <C> <C>
September 30, 2001 through 3.0x
September 29, 2002
-------------------------------------------
September 30, 2002 through 2.9x
September 29, 2003
-------------------------------------------
September 30, 2003 through 2.8x
September 29, 2004
-------------------------------------------
September 30, 2004 2.7x
and thereafter
===========================================
</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, 1997 $ 70,400,000
-----------------------------------------------------
March 31, 1998 $ 80,400,000
-----------------------------------------------------
June 30, 1998 $ 88,700,000
-----------------------------------------------------
September 30, 1998 $101,100,000
-----------------------------------------------------
December 31, 1998 $115,000,000
-----------------------------------------------------
March 31, 1999 $127,800,000
-----------------------------------------------------
June 30, 1999 $132,500,000
-----------------------------------------------------
September 30, 1999 $140,800,000
-----------------------------------------------------
December 31, 1999 $143,600,000
-----------------------------------------------------
March 31, 2000 $145,000,000
-----------------------------------------------------
June 30, 2000 $150,400,000
-----------------------------------------------------
September 30, 2000 $158,000,000
-----------------------------------------------------
December 31, 2000 $160,500,000
-----------------------------------------------------
March 31, 2001 $163,500,000
-----------------------------------------------------
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
=====================================================
QUARTERLY DETERMINATION
DATE MINIMUM AMOUNT
=====================================================
<S> <C>
June 30, 2001 $166,000,000
-----------------------------------------------------
September 30, 2001 $167,900,000
-----------------------------------------------------
December 31, 2001 $169,300,000
-----------------------------------------------------
March 31, 2002 $174,600,000
-----------------------------------------------------
June 30, 2002 $179,500,000
-----------------------------------------------------
September 30, 2002 $184,100,000
-----------------------------------------------------
December 31, 2002 $188,400,000
-----------------------------------------------------
March 31, 2003 $189,600,000
-----------------------------------------------------
June 30, 2003 $194,200,000
-----------------------------------------------------
September 30, 2003 $198,400,000
-----------------------------------------------------
December 31, 2003 $202,300,000
-----------------------------------------------------
March 31, 2004 $207,000,000
-----------------------------------------------------
June 30, 2004 $211,200,000
-----------------------------------------------------
September 30, 2004 $215,000,000
-----------------------------------------------------
December 31, 2004 $218,400,000
=====================================================
</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 $250,000 outstanding at any one time to any one Person and $1,000,000
in the aggregate outstanding at any one time;
(b) Investments arising from (i) intercompany loans permitted by
Section 8.6(g), (ii) dividends and distributions permitted by Section 8.10 and
- -------------- ------------
(iii) transfers permitted by Section 8.9(iv) or 8.9(v);
--------------- ------
(c) Subject to the limits set forth in Section 8.18, Cash
------------
Equivalents, provided that the Agent, for the benefit of the Holders (i) has a
--------
perfected Lien therein, (ii) has
88
<PAGE>
a perfected Lien in any deposit account in which the same are maintained or
(iii) if any of the same constitute Investment Property, has obtained Control
with respect thereto;
(d) Subject to the limits set forth in Section 8.18, 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) Subject to the limits set forth in Section 8.18, contributions to
------------
and payments of benefits under any Plan (in accordance with the terms of the
Plan) permitted by this Credit Agreement;
(f) Capital Expenditures and Investments (other than Acquisitions), in
each case, directly related to, or in the same line of, the business as
conducted by the Credit Parties as of the Effective 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"):
--------------------------
<TABLE>
<CAPTION>
FISCAL YEAR MAXIMUM AMOUNT
========================================
<S> <C> <C>
1997 $160,000,000
----------------------------------------
1998 $150,000,000
----------------------------------------
1999 $150,000,000
----------------------------------------
2000 $150,000,000
----------------------------------------
2001 $160,000,000
----------------------------------------
2002 $180,000,000
----------------------------------------
2003 $225,000,000
----------------------------------------
2004 $240,000,000
========================================
</TABLE>
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 Person owning such Rental Equipment) and (ii) 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 Capital Expenditures and Investments (other than Acquisitions)
made by the Credit Parties and their respective Subsidiaries under this clause
------
(f) in such immediately preceding Fiscal Year;
- ---
(g) The approved Acquisitions and other Acquisitions directly related
to, or in the same line of, the business as conducted by the Credit Parties as
of the Effective
89
<PAGE>
Date, provided that, with respect to Acquisitions other than the Approved
--------
Acquisitions, the Credit Parties shall not, without the approval of the Majority
Lenders:
(i) make any Acquisition without giving the Agent written notice
thereof within three Business Days after the execution of a letter of
intent or other agreement of the applicable Credit Parties with respect
thereto, together with (A) a copy of the related letter of intent or such
other agreement (which, in either case, shall contain, or be accompanied
by, substantially the same information as letters of intent delivered to
the Agent prior to the Effective Date) and (B) a list of all locations of
the assets which will become property of the Credit Parties after giving
effect to such Acquisition (other than locations of Persons which will
become customers of the Credit Parties after giving effect to such
Acquisition);
(ii) make any Acquisition unless the Credit Parties obtain each
of the following in connection therewith and deliver the same to the Agent
within the time periods set out below, in each case in form and substance
reasonably satisfactory to the Agent: (A) each of the agreements,
documents and instruments set forth on Exhibit S which are required to be
---------
delivered on or before the Consummation Date of such Acquisition, within
the time periods set forth thereon, (B) to the extent any new Subsidiary of
a Credit Party is formed or acquired in connection with such Acquisition,
all of the agreements, documents and instruments required to be delivered
pursuant to Section 8.20, within the time periods set forth therein and (C)
------------
any other agreements, documents, instruments, certificates or opinions
which the Agent may reasonably request prior to the Consummation Date of
such Acquisition;
(iii) make any single Acquisition (or series of related
Acquisitions) in any Fiscal Year in excess of $15,000,000;
(iv) make Acquisitions during the period from the Effective Date
until the Revolving Credit Expiration Date, in an aggregate amount in
excess of the sum of (A) $160,000,000 (excluding consideration consisting
of the common stock of RSC), plus (B) net cash proceeds received by RSC
----
immediately and directly from the issuance of common stock of RSC during
such period or from the issuance of Permitted Subordinated Indebtedness
during such period; and
(v) subject to clause (iv) above, make Acquisitions during the
-----------
period from the Effective Date until the Term Loan Maturity Date, in an
aggregate amount in excess of the sum of (A) $220,000,000 (excluding
consideration consisting of the common stock of RSC), plus (B) net cash
----
proceeds received by RSC immediately and directly from the issuance of
common stock of RSC during such period or from the issuance of Permitted
Subordinated Indebtedness during such period; and
(h) Such other Investments as the Agent may approve in writing in
its reasonable discretion.
90
<PAGE>
8.6 Additional Indebtedness. None of 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, (iii) the
refinancing shall be on terms and conditions no more restrictive than the terms
and conditions of the Indebtedness to be refinanced and (iv) with respect to
Indebtedness under Capital Leases and Indebtedness secured by Purchase Money
Liens, the principal amount of such refinanced Indebtedness is permitted by
Section 8.6(d);
- --------------
(d) In addition to the Indebtedness permitted under Section
-------
8.6(c), (i) Indebtedness under Capital Leases and Indebtedness secured by
- -----
purchase money Liens on Equipment acquired after the Effective Date ("Purchase
--------
Money Liens") so long as (A) each Purchase Money Lien shall attach only to the
- -----------
property to be acquired and any sale or insurance proceeds thereof (but
excluding rental contracts covering such property or any proceeds thereof) and
(B) 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) the
Liens granted in connection with such Indebtedness shall attach only to the
Equipment formerly subject to the Purchase Money Lien and any sale or insurance
proceeds thereof (but excluding rental contracts covering such property or any
proceeds thereof), (B) the aggregate principal amount of the Indebtedness so
refinanced shall not be increased, (C) the Indebtedness is incurred for the same
purpose as the Indebtedness so refinanced and (D) 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) or described in Section 8.6(c)(iv) shall not
---------- -- ------------------
exceed $15,000,000 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;
- -----------
91
<PAGE>
(g) Indebtedness arising from intercompany loans (i) from any Person
within a Subsidiary Group to the Borrower or any Subsidiary Guarantor which, in
each case, is part of the same Subsidiary Group and (ii) from any Credit Party
(other than a Subsidiary Guarantor) to any other such Credit Party, provided,
--------
that (A) in the case of loans under clause (i), the aggregate principal amount
----------
of all such loans shall not exceed $5,000,000 at any time outstanding for any
Subsidiary Group and $15,000,000 at any time outstanding for all Subsidiary
Groups, (B) all such Indebtedness shall be evidenced by a promissory note
executed by the Credit Party receiving such intercompany loans, pursuant to a
promissory note substantially in the form of Exhibit T, (C) such Indebtedness
---------
shall be subordinated in right of payment to the Obligations when due and
payable and (D) the promissory notes evidencing such Indebtedness shall be
pledged to the Agent, for the benefit of the Holders, pursuant to the Security
Agreement or the applicable Subsidiary Security Agreement; and
(h) Permitted Subordinated Indebtedness, provided, that, immediately
--------
before and after the incurrence thereof, no Default or Event of Default has
occurred and is continuing.
8.7 Liens. None of 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;
--------------------
(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;
92
<PAGE>
(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 any Credit
Party; and
(k) Extensions, renewals, refundings or replacements of any of the
foregoing, provided that (A) 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, (B) 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 (C) any Liens permitted under Section 8.7(b)
--------------
securing Indebtedness described in Section 8.6(c)(iv) shall be extended,
------------------
renewed, refunded or replaced only to the extent permitted by Section 8.6(d).
--------------
8.8 Contingent Obligations. None of 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 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 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 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 among the Parent Guarantors, to the extent permitted
by Section 8.10 and (vi) other dispositions of assets of the Credit Parties,
------------
93
<PAGE>
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 and (II) 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, or subject to the Control of, the Agent, for the benefit of the Holders, in
accordance with the Security Agreement or the applicable Subsidiary Security
Agreement and (D) the aggregate amount of all such dispositions (determined on
the basis of net book value) does not exceed (I) $7,500,000 in the aggregate for
each of Fiscal Years 1997 and 1998 and (II) $10,000,000 in the aggregate for any
Fiscal Year thereafter; provided, further, that, with respect to any disposition
-------- -------
of the capital stock of any Borrower or Subsidiary Guarantor permitted by this
Section 8.9, (x) any such disposition shall be for 100% of the issued and
- -----------
outstanding capital stock of such Borrower or Subsidiary Guarantor and (y) all
Obligations of such Borrower or Subsidiary Guarantor shall be Paid In Full and
all intercompany obligations of such Borrower or Subsidiary Guarantor 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 to permit the sale, transfer or other disposition of the capital
stock of RSC Acquisition or RSC 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 RSC capital stock or warrants, options or rights
to purchase such shares issued to employees or directors of any Credit
Party, provided that the aggregate amount paid by all Credit Parties
for such repurchases shall not exceed $1,500,000 in any Fiscal Year;
(ii) any Person part of a Subsidiary Group may declare and pay
cash to the Borrower or any Subsidiary Guarantor part of the same
Subsidiary Group (provided that to the extent the payment is a loan, the
loan is permitted by Section 8.6(g) and any promissory notes evidencing
--------------
such loan are delivered to
94
<PAGE>
the Agent, for the benefit of the Holders, pursuant to the applicable
Subsidiary Security Agreement), and any merger or liquidation required by
Section 7.18 may be consummated;
------------
(iii) the Borrowers may declare and pay to RSC Acquisition and
RSC Holdings, and RSC Acquisition and RSC Holdings may declare and pay
to RSC, cash (provided that to the extent the payment is a loan, the
--------
loan is permitted by Section 8.6(g) and any promissory notes
--------------
evidencing such loan are delivered to the Agent, for the benefit of
the Holders, pursuant to the Security Agreement) to the extent
necessary to pay (A) general corporate, accounting, legal, consulting,
corporate reporting and administrative expenses incurred in the
ordinary course of the Credit Parties' business consistent with past
practice, (B) income and franchise taxes, (C) costs and expenses and
other amounts payable in connection with this Credit Agreement, the
Rent-it-Center Acquisition, the Siems Acquisition and any other
Acquisition permitted hereby and (D) amounts permitted to be paid by a
Credit Party under clause (i) above, provided that the cash payments
---------- --------
permitted to be made by the Borrowers under this clause (iii) shall
------------
not exceed, in the aggregate, $25,000,000 in any Fiscal Year;
(iv) the Borrowers may declare and pay cash to RSC Acquisition
and RSC Holdings, and RSC Acquisition and RSC Holdings may declare and
pay to RSC, cash (provided that to the extent the payment is a loan,
the loan is permitted by Section 8.6(g) and any promissory notes
--------------
evidencing such loan are delivered to the Agent, for the benefit of
the Holders, pursuant to the Security Agreement) to the extent
necessary to enable RSC to pay required cash interest payments on
Permitted Subordinated Indebtedness, provided, that (A) no such
--------
payment shall be made during a "blockage period" (or other similar
concept) with respect to such Permitted Subordinated Indebtedness or
if such payment would violate the subordination provisions contained
in the related indenture, note purchase agreement or other instrument
governing such Permitted Subordinated Indebtedness) and (B) any
payment permitted under this clause (iv) is payable and is paid no
-----------
earlier than one Business Day prior to the date when such payment is
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 Permitted Subordinated Indebtedness (or any
payment in violation of the subordination provisions contained in the related
indenture, note purchase agreement or other instrument governing such Permitted
Subordinated Indebtedness) or of any Mandatory Redeemable Obligation.
8.11 Fundamental Changes. None of the Credit Parties or their
-------------------
respective Subsidiaries shall enter into any merger or consolidation, liquidate,
wind-up or dissolve (or
95
<PAGE>
suffer any liquidation or dissolution), or convey, lease, sell, transfer or
otherwise dispose of, in one transaction or a 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 or
------------ ----
required pursuant to Section 7.18.
------------
8.12 Accounting Changes. None of 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; Modifications of
---------------------------------------------------
Governing Documents. None of 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, or (b) amend or
otherwise modify any of its Governing Documents as in effect on the Effective
Date (or, in the case of Subsidiaries of the Credit Parties formed or acquired
after the Effective Date, as in effect on the date the related Governing
Documents are delivered to the Agent pursuant to Section 8.20), except (i)
------------
amendments to effect a change of name of a Credit Party which are permitted by
the Security Agreement or the applicable Subsidiary Security Agreement, as the
case may be, 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 (i) $10,000,000 in Fiscal Year 1997, (ii) $25,000,000
in each of Fiscal Years 1998 and 1999 and (iii) $35,000,000 in each Fiscal Year
thereafter.
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
Effective 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.
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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, 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(g), 8.9(iv), 8.9(v) or 8.10 and (ii) customary directors' indemnifications
- ------ ------- ------ ----
and payment of customary directors' fees.
8.17 Additional Deposit and Securities Accounts. None of the
------------------------------------------
Credit Parties or their respective Subsidiaries shall, directly or indirectly,
open, maintain or otherwise have any checking, savings or other deposit accounts
at any bank or other financial institution, or any other account where money is
or may be deposited or maintained with any Person (including, without
limitation, any securities accounts), other than the Disbursement Account and
the accounts set forth on Schedule D, Part 8.17; provided, however, that any
--------------------- -------- -------
Borrower or Subsidiary Guarantor may establish such an 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, a Restricted Account Agreement or an
agreement that grants Control over such account to the Agent, as applicable.
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 and securities 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 $7,500,000 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 (i) in each case, (A) 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, (B) with respect to Real Property which is the
------------
subject of an Operating Lease permitted by Section 8.14 or (C) 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 and (ii) the terms of any Permitted Subordinated Indebtedness may
contain the
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prohibitions and restrictions described in clause (a) above (other
----------
than an agreement to provide equal and ratable security to the holders thereof
in the event a Lien is granted to or for the benefit of the Agent, for the
benefit of the Holders)).
8.20 Additional Subsidiaries. None of the Credit Parties shall,
-----------------------
directly or indirectly, form or acquire any Subsidiaries, except that RSC
Acquisition and RSC Holdings may form, and the Borrowers may form or acquire,
Subsidiaries, provided, that, except with respect to the Approved Acquisitions
--------
and the Subsidiaries acquired in connection therewith:
(i) the applicable Parent Guarantor or Borrower shall give the
Agent written notice thereof (A) in the case of a formation of new
Subsidiary (other than in connection with an Acquisition) at least 30
Business Days prior to the Consummation Date of such formation, together
with a list of all locations of the assets of such Subsidiary after giving
effect to such formation or (B) in the case of an Acquisition, within three
Business Days after the execution of a letter of intent or other agreement
of the applicable Credit Parties, together with (I) a copy of the related
letter of intent or such other agreement (which, in either case, shall
contain, or be accompanied by, substantially the same information as
letters of intent delivered to the Agent prior to the Effective Date) and
(II) a list of all locations of the assets which will become property of
the Credit Parties after giving effect to such Acquisition (other than
locations of Persons which will become customers of the Credit Parties
after giving effect to such Acquisition);
(ii) if such Subsidiary is a Subsidiary of RSC Acquisition or RSC
Holdings such Subsidiary shall become a Borrower under this Credit
Agreement, and if such Subsidiary is a Subsidiary of any Borrower, such
Subsidiary shall, at the option of the Credit Parties (with the consent of
the Agent), become a Borrower under this Credit Agreement (solely with
respect to Revolving Loans and Letters of Credit) or a Subsidiary
Guarantor, provided, that a Subsidiary of a Borrower acquired in an
--------
Acquisition shall not be required to become a Borrower or a Subsidiary
Guarantor if (A) the Credit Parties notify the Agent at least ten (10)
Business Days prior to the Consummation Date of such Acquisition that such
Subsidiary will be merged into the Borrower part of the same Subsidiary
Group, or that such Subsidiary will be liquidated and the assets of such
Subsidiary transferred to such Borrower, in each case within five Business
Days after such Consummation Date and (B) such merger or liquidation is
consummated within five Business Days after such Consummation Date;
(iii) the applicable Parent Guarantor or Borrower shall
deliver to the Agent, or cause its Subsidiary to deliver to the Agent, each
of the agreements, documents and instruments set forth on Exhibit U within
---------
the time periods set forth thereon, provided, that the agreements,
--------
documents and instruments described in this clause (iii) shall not be
------------
required for any such Subsidiary which does not become a Borrower or a
Subsidiary Guarantor in accordance with clause (ii) above;
-----------
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(iv) promptly upon the Agent's reasonable request therefor, the
applicable Parent Guarantor or Borrower shall deliver any other
documentation pertaining to such Subsidiary and the Credit Parties and such
Subsidiary, taken as a whole; and
(v) any other agreements, documents, instruments, certificates or
opinions which the Agent may reasonably request.
All agreements, documents, instruments, certificates and opinions delivered
pursuant to this Section 8.20 shall be in form and substance reasonably
------------
satisfactory to the Agent. Each of the Borrowers and Parent Guarantors
expressly agrees that its Obligations shall not be affected or diminished by the
addition or release of any other Borrower or Subsidiary Guarantor hereunder, nor
by any election by the Majority Lenders not to cause any Subsidiary of any
Credit Party to become a Borrower or a Subsidiary Guarantor. This Credit
Agreement and the other Credit Documents shall be fully effective as to any
Credit Party which becomes a party hereto or thereto regardless of whether any
other Person becomes, fails to become or ceases to be a party hereto or thereto.
8.21 Changes to Permitted Subordinated Indebtedness. No Credit
----------------------------------------------
Party shall change or amend the terms of any Permitted Subordinated Indebtedness
(or any indenture or agreement in connection therewith) if the effect of such
amendment is to: (a) increase the interest rate on such Permitted Subordinated
Indebtedness; (b) change the dates upon which payments of principal or interest
are due on such Permitted Subordinated Indebtedness other than to extend such
dates; (c) change any default or event of default other than to delete or make
less restrictive any default provision therein, or add any covenant with respect
to such Permitted Subordinated Indebtedness; (d) change the redemption or
prepayment provisions of such Permitted Subordinated Indebtedness other than to
extend the dates therefor or to reduce the premiums payable in connection
therewith; (e) grant any security or collateral to secure payment of such
Permitted Subordinated Indebtedness; or (f) change or amend any other term if
such change or amendment would materially increase the obligations of any
obligor or confer additional material rights to the holder of any Permitted
Subordinated Indebtedness in a manner adverse to any Credit Party, the Agent,
any Lender or the Issuing Bank.
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 Credit Party 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.
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(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(a), 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.
(g) Insolvency Event. Any Credit Party shall become the subject
----------------
of an Insolvency Event.
(h) Change in Control. A Change in 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 RSC), other than the Liens granted
to the Agent, for the benefit of the Holders, pursuant to the Loan Documents.
(i) Cross Default. 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 any Credit Party or any of
their respective Subsidiaries aggregating $5,000,000 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
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<PAGE>
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 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 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 any Credit Party or any of their respective Subsidiaries
having an aggregate value in excess of $5,000,000 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) 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 Effective
Date or thereafter pursuant to the Security Agreement or the applicable
Subsidiary Security Agreement, the taking of possession of instruments,
Investment Property or certificates of title (or any combination thereof) and
(ii) the applicable Credit Party is not expressly required, or has not been
notified by the Agent that it is expressly required, in accordance with the
Credit Documents, 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.
(k) 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.
(l) 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.
(m) RSC Subsidiaries. RSC shall, directly or indirectly, form or
----------------
acquire any Subsidiary other than (i) RSC Acquisition, (ii) RSC Holdings, (iii)
the Borrowers and Subsidiary Guarantors in existence on the Effective Date and
(iv) Subsidiaries of RSC
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Acquisition, RSC Holdings or any Borrower permitted to be formed or acquired
after the Effective Date in accordance with 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.
------------
(i) With respect to any Event of Default described in Section
-------
9.1(g), all Obligations shall automatically and without notice be
------
immediately due and payable without presentment, demand, protest or any
other action or obligation of the Agent or any Lender.
(ii) With respect to any Event of Default described in Section
-------
9.1(a), upon the written request, or with the written consent, of the
------
Majority Term Loan Lenders (with respect to the Obligations owing to the
Term Lenders in their capacity as such) or the Majority Revolving Credit
Lenders (with respect to all other Obligations), and by delivery of written
notice to the applicable Borrowers from the Agent, all such Obligations
shall be declared to be immediately due and payable without presentment,
demand, protest or any other action or obligation of the Agent or any
Lender.
(iii) With respect to any other Event of Default, 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
presentment, demand, protest or any other action or obligation of the Agent
or any Lender.
(b) Termination of Revolving Credit Commitments. Upon the written
-------------------------------------------
request of the Majority Revolving Credit Lenders, and by delivery of written
notice to the Borrowers from the Agent, the Revolving Credit Commitments shall
be immediately terminated (except with respect to any Event of Default described
in Section 9.1(g), in which case the Revolving Credit Commitments shall
--------------
automatically be terminated without the necessity of any request of the Majority
Revolving Credit Lenders or notice or other demand to any Borrower) and, at all
times thereafter, all Revolving Loans made by any Revolving Credit Lender
pursuant to this Credit Agreement shall be at such Revolving Credit Lender's
sole discretion unless the termination of the Revolving Credit Commitments has
been rescinded pursuant to Section 9.3.
-----------
(c) Cash Collateralization. On demand of the Agent or the Majority
----------------------
Revolving Credit Lenders, the Borrowers shall immediately deposit with the Agent
cash or
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Cash Equivalents in an amount equal to 110% of the Letter of Credit Obligations
then outstanding.
9.3 Rescission of Acceleration and Termination. After acceleration
------------------------------------------
of the maturity of the Obligations or the termination of the Revolving Credit
Commitments, if the Borrowers pay all accrued interest and all principal due on
the Loans (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,
-------------
(a) the Majority Lenders may elect, in their sole discretion, to rescind the
acceleration and (b) the Majority Revolving Credit Lenders may elect, in their
sole discretion, to rescind the 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 (in the case of an acceleration of the Obligations) and to
bind all of the Revolving Credit Lenders to a decision of the Majority Revolving
Credit Lenders (in the case of a termination of the Revolving Credit
Commitments) and not to confer any right on the Borrowers, even if the described
conditions for the election of the Majority Lenders or the Majority Revolving
Credit Lenders, as applicable, 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
(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.
Subject to Section 12.15, the Requisite Lenders may instruct the Agent to
-------------
exercise, or to refrain from exercising, any right, remedy or power with respect
to the Collateral available to or conferred on the Agent hereunder or under any
Collateral Document and in connection therewith, to direct the time, method and
place of conducting any proceeding for any such right or remedy or exercising
any such right or remedy, or for the appointment of a receiver, or to instruct
the Agent to take or refrain from taking any other action with respect to the
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Collateral authorized by this Credit Agreement or any Collateral Document.
Subject to provisions of Section 2.7, 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 Credit Party, 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 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 Marshaling; Deficiencies; Remedies Cumulative. None of the
------------------------------------------------
Agent, the Lenders or the Issuing Bank shall be under any obligation to marshal
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,
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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 RSC
Rents, RSC Industrial, RSC Duval or any other Subsidiary of RSC Holdings which
becomes a Borrower under this Credit Agreement (collectively, the "RSC Holdings
------------
Borrowers"), RSC Holdings unconditionally guarantees for the benefit of each
- ---------
Holder 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 RSC Holdings Borrowers (including, without limitation,
interest accruing following an Insolvency Event of any RSC 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, RSC Holdings shall pay to the
Agent, for the benefit of the Holders, on demand and in immediately available
funds, the full amount of the Obligations of the RSC Holdings Borrowers
(including any portion thereof which is not yet due and payable). RSC Holdings
further agrees to pay to the Agent, for the benefit of the Holders, 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 any Holder 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 RSC Holdings Borrowers or RSC Holdings, (C) in
foreclosing or otherwise collecting upon the Collateral for the Obligations of
the RSC Holdings Borrowers or RSC 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 RSC Holdings Borrowers which do
not constitute interest, (B) to the extent permitted by applicable law, the
Obligations of the RSC 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. RSC
-----------
Holdings hereby agrees that its guaranty under this Article 10 is an absolute
----------
guaranty of payment and is not a guaranty of collection.
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(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 RSC
Alabama, RSC Center, Walker Jones or any other Subsidiary of RSC Acquisition
which becomes a Borrower under this Credit Agreement (collectively, the "RSC
---
Acquisition Borrowers"), RSC Acquisition unconditionally guarantees for the
- ---------------------
benefit of each Holder 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 RSC Acquisition Borrowers (including, without
limitation, interest accruing following an Insolvency Event of any RSC
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, RSC
Acquisition shall pay to the Agent, for the benefit of the Holders, on demand
and in immediately available funds, the full amount of the Obligations of the
RSC Acquisition Borrowers (including any portion thereof which is not yet due
and payable). RSC Acquisition further agrees to pay to the Agent, for the
benefit of the Holders, 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 any Holder 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 RSC Acquisition Borrowers or RSC
Acquisition, (C) in foreclosing or otherwise collecting upon the Collateral for
the Obligations of the RSC Acquisition Borrowers or RSC 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 RSC
Acquisition Borrowers which do not constitute interest, (B) to the extent
permitted by applicable law, the Obligations of the RSC 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. RSC Acquisition hereby agrees that its
-----------
guaranty under this Article 10 is an absolute guaranty of payment and is not a
----------
guaranty of collection.
(c) 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 any
Borrower under this Credit Agreement, RSC unconditionally guarantees for the
benefit of each Holder 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 Borrowers (including, without limitation,
interest accruing following an Insolvency Event of any 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, RSC shall pay to the Agent, for
the benefit of the Holders, on demand and in immediately available funds, the
full amount of the Obligations of the Borrowers (including any portion thereof
which is not yet due and payable). RSC further agrees to pay to the Agent, for
the benefit of the Holders, on demand and in immediately available funds, (i)
all losses
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(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 any
Holder 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 Borrowers or RSC, (C) in
foreclosing or otherwise collecting upon the Collateral for the Obligations of
the Borrowers or RSC 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 Borrowers which do not constitute interest, (B) to the
extent permitted by applicable law, the Obligations of the 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. RSC 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 Holder 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 Holder 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 Holder 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 Holder 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 Holder for repayment of all or any part of
the Obligations or any expenses described in Section 10.1;
------------
(i) any refusal of payment by any Holder, 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 any Holder, without affecting the liability
of the Parent Guarantors hereunder.
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
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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) Without limiting the generality of the foregoing or any other
provision hereof, each of the Parent Guarantors hereby waives, to the fullest
extent permitted by applicable law in accordance with Section 2856 of the
California Civil Code, all rights and benefits under California Civil Code
Sections 2787 to 2855, inclusive (or any similar laws in other jurisdictions)
and all rights and benefits of California Civil Code Sections 2899 and 3433 (or
any similar laws in any other jurisdiction). In addition, without limiting the
generality of the foregoing or any other provision hereof, each of the Parent
Guarantors hereby waives, in accordance with Section 2856 of the California
Civil Code, all rights and defenses (including, without limitation, all rights
and defenses arising out of an election of remedies by the Agent, any Lender or
the Issuing Bank) that such Parent Guarantor may have because the Obligations
are secured by real property. This means, among other things:
(i) the Agent, any Lender or the Issuing Bank may collect
from any of RSC, RSC Acquisition (with respect to the RSC Acquisition
Borrowers) or RSC Holdings (with respect to the RSC Holdings
Borrowers) without first foreclosing on any real or personal property
collateral pledged to or for the benefit of the Agent, the Issuing
Bank or any Lender; and
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(ii) if the Agent, any Lender or the Issuing Bank forecloses
on any real property collateral pledged by any Borrower:
(A) the amount of the debt may be reduced only by the
price for which that collateral is sold at the foreclosure sale,
even if the collateral is worth more than the sale price; and
(B) the Agent, any Lender or the Issuing Bank may
collect from any of RSC, RSC Acquisition (with respect to the RSC
Acquisition Borrowers) or RSC Holdings (with respect to the RSC
Holdings Borrowers) even if the Agent, any Lender or the Issuing
Bank, by foreclosing on the real property collateral, has
destroyed any right the Parent Guarantors may have to collect
from the applicable Borrower(s).
This is an unconditional and irrevocable waiver of any rights and defenses each
of the Parent Guarantors may have because the Obligations are secured by real
property. These rights and defenses include, but are not limited to, any rights
or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of
Civil Procedure (or any similar laws in any other jurisdiction). 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 Holders, 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.
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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 Holders 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 event a Holder, 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 Holder, 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 Revolving Credit Commitments have been
terminated, each Parent Guarantor hereby agrees 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 any Holder 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
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<PAGE>
California Civil Code). 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 Revolving Credit
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 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 Revolving Credit Commitments, such
Parent
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Guarantor shall receive and hold the same in trust, as trustee, for the benefit
of the Holders, and shall forthwith deliver the same to the Agent, for the
benefit of the Holders, 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 Holders. 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 Revolving Credit 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 Holder 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 any Holder 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 Revolving
Credit 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
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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.
ARTICLE 11
THE AGENT
---------
11.1 Appointment of Agent.
--------------------
(a) Each of the Lenders 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 the Issuing Bank 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
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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 Requisite Lenders at any time. If the Agent requests
instructions from the Requisite Lenders with respect to any action or inaction,
the Agent shall be entitled to await instructions from the Requisite Lenders
before such action or inaction. The Requisite Lenders shall have no obligation
to take or fail to take any action or to give or fail to give any notice or
instructions to the Agent (regardless of whether any individual Lender or the
Issuing Bank agrees or disagrees with such action or inaction). Subject to
Sections 11.5 and 12.11, instructions given (or the refusal or failure to give
- ------------- -----
instructions) by the Requisite Lenders to the Agent shall be binding on the
other Holders for all purposes, and none of 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 (or the lack thereof) from the Requisite
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), 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 Overall 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," "Majority Revolving
Credit Lenders," "Majority Term Loan Lenders," "Requisite 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.
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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.
(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 Requisite 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 the occurrence of 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 Revolving Credit Commitments and Payment In Full of all of
the Obligations, (ii) upon receipt of the proceeds of sales of the Collateral
permitted hereunder, together with a certificate of the
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Credit Parties certifying, with appropriate calculations where necessary, that
such sale is permitted by this Credit Agreement or (iii) if the release can be
and is approved by the Requisite Lenders. At such time, the Agent shall, upon
the written request and at the expense of the Credit Parties, deliver to the
applicable Credit Parties such instruments as are necessary to terminate the
Liens on the Collateral subject to such release or otherwise evidence and
effectuate such release. Any such delivery shall be without warranty by or
recourse to the Agent, except as to the absence of any prior assignments by the
Agent of its interest in the Collateral subject to such release, and shall be at
the expense of the Credit Parties. In addition, to the extent necessary upon the
sale of the capital stock of a Borrower or a Subsidiary Guarantor in accordance
with Section 8.9(vi) or any merger or liquidation of any Subsidiary Guarantor
---------------
required under Section 7.18, the Agent is authorized to release such Borrower or
------------
such Subsidiary Guarantor from its Obligations under the Credit Documents to
which such Borrower or such Subsidiary Guarantor is a party. The Agent may
request, and thereupon the Requisite 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 or a Subsidiary Guarantor whose capital stock
has been sold in accordance with Section 8.9(vi) or a Subsidiary Guarantor which
---------------
has been merged or liquidated in accordance with Section 7.18, in each case as
------------
herein set forth, and upon receipt of such approvals from the Requisite Lenders,
the Agent shall execute and deliver such releases to the Credit Parties.
(c) The Agent shall have no obligation to assure that the Collateral
exists or is owned by the Credit Parties or their 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 Requisite 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.
11.11 Proofs of Claim.
---------------
(a) Filing of Claims. Upon the written request of all or any of the
----------------
Holders, the Agent may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Holders
making such request allowed in any judicial proceedings relating to any Credit
Party, its creditors or its property. However, nothing herein contained shall
prevent any Holder from filing such proofs of claim and other papers or
documents as may be determined by the Holder in order to have the claims of such
Holder allowed in any judicial proceedings relating to any Credit Party. The
Agent may file such proofs of claims and other papers or documents as may be
necessary or advisable in order
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to have the claims of the Agent, its agents and counsel allowed in any judicial
proceedings relating to any Credit Party or any Subsidiary of a Credit Party (or
any other obligor with respect to the Obligations), its creditors or its
property.
(b) Collection of Claims. The Agent shall be entitled and empowered
--------------------
to collect and receive any monies or other property payable or deliverable on
any such claims filed by the Agent pursuant to Section 11.11(a) and to
----------------
distribute the same in accordance with the parties' legal rights (but subject to
Section 4.11(b)), and any custodian in any such judicial proceedings is hereby
- ---------------
authorized by each Holder to make such payments to the Agent and, in the event
that the Requisite Lenders shall consent to the making of such payments directly
to the Holders, to pay to the Agent any amount due to it for Expenses of the
Agent, its agent and its counsel, and any other amounts due the Agent under this
Credit Agreement.
(c) Limitations. Nothing herein contained shall be deemed to
-----------
authorize the Agent to authorize or consent to or accept or adopt on behalf of
any Holder (other than any Holder that is an Affiliate of one or more of the
Credit Parties) any plan of reorganization or arrangement, adjustment or
composition affecting the Obligations or the rights of any holder thereof, or to
authorize the Agent to vote in respect of the claim of any Holder in any such
proceeding.
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
-------- -------
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<PAGE>
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 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,
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<PAGE>
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:
(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: Robert Wilson
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.
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<PAGE>
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 or thereunder, 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 portion 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 V-1 (with respect to Revolving
-----------
Credit Commitments, Revolving Loans and Letter of Credit Obligations) or Exhibit
-------
V-2 (with respect to Term Loan Outstandings) (each 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; provided, however,
-------- -------
that all such assignments shall assign the Lender's rights and obligations with
respect to all (but not less than all) of the Borrowers (with respect to the
Lender's Revolving Credit Commitments, Revolving Loans and Letter of Credit
Obligations) or the Term Loan Borrowers (with respect to Term Loan Obligations
owing to such Lender); provided, further, however, that, in the case of
-------- ------- -------
contemporaneous assignments by a Lender to more than one fund managed by the
same investment advisor, only one recordation fee of $2,500 shall be payable for
all such contemporaneous assignments. No such assignment shall be for less than
$5,000,000 of the Revolving Credit Commitments or $2,000,000 of the Term Loan
Outstandings, as applicable, unless it is to another Lender. This Section
-------
12.8(b) does not apply to branches, Affiliates or Approved Funds of a Lender, it
- -------
being understood that a Lender may make, carry or transfer Loans and other
Obligations in any amount at or for the account of any of its branch offices,
Affiliates or Approved Funds 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 Revolving Credit Commitments, if any,
and the principal amount of their respective 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 applicable Borrowers and deliver to such Borrowers
a copy of the Assignment and Assumption Agreement and the surrendered Note or
Notes. Within 10 days after its receipt of such notice, the applicable
Borrowers shall execute and deliver to the Agent new Notes to the order of the
Eligible Assignee in the amount of the Revolving Credit Commitment assumed by it
or the Term Loan Outstandings purchased by it, as applicable, and to the
assignor in the amount of the Revolving Credit Commitment or the Term Loan
Outstandings, as applicable, retained by it, if any. Such new Notes shall re-
evidence the Indebtedness outstanding under the surrendered Notes and shall be
dated as of the effective date of the related Assignment and Assumption
Agreement. The Agent shall be
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<PAGE>
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 Revolving Credit 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 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 Affiliates, 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, Loans or Revolving Credit
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Commitments or any interest therein by such Lender, provided, further, that,
-------- -------
unless specifically prohibited by applicable law or court order or unless such
disclosure is made in connection with an examination or audit by a governmental
agency in the ordinary course of such Lender's business, 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 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 financial restructuring of RSC Holdings and its Subsidiaries
pursuant to the plan of reorganization confirmed by order of the United States
Bankruptcy Court for the District of Delaware entered on August 24, 1995,
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
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effective unless in writing and signed by the Majority Lenders (or by the Agent
on their behalf), except that::
(a) the consent of all of the Lenders is required to (i) increase the
Commitments or the principal amount of the Term Loans, (ii) amend or modify
the percentage of the Commitments or outstanding Obligations, or any
minimum requirement, necessary for the Majority Lenders or for the Majority
Revolving Credit Lenders and the Majority Term Loan Lenders (acting
together) to take any action hereunder, (iii) amend or waive this Section
-------
12.11, or amend or modify the definition of Requisite Lenders, Majority
-----
Lenders or Overall Proportionate Share, (iv) except as otherwise provided
in clauses (i) and (ii) of Section 11.9(b), release any Liens in favor of
----------- ---- ---------------
the Agent, for the benefit of the Holders, on all or substantially all of
the Collateral, (v) amend, waive or modify Section 8.7, 8.9 or 8.15 or any
----------- --- ----
provision of any Collateral Document if such amendment, waiver or
modification affects all or substantially all of the Collateral, (vi)
except as otherwise provided in Section 11.9(b), release any Parent
---------------
Guarantor from its Obligations under Article 10, any Borrower from its
----------
Obligations under any Guaranty and Contribution Agreement to which it is a
party or any Subsidiary Guarantor from its Obligations under the Subsidiary
Guaranty and Contribution Agreement to which it is a party, (vii) any
assignment by any Credit Party of this Credit Agreement or any of the
Credit Documents, or any rights or obligations hereunder or thereunder or
(viii) amend, waive or modify Section 4.11(b)(iii);
--------------------
(b) the consent of the Majority Revolving Credit Lenders and the
Majority Term Loan Lenders is required to (i) amend or modify the
definition of Borrowing Base to add additional categories of eligible
collateral thereto or to increase the advance rates applicable thereto
(other than any increase of any advance rate by the Agent in accordance
with Section 2.1(a)(ii), (ii) amend, waive or modify Section 4.8(c), (iii)
------------------ --------------
permit any Credit Party or any Subsidiary of a Credit Party to incur
Indebtedness in addition to the types and maximum principal amounts
permitted under Section 8.6, (iv) amend or modify the definition of
-----------
Permitted Subordinated Indebtedness or amend, waive or modify Section 8.21
------------
or (v) subject to Section 12.11(a), so long as no Event of Default has
----------------
occurred and is continuing (A) except as otherwise provided in clauses (i)
-----------
and (ii) of Section 11.9(b), release any Liens in favor of the Agent, for
---- ---------------
the benefit of the Holders, on any Collateral or (B) amend, waive or modify
Section 8.7, 8.9 or 8.15 or any provision of any Collateral Document;
----------- --- ----
(c) the consent of all of the Revolving Credit Lenders is required to
(i) reduce the principal of, or interest on, the Revolving Credit 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),
(ii) except with respect to payments which, but for a waiver, amendment or
modification of such Section in accordance with clause (b) above, would
----------
otherwise be required to be made pursuant to Section 4.8(c), postpone any
--------------
date fixed for any payment in respect of principal of, or interest on, the
Revolving Credit Notes, any Letter of Credit Obligations or any Fees
hereunder (other than Fees
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that are exclusively for the account of the Agent, the Issuing Bank or the
Term Loan Lenders), (iii) extend the Revolving Credit Expiration Date, (iv)
amend or modify the percentage of the Revolving Credit Commitments or
outstanding Obligations owing to the Revolving Credit Lenders, or any
minimum requirement, necessary for the Majority Revolving Credit Lenders to
take any action hereunder and (v) amend or modify the definition of
Majority Revolving Credit Lenders or Revolving Credit Proportionate Share;
(d) the consent of the Majority Revolving Credit Lenders is required
to (i) amend, waive or modify any of the conditions precedent set forth in
Section 5.2 with respect to any advance of Revolving Loans or any issuance
-----------
of Letters of Credit (including, without limitation, in connection with any
waiver of an existing Default or Event of Default), (ii) subject to Section
-------
12.11(a), after the occurrence and during the continuance of an Event of
--------
Default and prior to the time that all Obligations owing to the Revolving
Credit Lenders have been Paid In Full and the Revolving Credit Commitments
have been terminated, (A) except as otherwise provided in clauses (i) and
-----------
(ii) of Section 11.9(b), release any Liens in favor of the Agent, for the
---- ---------------
benefit of the Holders, on any Collateral or (B) amend, waive or modify
Section 8.7, 8.9 or 8.15 or any provision of any Collateral Document, (iii)
----------- --- ----
amend, waive or modify Section 12.15 and (iv) subject to Section 12.11(c),
------------- ----------------
amend, waive or modify any provision of this Credit Agreement or any other
Loan Document (other than any Collateral Document) which directly affects
the rights or obligations of the Revolving Credit Lenders (and not the Term
Loan Lenders);
(e) the consent of all of the Term Loan Lenders is required to (i)
reduce the principal of, or interest on, the Term Notes, (ii) postpone any
date fixed for any payment in respect of interest on the Term Notes, (iii)
extend the Term Loan Maturity Date, (iv) amend or modify the percentage of
the Term Loan Commitments or outstanding Obligations owing to the Term Loan
Lenders, or any minimum requirement, necessary for the Majority Term Loan
Lenders to take any action hereunder and (v) amend or modify the definition
of Majority Term Loan Lenders or Term Loan Proportionate Share;
(f) the consent of Term Loan Lenders whose Term Loan Proportionate
Shares, in the aggregate, are greater than sixty-six percent (66%) is
required to postpone any date fixed for any payment in respect of principal
of the Term Notes (other than the Term Loan Maturity Date);
(g) the consent of the Majority Term Loan Lenders is required, subject
to Sections 12.11(d) and 12.11(e), amend, waive or modify any provision of
----------------- --------
this Credit Agreement or any other Loan Document which directly affects the
rights or obligations of the Term Loan Lenders (and not the Revolving
Credit Lenders);
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(h) 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 Requisite Lenders otherwise required by this
Section 12.11; and
-------------
(i) 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, Exhibits A, D, E
and F to the Subsidiary 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 Loans or the Revolving Credit Commitments.
12.12 Counterparts; 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. On the Effective Date, this Credit
Agreement shall become effective in accordance with the recitals to this Credit
Agreement.
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, 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
126
<PAGE>
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 Provisions.
------------------------
(a) Insolvency Proceedings. Upon the commencement of a case under the
----------------------
Bankruptcy Code by or against any applicable Credit Party:
(i) This Credit Agreement shall remain in full force and effect
and enforceable pursuant to its terms in accordance with Section 510(a) of
the Bankruptcy Code, and all references herein to such Credit Party shall
be deemed to apply to such entity as debtor in possession and to any
trustee in bankruptcy for the estate of such entity.
(ii) Although each Term Loan Lender shall retain its right to
vote its claims and act in any such case under the Bankruptcy Code
(including the right to vote to accept or reject any plan of reorganization
or liquidation, subject to Section 12.15(a)(iii)(F)), each Term Loan Lender
------------------------
agrees not take any action or vote in any way so as to contest (A) the
validity or enforceability of this Credit Agreement, including, without
limitation, Section 4.11(b)(iii) and this Section 12.15, (B) the validity,
-------------------- -------------
priority or enforceability of the interests of the Revolving Credit
Lenders' rights and interests with respect to the Collateral and (C) the
relative rights and duties of the Revolving Credit Lenders and the Term
Loan Lenders granted and/or established herein or in any of the Collateral
Documents with respect to such Liens.
(iii) Prior to the time that all Obligations owing to the
Revolving Credit Lenders have been Paid In Full and the Revolving Credit
Commitments have been terminated, without the express written consent of
the Majority Revolving Credit Lenders, the Term Loan Lenders (or their
representative) shall not (A) with respect to any rights under the Credit
Documents, seek in respect of any part of the Collateral, or proceeds
thereof or any Lien which may exist thereon,
127
<PAGE>
any relief from or modification of the automatic stay as provided in
Section 362 of the Bankruptcy Code or seek or accept any form of adequate
protection under either or both Sections 362 and 363 of the Bankruptcy Code
with respect thereto, (B) oppose or object to the Agent, the Issuing Bank
or any Revolving Credit Lender obtaining a Lien or grant of administrative
claim in connection with a grant of adequate protection, use of cash
collateral or post-petition financing under Sections 362, 363, or 364 of
the Bankruptcy Code, (C) oppose or object to the use of cash collateral by
any Credit Party, (D) oppose or object to any postpetition financing (DIP
financing) provided by any of the Agent, the Issuing Bank or any Revolving
Credit Lender or provided by a third party pursuant to Section 364 on terms
acceptable to the Majority Revolving Credit Lenders, (E) oppose or object
to or withhold consent from the disposition of assets by any Credit Party
under Section 363(b) or (f) of the Bankruptcy Code, provided that the
--------
interest, if any, which the Term Loan Lenders have in the assets shall
attach to the proceeds of such disposition, (F) oppose, object to, or vote
against any plan of reorganization or disclosure statement the terms of
which are consistent with the rights of the Agent, the Issuing Bank and the
Revolving Credit Lenders under this Credit Agreement and the Credit
Documents, (G) make an election pursuant to Section 1111(b) of the
Bankruptcy Code, (H) oppose or object to the determination of the extent of
any interest of the Agent, the Issuing Bank or any Revolving Credit Lender
in the Collateral or the value of any claims of such Persons under Section
506(a) of the Bankruptcy Code or (I) oppose or object to the payment of
interest and expenses as provided under Sections 506(b) and (c) of the
Bankruptcy Code.
(iv) The obligations of each Term Loan Lender under this Credit
Agreement shall continue to be effective, or to be reinstated, as the case
may be, as to any payment in respect of any Obligation owing to the Agent,
the Issuing Bank or any Revolving Credit Lender, that is rescinded or must
otherwise be returned by such Person upon the occurrence or as a result of
applicable provisions of the Bankruptcy Code, all as though such payment
had not been made.
(b) Waivers. The Term Loan Lenders waive any claim which the Term
-------
Loan Lenders may now or hereafter have against the Agent, the Issuing Bank or
any Revolving Credit Lender (or their representatives) arising out of (i) any
and all actions which the Majority Revolving Credit Lenders take or omit to take
(including, without limitation, actions with respect to the creation, perfection
or continuation of Liens on the Collateral, actions with respect to the
occurrence of an Event of Default, actions with respect to the foreclosure upon,
sale, release, or depreciation of, or failure to realize upon, any of the
Collateral and actions with respect to the collection of any claim for all or
any part of the Obligations from any account debtor, guarantor or any other
Person) with respect to this Credit Agreement and the Collateral Documents or
any other agreement related thereto or to the collection of the Obligations or
the valuation, use, protection or release of the Collateral, (ii) the Majority
Revolving Credit Lenders' election, in any proceeding instituted under Chapter
11 of the Bankruptcy Code, of the application of Section 1111(b) of the
Bankruptcy Code, and/or
128
<PAGE>
(iii) any borrowing of, or grant of a security interest or administrative
expense priority under Section 364 of the Bankruptcy Code to any Credit Party,
as debtor in possession.
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.
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.
[The signature pages follow]
129
<PAGE>
IN WITNESS WHEREOF, the Agent, the Lenders, the Issuing Bank, the Borrowers
and the Parent Guarantors have caused this Credit Agreement to be executed by
their respective officers thereunto duly authorized as of the date first above
written.
BORROWERS: THE AIR & PUMP COMPANY
- ---------
By: /s/ Robert M. Wilson
---------------------------
Title: Treasurer
------------------------
RSC ALABAMA, INC.
By: /s/ Robert M. Wilson
---------------------------
Title: Treasurer
------------------------
RSC INDUSTRIAL CORPORATION
By: /s/ Robert M. Wilson
---------------------------
Title: Chief Financial Officer
------------------------
RSC DUVAL INC.
By: /s/ Robert M. Wilson
---------------------------
Title: Chief Financial Officer
------------------------
RSC RENTS, INC.
By: /s/ Robert M. Wilson
---------------------------
Title: Chief Financial Officer
------------------------
-S-1
<PAGE>
WALKER JONES EQUIPMENT, INC.
By: /s/ Robert M. Wilson
---------------------------
Title: Treasurer
------------------------
PARENT GUARANTORS: RSC ACQUISITION CORP.
- -----------------
By: /s/ Robert M. Wilson
---------------------------
Title: Chief Financial Officer
------------------------
RSC HOLDINGS, INC.
By: /s/ Robert M. Wilson
---------------------------
Title: Chief Financial Officer
------------------------
RENTAL SERVICE CORPORATION
By: /s/ Robert M. Wilson
---------------------------
Title: Chief Financial Officer
------------------------
AGENT: BT COMMERCIAL CORPORATION,
- -----
as Agent, as a Revolving Credit Lender and as a
Term Loan Lender
By: /s/ Albert Sun
---------------------------
Title: Vice President
------------------------
ISSUING BANK: BANKERS TRUST COMPANY,
- ------------
as Issuing Bank
By: /s/ Albert L. Fischetti
---------------------------
Title: Vice President
------------------------
-S-2
<PAGE>
REVOLVING CREDIT LENDERS: BANKBOSTON, N.A.
- ------------------------
By: /s/ Robert J. Brandon
------------------------------
Title: Director
---------------------------
THE BANK OF NOVA SCOTIA
By: /s/ John Quick
------------------------------
Title: Senior Relationship Manager
---------------------------
BANK ONE, ARIZONA, NA
By: /s/ Steve Reinhart
------------------------------
Title: Vice President
---------------------------
BANQUE PARIBAS
By: /s/ Matthew C. Bishop /s/ Lynne A. Lueders
--------------------------------------------
Title: Associate Director
-----------------------------------------
BNY FINANCIAL CORPORATION
By: /s/ Mark Orlando
------------------------------
Title: Vice President
----------------------------
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ William Shiao
-------------------------------
Title: Assistant Vice President
----------------------------
-S-3
<PAGE>
COLORADO NATIONAL BANK
By: /s/ Kelly Condon
------------------------------
Title: Vice President
---------------------------
COMERICA BANK
By: /s/ Emmanuel M. Skevofilax
------------------------------
Title: Corporate Banking Officer
------------------------------
CONGRESS FINANCIAL CORPORATION (WESTERN)
By: /s/ Cecil Chinery
------------------------------
Title: Vice President
------------------------------
CORESTATES BANK, N.A.
By: /s/ Michele A. Walcoff
------------------------------
Title: Vice President
---------------------------
CREDITANSTALT CORPORATE FINANCE,
INC.
By: /s/ Jack Bertges /s/ J. McCann
-----------------------------------------
Title: Senior Vice President Vice President
--------------------------------------
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ K.C. McDonnell
------------------------------
Title: Vice President
---------------------------
-S-4
<PAGE>
FLEET CAPITAL CORPORATION
By: /s/ J. Avenatti
------------------------------
Title: Vice President
---------------------------
HELLER FINANCIAL, INC.
By: /s/ Stephen M. Metivier
------------------------------
Title: Assistant Vice President
---------------------------
IBJ SCHRODER BUSINESS CREDIT CORPORATION
By: /s/ Christopher J. Norrito
------------------------------
Title: Vice President
---------------------------
KEY CORPORATE CAPITAL INC.
By: /s/ Frank J. Schockey
------------------------------
Title: Vice President
---------------------------
LASALLE NATIONAL BANK, N.A.
By: /s/ Christopher G. Clifford
------------------------------
Title: Senior Vice President
---------------------------
THE LONG TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By: /s/ Motokazu Uematsu
------------------------------
Title: Deputy General Manager
---------------------------
-S-5
<PAGE>
MELLON BANK, N.A.
By: /s/ Norman R. Smith
------------------------------
Title: Vice President
---------------------------
NATIONAL BANK OF CANADA
By: /s/ Beth A. Pease /s/ Thomas H. Hopkins
--------------------------------------------
Title: Vice President Vice President
-----------------------------------------
NATIONSBANK OF TEXAS, N.A.
By: /s/ E. James Beckemeir
------------------------------
Title: Vice President
--------------------------
SANWA BANK CALIFORNIA
By: /s/ Robert G. Moore
------------------------------
Title: Vice President
---------------------------
SOUTHERN PACIFIC BANK
By: /s/ Chris Kelleher
------------------------------
Title: Vice President
---------------------------
SUMITOMO BANK OF CALIFORNIA
By: /s/ Matthew R. Van Steenhuyse
------------------------------------
Title: Vice President
---------------------------------
-S-6
<PAGE>
SUMMIT COMMERCIAL/GIBRALTAR CORP.
(formerly known as Gibraltar Corporation of
America)
By: /s/ Harvey Friedman
------------------------------
Title: Executive Vice President
---------------------------
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Richard P. DeGrey
------------------------------
Title: Vice President
---------------------------
[SIGNATURES CONTINUE ON THE FOLLOWING PAGE]
-S-7
<PAGE>
TERM LOAN LENDERS: ARES LEVERAGED INVESTMENT
- ----------------- FUND L.P.
By: Ares Management, L.P.
Its general partner
By: Ares Operating Member LLC,
Its general partner
By: /s/ David A. Sachs
-------------------------
Title: Vice President
-----------------------
PARIBAS CAPITAL FUNDING LLC
By: /s/ Eric A. Green
------------------------
Title: Director
---------------------
SENIOR HIGH INCOME PORTFOLIO, INC.
By: /s/ Gil Marchand
--------------------------
Title: Vice President
-----------------------
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company,
its Investment Manager
By: /s/ Justin L. Driscoll
---------------------------------
Title: Senior Vice President
------------------------------
-S-8
<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 February 28, 1997, with respect to the
consolidated financial statements and schedules of Rental Service Corporation
as of December 31, 1995 and 1996 and for each of the three years in the period
ended December 31, 1996, in the Registration Statement (Form S-1 No. 333-40707)
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
December 15, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and 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. 333-40707) 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
December 15, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 6, 1997 with respect to the combined financial
statements of Industrial Air Tool as of March 31, 1996 and 1997 and for the
years then ended, in the Registration Statement (Form S-1 No. 333-40707) 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
December 15, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 26, 1997 with respect to the financial
statements of Brute Equipment Co. d/b/a Foxx Hy-Reach, Inc. as of December 31,
1995 and 1996 and for each of the years then ended, in the Registration
Statement (Form S-1 No. 333-40707) and related Prospectus of Rental Service
Corporation for the registration of 5,000,000 shares of its common stock.
/s/ McGLADREY & PULLEN, LLP
Moline, Illinois
December 15, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated November 7, 1997 with respect to the combined
financial statements of Rent-It-Center, Inc. and Affiliates d/b/a Center
Rental & Sales as of October 31, 1996 and 1997 and for each of the three years
in the period ended October 31, 1997, in the Registration Statement (Form S-1
No. 333-40707) 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
December 15, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 25, 1997 with respect to the financial
statements of JDW Enterprises, Inc. d.b.a. Valley Rentals as of December 31,
1996 and for the year then ended, in the Registration Statement (Form S-1 No.
333-40707) and related Prospectus of Rental Service Corporation for the
registration of 5,000,000 shares of its common stock.
/s/ WEINTRAUB & MORRISON, P.C.
Tempe, Arizona
December 15, 1997
