<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
RENTAL SERVICE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<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 NO.)
</TABLE>
--------------
6929 E. GREENWAY PARKWAY, SUITE 200
SCOTTSDALE, ARIZONA 85254
(602) 905-3300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANTS PRINCIPAL EXECUTIVE OFFICES)
--------------
MARTIN R. REID
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
RENTAL SERVICE CORPORATION
6929 E. GREENWAY PARKWAY, SUITE 200
SCOTTSDALE, ARIZONA 85254
(602) 905-3300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------
COPIES TO:
ELIZABETH A. BLENDELL, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
--------------
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 being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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(d)
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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED
SECURITIES TO BE AMOUNT TO BE PROPOSED OFFERING AGGREGATE AMOUNT OF
REGISTERED REGISTERED PRICE PER NOTE OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9% Senior Subordinated
Notes due 2008........ $200,000,000 100% $200,000,000 $59,000
- ------------------------------------------------------------------------------------------------
Subsidiary Guarantees of
the 9% Senior
Subordinated Notes due
2008(2)............... N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) Represents the guarantees of the 9% Senior Subordinated Notes due 2008 to
be issued by the Co-Registrants. Pursuant to Rule 457(n), no separate
registration fee is payable with respect to the subsidiary guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER PRIMARY STANDARD IRS EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION
NAME INCORPORATION CODE NUMBER NUMBER
---- --------------- ------------------------- --------------
<S> <C> <C> <C>
RSC Acquisition Corp. .. Delaware 7353 95-4312989
RSC Alabama, Inc. ...... Alabama 7353 63-1100849
RSC Center, Inc. ....... Texas 7353 74-1676350
RSC Duval Inc. ......... Delaware 7353 33-0378978
RSC Holdings, Inc. ..... Delaware 7353 33-0378976
RSC Industrial
Corporation............ Delaware 7353 33-0378980
RSC Rents, Inc. ........ California 7353 95-4013479
Walker Jones Equipment,
Inc. .................. Mississippi 7353 64-0373267
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 12, 1998
PROSPECTUS
OFFER TO EXCHANGE
9% SENIOR SUBORDINATED NOTES DUE 2008
FOR ALL OUTSTANDING 9% SENIOR SUBORDINATED NOTES DUE 2008
OF
RENTAL SERVICE CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
, 1998 UNLESS EXTENDED.
----------
Rental Service Corporation, a Delaware corporation (the "Company" or "RSC"),
hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
of its 9% Senior Subordinated Notes due 2008 (the "Exchange Notes"), which
exchange has been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a registration statement of which this
Prospectus is a part, for each $1,000 principal amount of its outstanding 9%
Senior Subordinated Notes due 2008 (the "Private Notes"), of which $200,000,000
in aggregate principal amount was issued on May 13, 1998 (the "Offering") are
outstanding as of the date hereof. The form and terms of the Exchange Notes are
the same as the form and terms of the Private Notes except that (i) the
Exchange Notes will have been registered under the Securities Act, and,
therefore, will not bear legends restricting the transfer thereof and
(ii) holders of the Exchange Notes will not be entitled to certain rights of
holders of the Private Notes under the Registration Rights Agreement (as
defined), which rights will terminate upon the consummation of the Exchange
Offer. The Exchange Notes will evidence the same debt as the Private Notes
(which they replace) and will be entitled to the benefits of an indenture dated
as of May 13, 1998 governing the Private Notes and the Exchange Notes (the
"Indenture"). The Private Notes and the Exchange Notes are sometimes referred
to herein collectively as the "Notes." See "The Exchange Offer" and
"Description of Exchange Notes."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, interest on the Exchange Notes will be
payable semi-annually in arrears on May 15 and November 15 of each year,
commencing on November 15, 1998, at the rate of 9% per annum. The Exchange
Notes will be redeemable, in whole or in part, at the option of the Company on
or after May 15, 2001, at the prices set forth herein, together with accrued
and unpaid interest to the date of redemption. In addition, at any time prior
to May 15, 2001, the Company may, subject to certain requirements, redeem up to
35% of the aggregate principal amount of the Exchange Notes originally issued
with the net proceeds of one or more Equity Offerings (as defined), at a
redemption price equal to 109% of the aggregate principal amount of the
Exchange Notes to be redeemed, together with accrued and unpaid interest to the
date of redemption; provided, however, that after giving effect to any such
redemption, at least 65% of the aggregate principal amount of the Exchange
Notes originally issued under the Indenture remains outstanding. Holders whose
Private Notes are accepted for exchange will be deemed to have waived the right
to receive any interest accrued on the Private Notes.
Upon a Change of Control (as defined), each holder of the Exchange Notes will
have the right to require the Company to repurchase such holder's Exchange
Notes at a price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase. In addition, the
Company will be obligated to offer to repurchase the Exchange Notes at 100% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase in the event of certain Asset Sales (as defined). See
"Description of Exchange Notes."
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
----------
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.
----------
The date of this Prospectus is , 1998
<PAGE>
The Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior
Indebtedness (as defined) and will rank pari passu in right of payment with
all future senior subordinated indebtedness of the Company. The Exchange Notes
will be fully and unconditionally guaranteed, jointly and severally (the
"Guarantees"), on a senior subordinated unsecured basis, by all of the
Company's domestic subsidiaries (the "Subsidiary Guarantors"). The Guarantees
will be general unsecured obligations of the Subsidiary Guarantors,
subordinated in right of payment to all existing and future Guarantor Senior
Indebtedness (as defined) and will rank pari passu in right of payment with
all future senior subordinated indebtedness of the Subsidiary Guarantors. As
of March 31, 1998, on a pro forma basis after giving effect to the Offering
and the Other Acquisitions (as defined), (i) the Company would have had
approximately $537.5 million of indebtedness outstanding, of which $337.5
million would have been Senior Indebtedness ($334.1 million of which would
have represented guarantees of borrowings by its subsidiaries under the Bank
Facility) and (ii) the Subsidiary Guarantors would have had approximately
$337.5 million of indebtedness outstanding, all of which would have been
Guarantor Senior Indebtedness and $334.1 million of which would have
represented borrowings under the Bank Facility. The Indenture permits the
Company and the Subsidiary Guarantors to incur additional Senior Indebtedness
and Guarantor Senior Indebtedness under the Bank Facility, as well as (subject
to certain limitations) additional indebtedness.
The Company will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5:00 p.m., New York City time, on ,
1998, unless the Exchange Offer is extended by the Company in its sole
discretion (the "Expiration Date"). Tenders of Private Notes may be withdrawn
at any time prior to the Expiration Date. Private Notes may be tendered only
in integral multiples of $1,000. The Exchange Offer is subject to certain
customary conditions. See "The Exchange Offer--Conditions."
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Private Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
a person that is an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act; provided that the holder
of Private Notes is acquiring the Exchange Notes in the ordinary course of its
business and is not participating, and had no arrangement or understanding
with any person to participate, in the distribution of the Exchange Notes.
Holders of Private Notes wishing to accept the Exchange Offer must represent
to the Company, as required by the Registration Rights Agreement, that such
conditions have been met. Each broker-dealer that receives Exchange Notes for
its own account in exchange for Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. The Company believes
that none of the registered holders of the Private Notes is an affiliate (as
such term is defined in Rule 405 under the Securities Act) of the Company.
Prior to the Exchange Offer, there has been no public market for the Private
Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. To the extent that a market for the Exchange
Notes does develop, the market value of the Notes will depend on market
conditions (such as yields on alternative investments), general economic
conditions, the Company's financial condition and certain other factors. Such
conditions might cause the Exchange Notes, to the extent that they are traded,
to trade at a significant discount from face value. See "Risk Factors--Absence
of Prior Public Market."
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may
ii
<PAGE>
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Private
Notes where such Private Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has
indicated its intention to make this Prospectus (as it may be amended or
supplemented) available to any broker-dealer for use in connection with any
such resale for a period of 180 days after the Expiration Date. See "The
Exchange Offer--Resale of the Exchange Notes" and "Plan of Distribution."
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection
with this Exchange Offer. See "The Exchange Offer--Resale of the Exchange
Notes."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC"
or the "Depositary") and registered in its name or in the name of Cede & Co.,
as its nominee. Beneficial interests in the global note representing the
Exchange Notes will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary and its participants. After the
initial issuance of such global note, Exchange Notes in certificated form will
be issued in exchange for the global note only in accordance with the terms
and conditions set forth in the Indenture. See "The Exchange Offer--Book-Entry
Transfer."
----------------
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together will all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act with respect to the
Exchange Notes offered hereby. This Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. For further
information with respect to the Company and the Exchange Notes offered hereby,
reference is hereby made to such Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus, or in any document
incorporated by reference herein, as to the contents of any contract or other
document are not necessarily complete and, in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified by such reference.
The Company is also subject to the informational requirements of the
Exchange Act, and, in accordance therewith, is required to file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of the
reports, proxy statements and other information can be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549, at
prescribed rates. In addition, all reports filed by the Company via the
Commission's Electronic Data Gathering and Retrieval System (EDGAR) can be
obtained from the Commission's Internet web site located at
http://www.sec.gov. The Common Stock of the Company is currently traded on the
New York Stock Exchange (the "NYSE"), and such reports, proxy statements and
other information concerning the Company also can be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005.
iii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which the Company has filed with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference in, and
shall be deemed to be a part of, this Prospectus:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
(c) The Company's Proxy Statement dated March 30, 1998 related to the
Annual Meeting of Stockholders held on April 29, 1998;
(d) The Company's Current Report on Form 8-K filed with the Commission
on January 22, 1998;
(e) The Company's Current Report on Form 8-K/A filed with the
Commission on February 9, 1998;
(f) The Company's Current Report on Form 8-K filed with the Commission
on February 18, 1998;
(g) The Company's Current Report on Form 8-K/A filed with the
Commission on April 17, 1998; and
(h) The Company's Current Report on Form 8-K filed with the Commission
on May 14, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering made hereby shall be deemed to be
incorporated by reference into this Prospectus and to be a part thereof from
the respective dates of filing of such documents. Any statement contained in
this Prospectus or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is incorporated or deemed to be
incorporated by reference in this Prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus except as so modified or superseded.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company will provide without charge to any
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the foregoing documents incorporated
herein by reference (other than exhibits to such documents unless such
exhibits are specifically incorporated by reference therein). Requests should
be directed to the attention of Robert M. Wilson, Secretary, Rental Service
Corporation, 6929 E. Greenway Parkway, Suite 200, Scottsdale, AZ 85254
(Telephone: (602) 905-3300).
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed under
"Risk Factors," among others, could cause actual results to differ materially
from those contained in forward-looking statements made in this Prospectus,
including, without limitation, in "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," in the Company's
press releases and in oral statements made by authorized officers of the
Company. When used in this Prospectus, the words "estimate," "project,"
"anticipate," "expect," "intend," "believe" and similar expressions are
intended to identify forward-looking statements. All of these forward-looking
statements are based on estimates and assumptions made by management of the
Company, which, although believed to be reasonable, are inherently uncertain.
Therefore, undue reliance should not be placed upon such estimates and
statements. No assurance can be given that any of such statements or estimates
will be realized and actual results will differ from those contemplated by
such forward-looking statements.
iv
<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. Holders of the Private Notes 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.
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 June 5, 1998, RSC
operated the largest equipment rental network in the United States with 203
rental locations in 26 states. 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 100,000 customers in 1997, with the
top ten customers representing less than 3% 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
June 5, 1998, the Company has acquired 56 businesses consisting of 172
locations and has opened 54 start-up locations. As of June 5, 1998, the Company
was party to non-binding letters of intent to acquire three equipment rental
businesses with a combined eleven locations in three states. See "--Recent
Developments." The Company also focuses on increasing revenues and
profitability across its locations through investments in fleet expansion, the
implementation of sophisticated information systems designed to improve asset
utilization and targeted marketing efforts. For the year ended December 31,
1997, after giving effect to the acquisitions and other pro forma adjustments
described in "Unaudited Pro Forma Consolidated Financial Data," the Company
would have generated pro forma revenues and operating income of $459.2 million
and $65.8 million, respectively. See "Unaudited Pro Forma Consolidated
Financial Data."
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 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 and geographic
locations, 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
1
<PAGE>
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, 1997 rental revenues of the top 100 rental equipment companies
increased over 1996 rental revenues by approximately 35%, to more than $4.2
billion, according to estimates by the Rental Equipment Register (the "RER").
In spite of this growth, these top 100 companies represented only a small
percentage of the estimated $21 billion in industry rental revenues in 1997.
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 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.
2
<PAGE>
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. 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 56 businesses consisting of 172 locations. See "Business--Business
Strategy--Small- to Medium-Sized Market Focus" and "Business--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 53 additional start-up locations. See "Business--
Business Strategy--Cluster Strategy" and "Business--Locations."
Internal Growth. The Company focuses on achieving internal growth through an
emphasis on disciplined fleet expansion, improved asset utilization and
targeted marketing efforts. The Company intends to replace assets
3
<PAGE>
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, 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 stock of
Rent-It-Center, Inc. d/b/a Center Rental & Sales and substantially all of the
assets of certain affiliated entities (collectively, "Center") for
approximately $100.9 million in cash, 482,315 shares of common stock, par value
$.01 per share, of the Company ("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
was a leading independent equipment rental company that also sold a variety of
equipment ranging from small tools to heavy equipment, including related
commodity supplies. Center operated a total of 14 locations in Colorado, New
Mexico, Texas, Kansas, Missouri and Nebraska, and had total combined revenues
of approximately $49.8 million for its fiscal year ended October 31, 1997.
Center operated on a "hub" and "satellite" strategy similar to that employed by
the Company. Center's balance sheet was 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.
ACQUISITION OF VALLEY RENTALS
On February 3, 1998, the Company acquired substantially all of the assets of
JDW Enterprises, Inc. d/b/a Valley Rentals ("Valley") for $93.6 million in cash
and 435,602 shares of Common Stock (the "Valley Acquisition"). Valley was a
leading independent equipment rental company in the Southwest, operating a
total of ten locations in Arizona and New Mexico, and had total revenues of
approximately $36.7 million for its fiscal year ended December 31, 1997. This
acquisition was recorded under the purchase method of accounting as of February
3, 1998.
OTHER ACQUISITIONS AND START-UPS
On April 1, 1998, the Company acquired all of the outstanding stock of James
S. Peterson Enterprises, Inc. d/b/a Metroquip Rental Centers ("Metroquip") for
$51.2 million in cash (including the payoff of assumed debt) and 193,090 shares
of Common Stock. Up to an additional 95,727 shares of Common Stock may be paid
to the seller over a three-year period if certain performance objectives are
met. Metroquip rented, sold and supported aerial work platforms and
contractors' equipment, operated a total of five locations in Minnesota and
Nebraska, and had total revenues of approximately $25.2 million for its fiscal
year ended December 31, 1997. Metroquip's balance sheet was consolidated with
the Company's as of April 1, 1998. Pursuant to the acquisition agreement, the
Company assumed effective control of Metroquip's operations on March 1, 1998
and has included
4
<PAGE>
Metroquip's revenues, costs and expenses from such date in its consolidated
statements of operations, net of related imputed purchase price adjustments.
On April 2, 1998, the Company acquired all of the outstanding stock of T&M
Rental, Inc. ("T&M") for $21.9 million in cash (including the payoff of assumed
debt). Up to 33,132 shares of Common Stock may be paid to the seller over a
three-year period if certain performance objectives are met. T&M was an
independent rental company operating one location in Indiana, and had total
revenues of approximately $5.8 million for its fiscal year ended February 28,
1998. T&M's balance sheet was consolidated with the Company's as of April 2,
1998. Pursuant to the acquisition agreement, the Company assumed effective
control of T&M's operations on March 1, 1998 and has included T&M's revenues,
costs and expenses from such date in its consolidated statements of operations,
net of related imputed purchase price adjustments.
Subsequent to March 31, 1998, the Company has completed three additional
acquisitions for a total combined purchase price of approximately $17.1 million
(including 53,693 shares of Common Stock). These acquisitions had a combined
six locations in Illinois, Missouri, Virginia and Wisconsin. Additionally, the
Company opened a total of four new start-up locations in Alabama, Iowa and
Nebraska.
As of June 5, 1998, the Company was party to non-binding letters of intent to
acquire three equipment rental businesses with a combined eleven locations in
Illinois, Missouri and Oklahoma for a total combined purchase price of
approximately $33.2 million (including the assumption of approximately $7.4
million of debt). These acquisitions are subject to a number of closing
conditions, including the execution of definitive purchase agreements, RSC
board of directors approval and, in some cases, expiration of early termination
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). Furthermore, in view of the fact that these
letters of intent are non-binding and that the Company has not completed its
due diligence investigations with respect thereto, the Company cannot predict
whether these letters of intent will lead to definitive agreements, whether the
terms of any such definitive agreements will be the same as the terms
contemplated by the letters of intent or whether any transaction contemplated
by such letters of intent will be consummated.
5
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer.............. The Company is offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Private Notes that
are properly tendered and accepted. The
Company will issue Exchange Notes on or
promptly after the Expiration Date. There is
$200.0 million aggregate principal amount of
Private Notes outstanding. See "The Exchange
Offer--Purpose of the Exchange Offer."
Based on an interpretation by the staff of
the Commission set forth in no-action letters
issued to third parties, the Company believes
that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Private
Notes may be offered for resale, resold and
otherwise transferred by a holder thereof
(other than (i) a broker-dealer who purchases
such Exchange Notes directly from the Company
to resell pursuant to Rule 144A or any other
available exemption under the Securities Act
or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under
the Securities Act), without compliance with
the registration and prospectus delivery
provisions of the Securities Act; provided
that the holder of Private Notes is acquiring
Exchange Notes in the ordinary course of its
business and is not participating, and had no
arrangement or understanding with any person
to participate, in the distribution of the
Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account
in exchange for Private Notes, where such
Private Notes were acquired by such broker-
dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus
in connection with any resale of such
Exchange Notes. See "The Exchange Offer--
Resale of the Exchange Notes."
Registration Rights Agreement... The Private Notes were sold by the Company on
May 13, 1998 to BT Alex. Brown Incorporated,
Morgan Stanley & Co. Incorporated, Merrill
Lynch, Pierce, Fenner & Smith Incorporated
and William Blair & Company, L.L.C.
(collectively, the "Initial Purchasers")
pursuant to a Purchase Agreement, dated May
8, 1998, by and among the Company and the
Initial Purchasers (the "Purchase
Agreement"). Pursuant to the Purchase
Agreement, the Company and the Initial
Purchasers entered into a Registration Rights
Agreement, dated as of May 13, 1998 (the
"Registration Rights Agreement"), which
grants the holders of the Private Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such
rights, which will terminate upon the
consummation of the Exchange Offer. See "The
Exchange Offer--Termination of Certain
Rights."
6
<PAGE>
Expiration Date................. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1998,
unless the Exchange Offer is extended by the
Company in its sole discretion, in which case
the term "Expiration Date" shall mean the
latest date and time to which the Exchange
Offer is extended. See "The Exchange Offer--
Expiration Date; Extensions; Amendments."
Accrued Interest on the
Exchange Notes and the Private
Notes........................... The Exchange Notes will bear interest from
and including the date of issuance of the
Private Notes (May 13, 1998). Holders whose
Private Notes are accepted for exchange will
be deemed to have waived the right to receive
any interest accrued on the Private Notes.
See "The Exchange Offer--Interest on the
Exchange Notes."
Conditions to the Exchange The Exchange Offer is subject to certain
Offer........................... customary conditions that may be waived by
the Company. The Exchange Offer is not
conditioned upon any minimum aggregate
principal amount of Private Notes being
tendered for exchange. See "The Exchange
Offer--Conditions."
Procedures for Tendering Each holder of Private Notes wishing to
Private Notes................... accept the Exchange Offer must complete, sign
and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
such Private Notes and any other required
documentation to Norwest Bank Minnesota,
N.A., as exchange agent (the "Exchange
Agent"), at the address set forth herein. By
executing the Letter of Transmittal, the
holder of Private Notes will represent to and
agree with the Company that, among other
things, (i) the Exchange Notes to be acquired
by such holder of Private Notes in connection
with the Exchange Offer are being acquired by
such holder in the ordinary course of its
business, (ii) if such holder is not a
broker-dealer, such holder is not currently
participating in, does not intend to
participate in, and has no arrangement or
understanding with any person to participate
in a distribution of the Exchange Notes,
(iii) if such holder is a broker-dealer
registered under the Exchange Act or is
participating in the Exchange Offer for the
purposes of distributing the Exchange Notes,
such holder will comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with a secondary
resale transaction of the Exchange Notes
acquired by such person and cannot rely on
the position of the staff of the Commission
set forth in no-action letters (see "The
Exchange Offer--Resale of Exchange Notes"),
(iv) such holder understands that a secondary
resale transaction described in clause
(iii) above and any resales of Exchange Notes
obtained by such holder in exchange for
Private Notes
7
<PAGE>
acquired by such holder directly from the
Company should be covered by an effective
registration statement containing the selling
securityholder information required by Item
507 or Item 508, as applicable, of Regulation
S-K of the Commission and (v) such holder is
not an "affiliate," as defined in Rule 405
under the Securities Act, of the Company. If
the holder is a broker-dealer that will
receive Exchange Notes for its own account in
exchange for Private Notes that were acquired
as a result of market-making activities or
other trading activities, such holder will be
required to acknowledge in the Letter of
Transmittal that such holder will deliver a
prospectus in connection with any resale of
such Exchange Notes; however, by so
acknowledging and by delivering a prospectus,
such holder will not be deemed to admit that
it is an "underwriter" within the meaning of
the Securities Act. See "The Exchange Offer--
Procedures for Tendering."
Special Procedures for Any beneficial owner whose Private Notes
Beneficial Owners............... are registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and who wishes to tender
such Private Notes in the Exchange Offer
should contact such registered holder
promptly and instruct such registered
holder to tender on such beneficial
owner's behalf. If such beneficial owner
wishes to tender on such owner's own
behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering such owner's
Private Notes, either make appropriate
arrangements to register ownership of the
Private Notes in such owner's name or
obtain a properly completed bond power
from the registered holder. The transfer
of registered ownership may take
considerable time and may not be able to
be completed prior to the Expiration
Date. See "The Exchange Offer--Procedures
for Tendering."
Guaranteed Delivery Holders of Private Notes who wish to
Procedures...................... tender their Private Notes and whose
Private Notes are not immediately
available or who cannot deliver their
Private Notes, the Letter of Transmittal
or any other documentation required by
the Letter of Transmittal to the Exchange
Agent prior to the Expiration Date must
tender their Private Notes according to
the guaranteed delivery procedures set
forth under "The Exchange Offer--
Guaranteed Delivery Procedures."
Acceptance of the Private Notes
and Delivery of the Exchange
Notes...........................
Subject to the satisfaction or waiver of
the conditions to the Exchange Offer, the
Company will accept for exchange any and
all Private Notes that are properly
tendered in the Exchange Offer prior to
the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer
will be delivered on the earliest
practicable date following the Expiration
Date. See "The Exchange Offer--Terms of
the Exchange Offer."
8
<PAGE>
Withdrawal Rights............... Tenders of Private Notes may be withdrawn
at any time prior to the Expiration Date.
See "The Exchange Offer--Withdrawal of
Tenders."
Material Federal Income Tax For a discussion of certain material
Considerations.................. federal income tax considerations
relating to the exchange of the Exchange
Notes for the Private Notes, see
"Material Federal Income Tax
Considerations."
Exchange Agent.................. Norwest Bank Minnesota, N.A. is serving
as the Exchange Agent in connection with
the Exchange Offer.
THE EXCHANGE NOTES
The Exchange Offer applies to $200.0 million aggregate principal amount
of the Private Notes. The form and terms of the Exchange Notes are the same
as the form and terms of the Private Notes except that (i) the Exchange
Notes will have been registered under the Securities Act and, therefore,
the Exchange Notes will not bear legends restricting the transfer thereof
and (ii) holders of the Exchange Notes will not be entitled to certain
rights of holders of the Private Notes under the Registration Rights
Agreement, which rights will terminate upon consummation of the Exchange
Offer. The Exchange Notes will evidence the same debt as the Private Notes
(which they replace) and will be issued under, and be entitled to the
benefits of, the Indenture. For further information and for definitions of
certain capitalized terms used below, see "Description of Exchange Notes."
Securities Offered.............. $200.0 million aggregate principal amount
of the Company's 9% Senior Subordinated
Notes due 2008.
Company......................... Rental Service Corporation
Maturity Date................... May 15, 2008.
Interest Payment Dates.......... Interest on the Exchange Notes will
accrue from the date of original issuance
(the "Issue Date") and will be payable
semi-annually in arrears on each May 15
and November 15, commencing November 15,
1998.
Optional Redemption............. The Exchange Notes will be redeemable, in
whole or in part, at the option of the
Company on or after May 15, 2001, at the
redemption prices set forth herein,
together with accrued and unpaid interest
to the date of redemption. In addition,
at any time on or prior to May 15, 2001,
the Company may, at its option, redeem up
to 35% of the aggregate principal amount
of the Exchange Notes originally issued
with the net cash proceeds of one or more
Equity Offerings (as defined), at a
redemption price equal to 109% of the
aggregate principal amount of the
Exchange Notes to be redeemed together
with accrued and unpaid interest to the
date of redemption; provided, however,
that, after giving effect to any such
redemption, at least 65% of the aggregate
principal amount of the Exchange Notes
originally issued under the Indenture
remains outstanding. See "Description of
Exchange Notes-- Redemption."
9
<PAGE>
Change of Control............... Upon the occurrence of a Change of
Control (as defined), each holder will
have the right, subject to certain
conditions, to require the Company to
repurchase all or any part of such
holder's Exchange Notes at a price equal
to 101% of the aggregate principal amount
thereof, together with accrued and unpaid
interest and Additional Interest, if any,
thereon to the date of repurchase. See
"Description of Exchange Notes--Change of
Control." There can be no assurance that,
in the event of a Change of Control, the
Company would have sufficient funds to
repurchase all Exchange Notes tendered.
See "Risk Factors--Purchase of Exchange
Notes upon a Change of Control."
Ranking......................... The Exchange Notes will be general
unsecured obligations of the Company,
subordinated in right of payment to all
existing and future Senior Indebtedness
(as defined) and will rank pari passu in
right of payment with all future senior
subordinated indebtedness of the Company.
As of March 31, 1998, on a pro forma
basis after giving effect to the Offering
and the Other Acquisitions, the Company
would have had approximately $537.5
million of indebtedness outstanding, of
which $337.5 million would have been
Senior Indebtedness ($334.1 million of
which would have represented guarantees
of borrowings by its subsidiaries under
the Bank Facility). The Indenture permits
the Company to incur additional Senior
Indebtedness under the Bank Facility, as
well as (subject to certain limitations)
additional indebtedness. See "Risk
Factors--Subordination."
Guarantees...................... The Exchange Notes will be fully and
unconditionally guaranteed, jointly and
severally, on a senior subordinated
unsecured basis by the Subsidiary
Guarantors. The Guarantees will be
general unsecured obligations of the
Subsidiary Guarantors, subordinated in
right of payment to all existing and
future Guarantor Senior Indebtedness and
will rank pari passu in right of payment
with all future senior subordinated
indebtedness of the Subsidiary
Guarantors. As of March 31, 1998, on a
pro forma basis after giving effect to
the Offering and the Other Acquisitions,
the Subsidiary Guarantors would have had
approximately $337.5 million of
indebtedness outstanding, all of which
would have been Guarantor Senior
Indebtedness and $334.1 million of which
would have represented borrowings under
the Bank Facility. The Indenture permits
the Subsidiary Guarantors to incur
additional Guarantor Senior Indebtedness
under the Bank Facility, as well as
(subject to certain limitations)
additional indebtedness. See "Description
of Exchange Notes--Subsidiary
Guarantees."
Certain Covenants............... The Indenture contains certain covenants
that limit the ability of the Company and
its subsidiaries to, among other things,
incur additional indebtedness, pay
dividends or make investments and certain
other restricted payments, consummate
10
<PAGE>
certain asset sales, enter into certain
transactions with affiliates, incur
liens, permit payment or dividend
restrictions to apply to subsidiaries of
the Company, merge or consolidate with
any other person or sell, assign,
transfer, lease, convey or otherwise
dispose of all or substantially all of
the assets of the Company. In addition,
under certain circumstances, the Company
will be required to offer to purchase the
Exchange Notes, in whole or in part, at a
purchase price equal to 100% of the
principal amount thereof, together with
accrued and unpaid interest, if any, to
the date of repurchase, with the proceeds
of certain Asset Sales (as defined). All
of such covenants are subject to
significant qualifications and
exceptions. See "Description of Exchange
Notes--Certain Covenants."
RISK FACTORS
For a discussion of certain factors that should be considered in evaluating
an investment in the Exchange Notes, see "Risk Factors" beginning on page 15.
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary consolidated statement of operations data for the years
ended December 31, 1995, 1996 and 1997, and summary consolidated balance sheet
data as of December 31, 1996 and 1997, 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 balance sheet as of December 31, 1995 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 statements of
operations for the three months ended March 31, 1997 and 1998, and with respect
to the balance sheet as of March 31, 1998, has been derived from the unaudited
consolidated financial statements of the Company, which, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's results of operations
and financial position at such dates and for such periods. The results for the
three months ended March 31, 1998 are not necessarily indicative of the results
which may be expected for future periods, including for the year ending
December 31, 1998. 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, "Unaudited Pro Forma Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
12
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1995 1996 1997 1997(1) 1997 1998 1998(1)
------- ------- -------- ----------- ------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(2):
Revenues:
Equipment rentals...... $47,170 $94,218 $170,704 $297,663 $27,527 $70,179 $79,197
Sales of parts,
supplies and new
equipment............. 14,621 21,919 70,957 161,508 9,165 27,227 43,268
Sales of used
equipment(3).......... 4,126 12,217 19,602 N/A 4,617 11,257 N/A
------- ------- -------- -------- ------- ------- -------
Total revenues......... 65,917 128,354 261,263 459,171 41,309 108,663 122,465
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 27,854 55,202 87,552 140,788 14,316 37,073 40,892
Depreciation, equipment
rentals............... 7,691 17,840 37,413 61,178 6,306 15,461 17,088
Cost of sales of parts,
supplies and new
equipment............. 10,439 15,582 54,739 118,338 6,737 21,249 32,194
Cost of sales of used
equipment(3).......... 2,178 8,488 12,927 N/A 2,972 7,944 N/A
------- ------- -------- -------- ------- ------- -------
Total cost of
revenues.............. 48,162 97,112 192,631 320,304 30,331 81,727 90,174
------- ------- -------- -------- ------- ------- -------
Gross profit............ 17,755 31,242 68,632 138,867 10,978 26,936 32,291
Selling, general and
administrative
expense................ 6,421 12,254 20,996 54,408 3,784 5,659 8,204
Depreciation and
amortization, excluding
equipment rental
depreciation........... 1,186 2,835 5,373 8,064 1,068 2,024 2,208
Amortization of
intangibles............ 718 2,379 3,907 10,560 624 2,085 2,600
------- ------- -------- -------- ------- ------- -------
Operating income........ 9,430 13,774 38,356 65,835 5,502 17,168 19,279
Interest expense, net... 3,314 7,063 14,877 39,198 1,597 7,583 10,459
------- ------- -------- -------- ------- ------- -------
Income before income
taxes and extraordinary
items.................. 6,116 6,711 23,479 26,637 3,905 9,585 8,820
Provision for income
taxes.................. 2,401 2,722 10,330 11,720 1,722 4,101 3,775
------- ------- -------- -------- ------- ------- -------
Income before
extraordinary items.... 3,715 3,989 13,149 $ 14,917 2,183 5,484 $ 5,045
======== =======
Extraordinary items(4).. (478) (1,269) (534) (534) --
------- ------- -------- ------- -------
Net income.............. 3,237 2,720 12,615 1,649 5,484
Redeemable preferred
stock accretion........ 1,717 1,643 -- -- --
------- ------- -------- ------- -------
Net income available to
common stockholders.... $ 1,520 $ 1,077 $ 12,615 $ 1,649 $ 5,484
======= ======= ======== ======= =======
Income (loss) before
extraordinary items per
common share........... $ .50 $ .34 $ .96 $ .72 $ .19 $ .27 $ .24
Income (loss) before
extraordinary items per
common share, assuming
dilution............... $ .49 $ .33 $ .94 $ .71 $ .19 $ .27 $ .24
SELECTED OPERATING DATA:
Beginning locations..... 25 50 94 94 165
Locations acquired...... 26 25 64 12 22
Locations opened........ 10 19 16 -- 2
Locations closed, sold
or held for sale(5).... (11) -- (9) -- (2)
------- ------- -------- ------- -------
Ending locations........ 50 94 165 106 187
======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31, 1998
-------------------------- -----------------------
PRO FORMA
1995 1996 1997 ACTUAL AS ADJUSTED(1)
-------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net book value of rental
equipment................. $ 52,818 $116,921 $314,696 $403,266 $434,605
Total assets............... 137,832 218,933 699,326 864,876 980,842
Total debt................. 68,555 68,594 306,975 433,140 537,472
Redeemable preferred stock
(net of treasury stock)... 28,401 -- -- -- --
Common stockholders'
equity.................... 46 95,072 290,781 307,240 312,690
</TABLE>
13
<PAGE>
- --------
(1) The unaudited pro forma as adjusted consolidated statement of operations
data for the year ended December 31, 1997 gives effect to the 1997 Pro
Forma Combined Acquisitions, the 1998 Pro Forma Combined Acquisitions, the
1997 Pro Forma Acquisition Adjustments, the 1998 Pro Forma Acquisition
Adjustments and the 1997 Pro Forma Offering Adjustments, as described in
"Unaudited Pro Forma Consolidated Financial Data," as if such transactions
had occurred on January 1, 1997. The unaudited pro forma as adjusted
consolidated statement of operations data for the three months ended March
31, 1998 gives effect to the 1998 Pro Forma Combined Acquisitions, the 1998
Pro Forma Acquisition Adjustments and the 1998 Pro Forma Offering
Adjustments, as described in "Unaudited Pro Forma Consolidated Financial
Data," as if such transactions had occurred on January 1, 1998. The
unaudited pro forma as adjusted balance sheet at March 31, 1998 gives
effect to the Other Acquisitions and the 1998 Pro Forma Offering
Adjustments as if they had occurred on March 31, 1998. 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 date of effective control of each
such acquisition. See Note 2 to the Company's Consolidated Financial
Statements.
(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, 1997, the three months ended March 31, 1998
and the twelve months ended March 31, 1998.
(4) 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 represents the
loss on extinguishment of debt related to the amendment to the Revolver in
September 1996. The extraordinary item in the year ended December 31, 1997
represents the loss on extinguishment of debt related to the amendment to
the Revolver in January 1997.
(5) 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.
----------------
The Company operates through subsidiaries and, unless the context otherwise
requires, references in this Prospectus to the "Company" or "RSC" include
Rental Service Corporation, a Delaware corporation, and its direct and indirect
subsidiaries. The Company's principal executive offices are located at 6929 E.
Greenway Parkway, Suite 200, Scottsdale, Arizona 85254, and its telephone
number is (602) 905-3300.
14
<PAGE>
RISK FACTORS
Certain information contained in this Prospectus, including information with
respect to the Company's plans and strategy for its business, are forward-
looking statements. Holders of Private Notes considering participating in this
Exchange Offer should carefully consider, in addition to the other information
contained in this Prospectus, 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.
ABILITY TO SERVICE DEBT; SIGNIFICANT LEVERAGE
The Company's leverage is significant in relation to its equity. As of March
31, 1998, on a pro forma basis after giving effect to the Offering and the
completion of the Other Acquisitions, the Company and its subsidiaries would
have had $537.5 million of indebtedness, $337.5 million of which would have
been Senior Indebtedness or Guarantor Senior Indebtedness and $312.7 million
of stockholders' equity. In addition, the Company would have been entitled to
borrow up to an additional $247.8 million in Senior Indebtedness under the
Revolver and, subject to the restrictions in the Indenture, to incur
substantial additional indebtedness.
The level of the Company's indebtedness could have important consequences to
the holders of the Exchange Notes, including the following: (i) the ability of
the Company to obtain any necessary financing in the future for capital
expenditures, working capital, debt service requirements, acquisitions or
other purposes may be limited; (ii) a substantial portion of the Company's
cash flow from operations must be dedicated to the payment of principal of and
interest on its indebtedness and other obligations; (iii) the Company's level
of indebtedness could limit its flexibility in planning for, or reacting to
changes in, its business; (iv) the Company will be more highly leveraged than
some of its competitors; (v) the Company's high degree of indebtedness will
make it more vulnerable to a default and the consequences thereof (such as a
bankruptcy or workout) in the event of a downturn in its business; and (vi)
the Bank Facility accrues interest at variable rates, which will cause the
Company to be vulnerable to fluctuations in interest rates. See "--Risks
Relating to Growth Strategy," "--Need for Additional Capital for Future
Growth; Restrictions Imposed by Debt Covenants," "--Seasonality and Quarterly
Fluctuations," "--RHI's Bankruptcy; Increase in Indebtedness," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Description of the Bank Facility" and "Description of Exchange Notes."
The ability of the Company to meet its debt service requirements will be
dependent upon the successful implementation of the Company's strategy, among
other things. In addition, the Company's ability to satisfy its debt service
obligations will be dependent upon the Company's future performance, which is
subject to a number of factors that are beyond the Company's control. The
Company's revenues and operating results are subject to seasonality and
quarterly fluctuations. There can be no assurance that the Company will
generate sufficient cash flow from operating activities to meet its debt
service and working capital requirements. Any failure or delay in meeting
these debt service requirements could have a material adverse effect upon the
Company and the value of the Exchange Notes.
SUBORDINATION
The Exchange Notes and the Guarantees will be unsecured obligations of the
Company and the Subsidiary Guarantors and will be subordinated in right of
payment to all existing and future Senior Indebtedness and Guarantor Senior
Indebtedness, which will include borrowings under the Bank Facility and
guarantees thereof. The Exchange Notes and the Guarantees will rank pari passu
in right of payment with all future senior subordinated indebtedness of the
Company and the Guarantors, respectively, and will rank senior to other
indebtedness that expressly provides that it is subordinated in right of
payment to the Exchange Notes or the Guarantees. In the event of bankruptcy,
liquidation or reorganization of the Company, the assets of the Company and
the Guarantors will be available to pay obligations on the Exchange Notes and
the Guarantees only after all Senior Indebtedness and Guarantor Senior
Indebtedness has been paid in full, and there may not be sufficient
15
<PAGE>
assets remaining to pay amounts due on any or all of the Exchange Notes and
Guarantees outstanding. The Company may not pay principal of, premium (if any)
on, or interest on the Exchange Notes, make any deposit pursuant to defeasance
provisions or repurchase or redeem or otherwise retire any Exchange Notes
(i) if any Senior Indebtedness is not paid when due or (ii) if any other
default on Designated Senior Indebtedness (as defined) occurs that permits the
holders of such Designated Senior Indebtedness to accelerate maturity of such
Designated Senior Indebtedness, in accordance with its terms, and the Trustee
(as defined) receives a notice of such default unless, in either case, the
default has been cured or waived, any such acceleration has been rescinded or
such Designated Senior Indebtedness has been paid in full or, in the case of
any default other than a payment default, 179 days have passed since the
default notice is given. As of March 31, 1998, on a pro forma basis after
giving effect to the Offering and the Other Acquisitions, (i) the Company
would have had approximately $537.5 million of indebtedness outstanding, of
which $337.5 million would have been Senior Indebtedness ($334.1 million of
which would have represented guarantees of borrowings by its subsidiaries
under the Bank Facility) and (ii) the Subsidiary Guarantors would have had
approximately $337.5 million of indebtedness outstanding, all of which would
have been Guarantor Senior Indebtedness and $334.1 million of which would have
represented borrowings under the Bank Facility. Additional Senior Indebtedness
and Guarantor Senior Indebtedness may be incurred by the Company and its
subsidiaries from time to time, subject to certain restrictions imposed by the
Indenture and the Bank Facility. Additional Indebtedness also may be incurred
by foreign subsidiaries of the Company, which are not required to guarantee
the Exchange Notes. See "--Need for Additional Capital for Future Growth;
Restrictions Imposed by Debt Covenants," "Description of the Bank Facility"
and "Description of Exchange Notes--Subordination."
RISKS RELATING TO GROWTH STRATEGY
The ability of the Company to meet its debt service requirements will be
dependent upon the successful implementation of the Company's strategy, among
other things. A principal component of the Company's growth strategy is to
continue to expand through additional acquisitions and start-up locations that
complement the Company's business in new or existing markets. From its
formation in 1992 through June 5, 1998, the Company, through its aggressive
expansion strategy, has acquired 56 businesses comprised of 172 locations and
has opened 54 start-up locations. At June 5, 1998, the Company was party to
non-binding letters of intent to acquire three equipment rental businesses
with a combined eleven locations in Illinois, Missouri and Oklahoma for a
total combined purchase price of approximately $33.2 million (including the
assumption of approximately $7.4 million of debt). The Company's future growth
will be dependent upon a number of factors including, among others, the
Company's ability to identify acceptable acquisition candidates and suitable
start-up locations, consummate acquisitions and obtain sites for start-up
locations on favorable terms, promptly and successfully integrate acquired
businesses and start-up locations with the Company's existing operations,
expand its customer base and obtain financing to support expansion. There can
be no assurance that the Company will successfully expand or that any
expansion will result in profitability. The failure to effectively identify,
evaluate and integrate acquired businesses and start-up locations could
adversely affect the Company's operating results, possibly causing adverse
effects on the value of the Exchange Notes. Through several recent
acquisitions (including Valley and Center), the Company began operating in the
Rocky Mountain area, the Mid-Atlantic regions and the Southwest, areas in
which it has no experience. 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. 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 lower operating 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 the operating complexity of the
Company and the level of responsibility for both existing and new management
personnel. To manage this expected growth, the Company intends to increase its
investment in its operating and financial systems and to continue to expand,
16
<PAGE>
train and manage its employee base. There can be no assurance that the Company
will be able to attract and retain qualified management and employees or that
the Company's current operating and financial systems and controls will be
adequate as the Company grows or that any steps taken to improve such systems
and controls will be sufficient. See "--Need for Additional Capital for Future
Growth; Restrictions Imposed by Debt Covenants" and "Business--Growth
Strategy."
NEED FOR ADDITIONAL CAPITAL FOR FUTURE GROWTH; RESTRICTIONS IMPOSED BY DEBT
COVENANTS
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, $165.1 million and $70.7 million
in the years ended December 31, 1996 and 1997 and the three months ended
March 31, 1998, respectively, and completed acquisitions for $27.3 million,
$278.9 million and $107.8 million in the aggregate, respectively, during such
periods. The Company's capital expenditures have principally been
discretionary expenditures to finance growth of its rental fleet. 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. The Company offered the Private Notes to
implement its growth strategy and meet its capital needs and may in the future
issue additional equity securities or may incur additional indebtedness. Such
additional indebtedness may 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
could have a material adverse effect on its ability to make payments on the
Exchange Notes.
The Company's ability to finance future acquisitions, start-ups and internal
growth will be limited by the covenants contained in the Bank Facility and the
Indenture. The Bank Facility contains 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 and debt coverage ratios, and prohibits the Company and its
subsidiaries from prepaying, redeeming or defeasing the Company's other
indebtedness (including the Exchange Notes). Furthermore, the Indenture
relating to the Exchange Notes contains, and any additional financing
agreements are likely to contain, certain restrictive covenants. The
restrictions contained in the Indenture and such other agreements affect, and
in some cases significantly limits or prohibits, among other things, the
ability of the Company to incur indebtedness, make prepayments of certain
indebtedness, pay dividends, make investments, engage in transactions with
affiliates, create liens, sell assets and engage in mergers and
consolidations. If the Company fails to comply with the restrictive covenants
in the Indenture, the Company's obligation to repay such obligations may be
accelerated.
The ability of the Company to comply with such provisions may be affected by
events that are beyond the Company's control. The breach of any of these
covenants could result in a default under the Bank Facility. In the event of
any such default, the lenders under the Bank Facility could elect to declare
all amounts borrowed under the Bank Facility, together with accrued interest
and other fees, to be due and payable. If the indebtedness under the Bank
Facility were to be accelerated, all indebtedness outstanding under such Bank
Facility would be required to be paid in full before the subsidiaries of the
Company that are parties to the Bank Facility would be permitted to distribute
any assets or cash to the Company. There can be no assurance that the assets
of the Company and its subsidiaries would be sufficient to repay all
borrowings under the Bank Facility, the other creditors of such subsidiaries
and the Exchange Notes in full. In addition, 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, if
needed, may be significantly restricted, and the Company may be prevented from
17
<PAGE>
engaging in transactions, including acquisitions, that might otherwise be
considered important to the Company's growth strategy or otherwise beneficial
to the Company. See "Description of the Bank Facility," "Business--Growth
Strategy" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
HOLDING COMPANY STRUCTURE; EFFECTS OF ASSET ENCUMBRANCES
Substantially all of the Company's operating income is generated by its
subsidiaries. As a result, the Company will rely on cash received from its
subsidiaries to provide substantially all of the funds necessary to meet its
debt service obligations, including the payment of principal and interest on
the Exchange Notes. The Subsidiary Guarantors will guarantee the Company's
obligations under the Bank Facility on a senior secured basis, and the capital
stock of, and substantially all of the assets of, the Subsidiary Guarantors
will be pledged to secure the obligations of the Company and such subsidiaries
under the Bank Facility and other secured obligations. In addition, the Bank
Facility will prohibit the payment of dividends or other similar distributions
to the Company from its subsidiaries in the event of a default thereunder. The
Exchange Notes are guaranteed on a senior subordinated unsecured basis by the
Subsidiary Guarantors, and therefore, should the Company fail to satisfy any
payment obligation under the Exchange Notes, the holders would have a direct
claim therefor against the Subsidiary Guarantors pursuant to such Guarantees.
The Indenture will limit, but not prohibit, the ability of the Company and its
subsidiaries to incur additional indebtedness, including Senior Indebtedness.
In the event of a default under the Bank Facility (or any other Senior
Indebtedness), the lenders thereunder would be entitled to a claim on the
assets securing such indebtedness which is prior to any claim of the holders
of the Exchange Notes. Accordingly, there may be insufficient assets remaining
after payment of prior secured claims (including claims of lenders under the
Bank Facility) to pay amounts due on the Exchange Notes. The Indenture also
limits the ability of the Company and its subsidiaries to incur additional
indebtedness. However, these limitations are subject to certain exceptions.
See "--Fraudulent Conveyance Risks" and "Description of Exchange Notes."
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., BET
Plant Services U.S.A. and United Rentals, Inc.); 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. Fragmentation has attracted new competitors. Through
its acquisition of Prime Services, Inc., Atlas Copco North America Inc., a
subsidiary of Sweden-based Atlas Copco AB ("Atlas Copco"), has entered into
the equipment rental business, and the Company believes that equipment
manufacturers such as Caterpillar Inc. ("Caterpillar"), John Deere Capital
Corporation, a wholly owned subsidiary of Deere & Company ("John Deere"), and
equipment dealers such as Neff Corp., a John Deere dealer in which GE Capital
Corp. has an equity investment ("Neff"), have or may enter into the 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. These competitors of the Company, as well as some
others, have greater financial resources, are more geographically diverse and
have greater name recognition than the Company. There can be no assurance that
the Company will not encounter increased competition from existing competitors
or new market entrants that may be significantly larger and have greater
financial and marketing resources. In addition, to the extent existing or
future competitors seek to gain or retain market share by reducing prices, the
Company may be required to lower its prices, thereby impacting operating
results.
Existing or future competitors also may seek to compete with the Company for
acquisition candidates that could have the effect of increasing the price for
acquisitions or reducing the already limited number of suitable acquisition
candidates. Management believes that such competition has 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
"Business--Competition."
18
<PAGE>
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. As of June 5, 1998, the Company
operated 203 locations in 26 states (Alabama, Arizona, Arkansas, Colorado,
Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana,
Maryland, Minnesota, Mississippi, Missouri, Nebraska, New Mexico,
North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas,
Virginia and Wisconsin). As of June 5, 1998, the Company was party to non-
binding letters of intent to acquire three equipment rental businesses with a
combined eleven locations in three states (Illinois, Missouri and Oklahoma).
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, 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 and financial
condition. See "Business--Locations."
SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, the Company's revenues and operating results have varied from
quarter to quarter and are expected to continue to fluctuate in the future.
These fluctuations have been due to a number of factors, including: general
economic conditions in the Company's markets; the timing 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. 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
Exchange Notes. In addition, operating results historically have been
seasonally lower during the first and fourth fiscal quarters than during the
other quarters of the fiscal year. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Seasonality and Selected
Quarterly Operating Results."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance and development will depend, in large part,
upon the efforts and abilities of certain members of senior management,
particularly Martin R. Reid, Chairman of the Board and Chief Executive
Officer, Robert M. Wilson, Senior Vice President and Chief Financial Officer,
and Douglas A. Waugaman, Ronald Halchishak, David G. Ledlow and John Markle,
each a Senior Vice President of Operations. The loss of service of one or more
members of senior management could have a material adverse effect on the
Company's business. The Company's future success also will depend on its
ability to attract, train and retain skilled personnel in all areas of its
business. See "Management."
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
19
<PAGE>
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 of its locations. 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 a deductible. There can be no assurance that existing or future
claims will not exceed the level of the Company's insurance, or that such
insurance will continue to be available on economically reasonable terms, if
at all. In addition, certain types of claims, such as claims for punitive
damages or for damages arising from intentional misconduct, are generally not
covered by the Company's insurance.
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, 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. See "Capitalization,"
"Unaudited Pro Forma Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Management."
FAILURE TO EXCHANGE PRIVATE NOTES
The Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly
completed and duly executed Letter of Transmittal and all other required
20
<PAGE>
documentation. Therefore, holders of Private Notes desiring to tender such
Private Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor the Company is under
any duty to give notification of defects or irregularities with respect to
tenders of Private Notes for exchange. Private Notes that are not tendered or
are tendered but not accepted will, following consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof. In addition, any holder of Private Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own accounts in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or any other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. To the extent that Private Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Private Notes could be adversely affected due to
the limited amount, or "float," of the Private Notes that are expected to
remain outstanding following the Exchange Offer. Generally, a lower "float" of
a security could result in less demand to purchase such security and could,
therefore, result in lower prices for such security. For the same reason, to
the extent that a large amount of Private Notes are not tendered or are
tendered and not accepted in the Exchange Offer, the trading market for the
Exchange Notes could be adversely affected. See "Plan of Distribution" and
"The Exchange Offer."
ABSENCE OF PRIOR PUBLIC MARKET
The Private Notes have not been registered under the Securities Act and are
subject to significant restrictions on resale. The Exchange Notes are new
securities and have no established trading market. The Company does not intend
to apply for listing of the Exchange Notes on any exchange or to seek the
admission thereof to trading in the National Association of Securities Dealers
Automated Quotation System. The Initial Purchasers have advised the Company
that they currently intend to make a market in the Exchange Notes. However,
the Initial Purchasers are not obligated to do so and any market making may be
discontinued at any time without notice. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act, and may be limited during the Exchange Offer. No assurance can
be given as to the liquidity of any trading market for the Exchange Notes or
that any such trading market will develop. If an active public market for the
Exchange Notes does not develop, their value and liquidity may be adversely
affected. If a market for the Exchange Notes develops, any such market may be
discontinued at any time. If a public trading market develops for the Exchange
Notes, future trading prices of the Exchange Notes will depend on many
factors, including, among other things, prevailing interest rates, the
Company's results of operations and the market for similar securities.
PURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company is required to make
an offer to purchase all outstanding Exchange Notes at a purchase price equal
to 101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of purchase. There can be no assurance that the
Company will have available funds sufficient to purchase the Exchange Notes
upon a Change of Control. In addition, any Change of Control, and any
repurchase of the Exchange Notes required under the Indenture upon a Change of
Control, would constitute an event of default under the Bank Facility, with
the result that the obligations of the borrowers thereunder could be declared
due and payable by the lenders. Any acceleration of the obligations under the
Indenture or the Bank Facility would make it unlikely that the Company could
service the Exchange Notes and, accordingly, that the Company could effect a
purchase of the Exchange Notes upon a Change of Control. See "Description of
the Bank Facility" and "Description of Exchange Notes--Change of Control."
FRAUDULENT CONVEYANCE RISKS
Management of the Company believes that the indebtedness represented by the
Exchange Notes is being incurred for proper purposes and in good faith, and
that after the consummation of the Exchange Offer, based on
21
<PAGE>
present forecasts, asset valuations and other financial information, the
Company will be solvent, will have sufficient capital for carrying on its
business and will be able to pay its debts as they mature. See "--Ability to
Service Debt; Significant Leverage." Notwithstanding management's belief,
however, if a court of competent jurisdiction in a suit by an unpaid creditor
or a representative of creditors (such as a trustee in a bankruptcy or a
debtor-in-possession) were to find that, at the time of incurrence of such
indebtedness, the Company was rendered insolvent, was rendered insolvent by
reason of such incurrence, was engaged in a business or transaction for which
its remaining assets constituted unreasonably small capital, intended to
incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, or intended to hinder, delay or defraud its creditors,
and that the indebtedness was incurred for less than reasonably equivalent
value, then such court could, among other things, (i) void all or a portion of
the Company's obligations to the holders of Exchange Notes, the result of
which would be that such holders might not be repaid in full and/or (ii)
subordinate the Company's obligations to the holders of Exchange Notes to
other existing or future indebtedness of the Company to a greater extent than
would otherwise be the case, the effect of which would be to entitle other
creditors to be paid in full before any payment could be made on the Exchange
Notes.
In addition, the Guarantees may be subject to review under relevant federal
and state fraudulent conveyance and similar statues in a bankruptcy case or a
lawsuit by or on behalf of creditors of any of the Subsidiary Guarantors. In
such a case, the analysis set forth above would generally apply, except that
the Guarantees could also be subject to the claim that, since the Guarantees
were incurred for the benefit of the Company (and only indirectly for the
benefit of the Subsidiary Guarantors), the obligations of the Subsidiary
Guarantors thereunder were incurred for less than reasonably equivalent value
or fair consideration. A court could avoid a Subsidiary Guarantor's obligation
under its Guarantee, subordinate the Guarantee to other indebtedness of a
Subsidiary Guarantor or take other action detrimental to the holders of the
Exchange Notes.
RISKS RELATED TO INTERNATIONAL OPERATIONS
The Company is considering operations in Canada and may consider operations
elsewhere outside of the United States in the near future. These operations
are subject to risks normally associated with international operations,
including currency conversion risks, slower and more difficult accounts
receivable collection, greater difficulty and expense in administering
business abroad and complying with foreign laws. In addition, if the Company
conducts such operations through foreign subsidiaries, such subsidiaries will
not be required to become guarantors of the Exchange Notes.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer and software systems as the 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.
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 generally
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 risks and
uncertainties, including without limitation, those identified
22
<PAGE>
under "Risk Factors" and elsewhere in this Prospectus and other risks and
uncertainties indicated from time to time in the Company's filings with the
Commission. Actual results could differ materially from results referred to in
the forward-looking statements. In addition, important factors to consider in
evaluating such forward-looking statements include changes in external market
factors, changes in the Company's business or growth strategy or an inability
to execute its strategy due to changes in its industry or the economy
generally, the emergence of new or growing competitors and various other
competitive factors. 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.
23
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on May 13, 1998 (the "Closing
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The
Initial Purchasers subsequently sold the Private Notes (i) to "qualified
institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities
Act ("Rule 144A"), in reliance on Rule 144A and (ii) in offshore transactions
in reliance on Regulation S under the Securities Act. As a condition to the
sale of the Private Notes, the Company and the Initial Purchasers entered into
the Registration Rights Agreement on May 13, 1998. Pursuant to the
Registration Rights Agreement, the Company agreed that, unless the Exchange
Offer is not permitted by applicable law or Commission policy, it would (i)
file with the Commission a Registration Statement under the Securities Act
with respect to the Exchange Notes within 90 days after the Closing Date, (ii)
cause such Registration Statement to become effective under the Securities Act
within 150 days after the Closing Date (iii) keep the Exchange Offer open for
at least 20 business days (or longer if required by applicable law) after the
date that notice thereof is mailed to holders of the Private Notes and
(iv) commence the Exchange Offer and use its best efforts to issue, on or
prior to 45 days after the date on which the Registration Statement was
declared effective by the Commission, Exchange Notes in exchange for all
Private Notes tendered prior thereto in the Exchange Offer. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement. The Registration Statement is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement and the Purchase
Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) who exchanges Private Notes for Exchange
Notes in the ordinary course of business and who is not participating, does
not intend to participate, and has no arrangement with any person to
participate, in a distribution of the Exchange Notes, will be allowed to
resell Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder of Private Notes acquires Exchange Notes in the
Exchange Offer for the purpose of distributing or participating in the
distribution of the Exchange Notes or is a broker-dealer, such holder cannot
rely on the position of the staff of the Commission enumerated in certain no-
action letters issued to third parties and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Company
has agreed to make this Prospectus, as it may be amended or supplemented from
time to time, available to broker-dealers for use in connection with any
resale for a period of 180 days after the Expiration Date. See "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration
24
<PAGE>
Date. The Company will issue $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of outstanding Private Notes
surrendered pursuant to the Exchange Offer. Private Notes may be tendered only
in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will
not be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture, which also
authorized the issuance of the Private Notes, such that both series of Notes
will be treated as a single class of debt securities under the Indenture.
As of the date of this Prospectus, $200.0 million in aggregate principal
amount of the Private Notes are outstanding. Only a registered holder of the
Private Notes (or such holder's legal representative or attorney-in-fact) as
reflected on the records of the Trustee under the Indenture may participate in
the Exchange Offer. There will be no fixed record date for determining
registered holders of the Private Notes entitled to participate in the
Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, and (ii) mail to
the registered holders of Private Notes an announcement thereof which shall
include disclosure of the approximate number of Private Notes deposited to
date, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
The Company reserves the right, in its reasonable discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such
delay, extension or termination to the Exchange Agent. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders of
Private Notes. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered holders of Private Notes, and the Company will extend the
Exchange Offer for a period of five
25
<PAGE>
to ten business days, depending upon the significance of the amendment and the
manner of disclosure to the registered holders of Private Notes, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 9% per annum.
Interest on the Exchange Notes will be payable semi-annually in arrears on
each May 15 and November 15, commencing November 15, 1998. Holders of Exchange
Notes will receive interest on November 15, 1998 from the date of initial
issuance of the Private Notes. Holders of Private Notes that are accepted for
exchange will be deemed to have waived the right to receive any interest
accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile
thereof, have the signatures thereon guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile to the Exchange Agent at the address set forth below under "--
Exchange Agent" for receipt prior to the Expiration Date. In addition, either
(i) certificates for such Private Notes must be received by the Exchange Agent
along with the Letter of Transmittal, (ii) a timely confirmation of a book-
entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such
procedure is available, into the Exchange Agent's account at the Depositary
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date or (iii) the
holder must comply with the guaranteed delivery procedures described below.
The tender by a holder of Private Notes that is not withdrawn prior to the
Expiration Date will constitute an agreement between such holder and the
Company in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD
BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name
or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box titled "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be made by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having
26
<PAGE>
an office or correspondent in the United States or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act which
is a member of one of the recognized signature guarantee programs identified
in the Letter of Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Private Notes not properly tendered or any Private Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Private Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Private Notes, neither
the Company, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Private Notes will not be
deemed to have been made until such defects or irregularities have been cured
or waived.
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Private Notes that are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Private Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "--Conditions,"
to terminate the Exchange Offer and, to the extent permitted by applicable
law, purchase Private Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
Holder in the ordinary course of the respective business of such holder, (ii)
such holder has no arrangement or understanding with any person to participate
in the distribution of the Exchange Notes, (iii) if such holder is a resident
of the State of California, it falls under the self-executing institutional
investor exemption set forth under Section 25102(i) of the Corporate
Securities Law of 1968 and Rules 260.102.10 and 260.105.14 of the California
Blue Sky Regulations, (iv) if such holder is a resident of the Commonwealth of
Pennsylvania, it falls under the self-executing institutional investor
exemption set forth under Sections 203(c), 102(d) and (k) of the Pennsylvania
Securities Act of 1972, Section 102.111 of the Pennsylvania Blue Sky
Regulations and an interpretive opinion dated November 16, 1985, (v) such
holder acknowledges and agrees that any person who is a broker-dealer
registered under the Exchange Act or is participating in the Exchange Offer
for the purposes of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (vi) such holder understands that a
secondary resale transaction described in clause (v) above and any resales of
Exchange Notes obtained by such holder in exchange for Private Notes acquired
by such holder
27
<PAGE>
directly from the Company should be covered by an effective registration
statement containing the selling securityholder information required by Item
507 or Item 508, as applicable, of Regulation S-K of the Commission and (vii)
such holder is not an "affiliate," as defined in Rule 405 under the Securities
Act, of the Company. If the holder is a broker-dealer that will receive
Exchange Notes for such holder's own account in exchange for Private Notes
that were acquired as a result of market-making activities or other trading
activities, such holder will be required to acknowledge in the Letter of
Transmittal that such holder will deliver a prospectus in connection with any
resale of such Exchange Notes; however, by so acknowledging and by delivering
a prospectus, such holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Private Notes tendered by book-entry transfer into the Exchange
Agent's account at the Depositary pursuant to the book-entry transfer
procedures described below, such Private Notes will be credited to an account
maintained with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book-
entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in
accordance with the Depositary's procedures for transfer. However, although
delivery of Private Notes may be effected through book-entry transfer at the
Depositary, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "--Exchange Agent" on or prior to the Expiration Date or pursuant
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the Holder, the certificate number(s) of such Private Notes and
the principal amount of Private Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof), together with the certificate(s) representing the
Private Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
28
<PAGE>
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to 5:00 p.m. on the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private
Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Private Notes) and (iii) be signed by the holder in
the same manner as the original signature on the Letter of Transmittal by
which such Private Notes were tendered (including any required signature
guarantees). All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company in its sole
discretion, whose determination shall be final and binding on all parties. Any
Private Notes so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Private Notes so withdrawn are validly retendered.
Properly withdrawn Private Notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time
prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates
applicable law, rules or regulations or an applicable interpretation of the
staff of the Commission.
If the Company determines in its reasonable discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders
to withdraw such Private Notes (see " --Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Private Notes, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during
such five to ten business day period.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Company's continuing obligations (i) to indemnify such
holders (including any broker-dealers) and certain parties related to such
holders against certain liabilities (including liabilities under the
Securities Act), (ii) to use its best efforts to keep the Registration
Statement effective to the extent necessary to ensure that it is available for
resales of Exchange Notes by broker-dealers for a period of up to 90 days from
the date the Commission declares the Registration Statement effective (the
"Exchange Offer Registration Period") and (iii) to provide copies of the
latest version of the Prospectus to broker-dealers upon their request during
the Exchange Offer Registration Period.
29
<PAGE>
ADDITIONAL INTEREST
If (i) the Company fails to file the Registration Statement within 90 days
after the Issue Date or a shelf registration statement covering resale of the
Private Notes (a "Shelf Registration Statement") within 30 days after such
obligation arises; (ii) within 150 days after the Issue Date, the Registration
Statement has not been declared effective; (iii) within 45 days after the date
on which the Registration Statement is declared effective by the Commission,
the Exchange Offer has not been consummated, or within the time period
specified in the Registration Rights Agreement, the Shelf Registration
Statement has not been declared effective; or (iv) after either the
Registration Statement or the Shelf Registration Statement has been declared
effective, such registration statement thereafter ceases to be effective or
usable (subject to certain exceptions) in connection with resales of Private
Notes or Exchange Notes in accordance with and during the periods specified in
the Registration Rights Agreement (each event referred to in clauses (i)
through (iv), a "Registration Default"), interest ("Additional Interest") will
accrue on the Private Notes and the Exchange Notes (in addition to the stated
interest on the Private Notes and the Exchange Notes) from and including the
date on which any such Registration Default shall occur to but excluding the
date on which all Registration Defaults have been cured. Additional Interest
will accrue at a rate of 0.25% per annum during the 90-day period immediately
following the occurrence of any Registration Default and shall increase by
0.25% per annum at the end of each subsequent 90-day period, but in no event
shall such rate exceed 1.50% per annum.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which has been filed as an exhibit to the registration statement of
which this Prospectus is a part.
EXCHANGE AGENT
Norwest Bank Minnesota, N.A. has been appointed as Exchange Agent of the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
<TABLE>
<CAPTION>
By Registered or Certified
By Hand: Mail: By Overnight Courier:
<S> <C> <C>
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
Northstar East Building Corporate Trust Operations Corporate Trust Services
608 Second Avenue South P.O. Box 1517 Sixth and Marquette Avenue
12th Floor Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113
Corporate Trust Services
Minneapolis, MN
</TABLE>
By Facsimile:
(612) 667-4927
Confirm by Telephone:
(612) 667-9764
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company,
30
<PAGE>
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$100,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax
is imposed for any reason other than the exchange of the Private Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their
own decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Private Notes may be resold only (i) to a person whom the seller reasonably
believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii)
in a transaction meeting the requirements of Rule 144 under the Securities
Act, (iii) outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act, (iv) in
accordance with another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel if the Company so
requests), (v) to the Company or (vi) pursuant to an effective registration
statement and, in each case, in accordance with any applicable securities laws
of any state of the United States or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange
Private Notes in like principal amount, the terms of which will be cancelled.
The issuance of the Exchange Notes in exchange for the surrender of the
Private Notes will not result in any increase in the indebtedness of the
Company.
31
<PAGE>
CAPITALIZATION
The following table sets forth the total cash and cash equivalents and total
capitalization of the Company at March 31, 1998 on (i) an historical basis,
(ii) a pro forma combined basis to give effect to the Other Acquisitions as
though all such acquisitions were consummated as of March 31, 1998 and (iii) a
pro forma as adjusted basis to give effect to the Other Acquisitions and the
issuance of the Private Notes pursuant to the Offering, the application of the
net proceeds therefrom to repay indebtedness under the Revolver and the
issuance of the Exchange Notes in exchange for the Private Notes. 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>
MARCH 31, 1998
------------------------------
PRO FORMA PRO FORMA
ACTUAL COMBINED AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents....................... $ 4,462 $ 5,231 $ 5,231
Debt:
Revolver(1)................................... 329,810 427,642 234,142
Term Loan(1).................................. 100,000 100,000 100,000
9% Senior Subordinated Notes due 2008......... -- -- 200,000
Other......................................... 3,330 3,330 3,330
-------- -------- --------
Total debt.................................. 433,140 530,972 537,472
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;
40,000,000 authorized and 20,421,968
outstanding, actual; 40,000,000 authorized
and 20,668,751 outstanding, pro forma
combined and pro forma as adjusted(2)........ 204 206 206
Additional paid-in capital.................... 284,155 289,603 289,603
Common stock issuable(3)...................... 3,741 3,741 3,741
Retained earnings............................. 19,140 19,140 19,140
-------- -------- --------
Total stockholders' equity.................. 307,240 312,690 312,690
-------- -------- --------
Total capitalization...................... $740,380 $843,662 $850,162
======== ======== ========
</TABLE>
- --------
(1) As of March 31, 1998 the total commitment of the Bank Facility was $600.0
million. On a pro forma basis giving effect to the Offering, the repayment
of indebtedness under the Revolver with the net proceeds of the Offering
and the completion of the Other Acquisitions, the Company would have had
borrowing availability of approximately $247.8 million under the Bank
Facility, after taking into account the restrictions under the borrowing
base, if any, and other customary restrictions.
(2) Excludes (i) 1,204,002 shares subject to options and restricted stock
grants outstanding as of March 31, 1998 pursuant to the Company's Equity
Participation Plans at a weighted average exercise price of $20.03 per
share, (ii) 7,453 shares reserved for issuance pursuant to the Company's
Equity Participation Plans, (iii) 241,660 shares reserved for issuance
pursuant to the Company's QSP Plan and (iv) up to 271,437 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.
(3) The common stock issuable is associated with the Common Stock relating to
the acquisitions of Foxx, Central States and Center that vests over future
time periods. See Note 2 to the Company's Consolidated Financial
Statements.
32
<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, 1997 and the three months ended March 31, 1998, and
the unaudited pro forma consolidated balance sheet at March 31, 1998. The
unaudited pro forma combined consolidated statement of operations for the year
ended December 31, 1997 has been adjusted to give effect to the following, as
if such transactions had occurred on January 1, 1997: (i) the Company's
acquisitions of substantially all of the assets 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 Again 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 (completed in June 1997), Central States
Equipment, Inc. and Equipment Lessors, Inc. (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), 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) and the Company's acquisitions of all of the
outstanding stock of Comtect, Inc. and subsidiaries d/b/a Industrial Air Tool
(effective March 1, 1997) and Siems Rental & Sales Co., Inc. (effective
November 1, 1997) (collectively, the "1997 Acquisitions"); (ii) the Center
Acquisition (effective November 1, 1997), including the pro forma effect of
Center's acquisition of Zuni Rental Enterprises, L.L.C.; (iii) the Valley
Acquisition (completed in February 1998); (iv) the Company's acquisitions of
substantially all of the assets of Panama City Rentals, Inc. (completed in
January 1998), Ray E. Miller d/b/a Franklin Rent-All (completed in January
1998), Chris Roddenberry, Inc. and Joy Roddenberry, Inc. (completed in
February 1998), Rex Rentals, Inc. (completed in February 1998), and Rent-It
Company of Alexandria, Inc. (completed in March 1998), and the Company's
acquisition of all of the outstanding stock of Frank Wilson's Rentals & Sales
Co. (collectively, the "1998 Acquisitions"); and (v) the Company's acquisition
of substantially all of the assets of Webb City Rental Center, Inc. d/b/a
Southwest Rental & Sales (completed in April 1998), the Company's acquisitions
of all of the outstanding stock of Metroquip (effective March 1, 1998), T&M
(effective March 1, 1998), Equipment & Supply Company of Virginia (completed
in April 1998) and Midwest Aerial Platforms, Inc. (completed in May 1998), and
the Company's proposed acquisition of one equipment rental business with seven
locations in Oklahoma (collectively, the "Other Acquisitions"). All such
acquisitions in (i) and (ii) are referred to herein collectively as the "1997
Pro Forma Combined Acquisitions," and such acquisitions in (iii) through (v)
are referred to herein collectively as the "1998 Pro Forma Combined
Acquisitions." The pro forma adjustments relating to the 1997 Pro Forma
Combined Acquisitions are referred to herein collectively as the "1997 Pro
Forma Acquisition Adjustments," and the pro forma adjustments relating to the
1998 Pro Forma Combined Acquisitions are referred to herein collectively as
the "1998 Pro Forma Acquisition Adjustments."
The unaudited pro forma combined consolidated statement of operations for
the three months ended March 31, 1998 has been adjusted to give effect to the
1998 Pro Forma Combined Acquisitions and the 1998 Pro Forma Acquisition
Adjustments as if such transactions had occurred on January 1, 1998. The
unaudited pro forma combined consolidated balance sheet at March 31, 1998
gives effect to the Other Acquisitions as if they had occurred on March 31,
1998. There can be no assurance that the Company's proposed acquisition will
be consummated.
In addition to the 1997 Pro Forma Combined Acquisitions and the 1998 Pro
Forma Combined Acquisitions, the unaudited pro forma as adjusted consolidated
statement of operations for the year ended December 31, 1997 gives effect to
the following transactions, in each case as if such transactions had occurred
on January 1, 1997: (i) the issuance of the Private Notes pursuant to the
Offering and the issuance of the Exchange Notes in exchange for the Private
Notes; (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 and the sale by the Company of
4,345,224 shares of Common Stock in December 1997 at a price of $24.00 per
share (collectively, the "Common Stock Offerings"); (iii) the change in
interest
33
<PAGE>
expense as a result of reductions in the Revolver upon the application of a
portion of the net proceeds from the Offering and the Common Stock Offerings;
(iv) the additional interest expense related to the implementation of the Term
Loan; and (v) the change in interest expense resulting from amendments and/or
restatements to the Revolver in January 1997, June 1997, December 1997 and May
1998 (collectively, (i) through (v) above, the "1997 Pro Forma Offering
Adjustments"). In addition to the 1998 Pro Forma Combined Acquisitions, the
unaudited pro forma as adjusted consolidated statement of operations for the
three months ended March 31, 1998 and the unaudited pro forma as adjusted
balance sheet at March 31, 1998 give additional effect to the following
transactions, in the case of the statement of operations as if such
transactions had occurred on January 1, 1998, and in the case of the balance
sheet as if they had occurred on March 31, 1998: (i) the issuance of the
Private Notes pursuant to the Offering and the issuance of the Exchange Notes
in exchange for the Private Notes; (ii) the change in interest expense as a
result of reductions in the amounts outstanding under the Revolver upon the
application of the net proceeds from the Offering; and (iii) the change in
interest expense resulting from the amendment to the Revolver in May 1998
(collectively, (i) through (iii) above, the "1998 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 1997 Pro Forma Acquisition Adjustments, the 1998 Pro Forma Acquisition
Adjustments, the 1997 Pro Forma Offering Adjustments and the 1998 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 unaudited 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 1997 Pro Forma Acquisition
Adjustments, the 1998 Pro Forma Acquisition Adjustments, the 1997 Pro Forma
Offering Adjustments and the 1998 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.
34
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL 1997 CENTER VALLEY 1998 OTHER ACQUISITION FORMA
COMPANY ACQUISITIONS(1) ACQUISITION(1) ACQUISITION ACQUISITIONS ACQUISITIONS ADJUSTMENTS COMBINED
---------- --------------- -------------- ----------- ------------ ------------ ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment
rentals......... $170,704 $29,180 $28,437 $30,831 $8,084 $30,427 $ -- $297,663
Sales of parts,
supplies and
equipment....... 90,559 30,159 12,122 5,900 6,641 16,127 -- 161,508
-------- ------- ------- ------- ------ ------- -------- --------
Total revenues... 261,263 59,339 40,559 36,731 14,725 46,554 -- 459,171
Cost of revenues:
Cost of
equipment
rentals,
excluding
equipment rental
depreciation.... 87,552 11,009 13,226 15,852 2,853 10,296 -- 140,788
Depreciation,
equipment
rentals......... 37,413 7,721 5,301 6,831 1,460 8,810 (6,358)(2) 61,178
Cost of sales of
parts, supplies
and equipment... 67,666 21,609 10,894 3,848 5,191 9,130 -- 118,338
-------- ------- ------- ------- ------ ------- -------- --------
Total cost of
revenues......... 192,631 40,339 29,421 26,531 9,504 28,236 (6,358) 320,304
-------- ------- ------- ------- ------ ------- -------- --------
Gross profit..... 68,632 19,000 11,138 10,200 5,221 18,318 6,358 138,867
Selling, general
and
administrative
expense.......... 20,996 12,414 6,213 4,421 3,970 11,027 (4,633)(3) 54,408
Depreciation and
amortization,
excluding
equipment rental
depreciation..... 5,373 600 729 844 122 565 (169)(4) 8,064
Amortization of
intangibles...... 3,907 23 102 20 4 -- 6,504 (5) 10,560
-------- ------- ------- ------- ------ ------- -------- --------
Operating
income........... 38,356 5,963 4,094 4,915 1,125 6,726 4,656 65,835
Non-operating
(income)
expense.......... -- (59) 8 (480) -- -- 531 (6) --
Interest expense,
net.............. 14,877 2,148 1,286 3,396 233 2,231 19,159 (7) 43,330
-------- ------- ------- ------- ------ ------- -------- --------
Income before
income taxes and
extraordinary
items............ 23,479 3,874 2,800 1,999 892 4,495 (15,034) 22,505
Provision
(benefit) for
income taxes..... 10,330 322 964 -- (3) 1,501 (3,212)(9) 9,902
-------- ------- ------- ------- ------ ------- -------- --------
Income before
extraordinary
items............ $ 13,149 $ 3,552 $ 1,836 $ 1,999 $ 895 $ 2,994 $(11,822) $ 12,603
======== ======= ======= ======= ====== ======= ======== ========
Income before
extraordinary
items per common
share............ $ .96 $ .83
Weighted average
common shares.... 13,653 15,265(10)(11)
Income before
extraordinary
items per common
share, assuming
dilution......... $ .94 $ .81
Weighted average
common shares,
assuming
dilution......... 13,927 15,540(10)(11)
<CAPTION>
PRO FORMA
OFFERING PRO FORMA
ADJUSTMENTS AS ADJUSTED
------------- ------------------
<S> <C> <C>
Revenues:
Equipment
rentals......... $ -- $297,663
Sales of parts,
supplies and
equipment....... -- 161,508
------------- ------------------
Total revenues... -- 459,171
Cost of revenues:
Cost of
equipment
rentals,
excluding
equipment rental
depreciation.... -- 140,788
Depreciation,
equipment
rentals......... -- 61,178
Cost of sales of
parts, supplies
and equipment... -- 118,338
------------- ------------------
Total cost of
revenues......... -- 320,304
------------- ------------------
Gross profit..... -- 138,867
Selling, general
and
administrative
expense.......... -- 54,408
Depreciation and
amortization,
excluding
equipment rental
depreciation..... -- 8,064
Amortization of
intangibles...... -- 10,560
------------- ------------------
Operating
income........... -- 65,835
Non-operating
(income)
expense.......... -- --
Interest expense,
net.............. (4,132)(8) 39,198
------------- ------------------
Income before
income taxes and
extraordinary
items............ 4,132 26,637
Provision
(benefit) for
income taxes..... 1,818 (9) 11,720
------------- ------------------
Income before
extraordinary
items............ $2,314 $ 14,917
============= ==================
Income before
extraordinary
items per common
share............ $ .72
Weighted average
common shares.... 20,724(10)(11)
Income before
extraordinary
items per common
share, assuming
dilution......... $ .71
Weighted average
common shares,
assuming
dilution......... 20,998(10)(11)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations.
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(1) Represents the results of the 1997 Acquisitions and the Center
Acquisition prior to their acquisition by the Company, using in some
cases estimates based on the mathematical annualization of such results
of operations. Results of the 1997 Acquisitions and the Center
Acquisition subsequent to the dates of their acquisition are included in
the Historical Company results for the year ended December 31, 1997 from
the date of effective control of such acquisitions. See Note 2 to the
Company's Consolidated Financial Statements.
(2) Represents the elimination of the historical carrying value of rental
equipment depreciation of $30,122,000 and the Company's estimate of
$23,764,000 for 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 $6,358,000.
(3) Represents the elimination of compensation expense 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 elimination of the historical carrying value of
depreciation and amortization, excluding equipment rental depreciation,
of $844,000 and the Company's estimate of $675,000 for depreciation
excluding those assets not acquired and assuming the assets acquired were
adjusted to fair market value at the beginning of the period presented.
As a result, pro forma depreciation decreased by $169,000.
(5) Represents the Company's estimate of amortization of goodwill and
covenants not to compete for the 1997 Acquisitions, the Center
Acquisition, the Valley Acquisition, the 1998 Acquisitions and the Other
Acquisitions of $6,504,000, as if such 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 above acquisitions.
(7) Represents the elimination of historical interest expense of $9,294,000
and the addition of $28,453,000 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 $19,159,000.
(8) Represents the reduction in historical interest expense on the Revolver
at an interest rate of 7.6% (after giving effect to the additional
borrowings resulting from the 1997 Pro Forma Combined Acquisitions and
the 1998 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 Common Stock Offerings and the Offering, the
additional interest expense associated with the issuance of the Private
Notes pursuant to the Offering and the implementation of the Term Loan at
an interest rate of 8.5% and the effect of the reductions in interest
expense resulting from the Company's amendments and restatements to the
Revolver, including the effects on capitalized debt issuance costs.
(9) Represents the adjustment to provide income taxes at the Company's 1997
effective tax rate of 44.0%.
(10) The acquisition agreements for certain of the above acquisitions provide
for the potential issuance of certain amounts of Common Stock over
specified periods following the acquisitions if certain performance
objectives are met. The effects of the potential issuance of these shares
are not considered in the pro forma consolidated statement of operations
until the related performance objectives have been achieved. See Note 2
to the Company's Consolidated Financial Statements.
(11) Weighted average common shares includes 2,062,514 shares of Common Stock
for certain of the above acquisitions.
36
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO PRO FORMA
HISTORICAL VALLEY 1998 OTHER ACQUISITION FORMA OFFERING
COMPANY ACQUISITION(1) ACQUISITIONS(1) ACQUISITIONS(1) ADJUSTMENTS COMBINED ADJUSTMENTS
---------- -------------- --------------- --------------- ----------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment
rentals......... $ 70,179 $2,401 $ 844 $5,773 $ -- $ 79,197 $ --
Sales of parts,
supplies and
equipment....... 38,484 513 1,025 3,246 -- 43,268 --
-------- ------ ------ ------ ------ -------- -----
Total revenues... 108,663 2,914 1,869 9,019 -- 122,465 --
Cost of revenues:
Cost of
equipment
rentals,
excluding
equipment rental
depreciation.... 37,073 1,411 315 2,093 -- 40,892 --
Depreciation,
equipment
rentals......... 15,461 627 189 1,512 (701)(2) 17,088 --
Cost of sales of
parts, supplies
and equipment... 29,193 363 794 1,844 -- 32,194 --
-------- ------ ------ ------ ------ -------- -----
Total cost of
revenues......... 81,727 2,401 1,298 5,449 (701) 90,174 --
-------- ------ ------ ------ ------ -------- -----
Gross profit..... 26,936 513 571 3,570 701 32,291 --
Selling, general
and
administrative
expense.......... 5,659 432 448 2,200 (535)(3) 8,204 --
Depreciation and
amortization,
excluding
equipment rental
depreciation..... 2,024 71 17 111 (15)(4) 2,208 --
Amortization of
intangibles...... 2,085 2 -- -- 513 (5) 2,600 --
-------- ------ ------ ------ ------ -------- -----
Operating
income........... 17,168 8 106 1,259 738 19,279 --
Interest expense,
net.............. 7,583 103 15 414 1,565 (6) 9,680 779 (7)
-------- ------ ------ ------ ------ -------- -----
Income (loss)
before income
taxes and
extraordinary
items............ 9,585 (95) 91 845 (827) 9,599 (779)
Provision
(benefit) for
income taxes..... 4,101 -- -- 273 (265)(8) 4,109 (334)(8)
-------- ------ ------ ------ ------ -------- -----
Income (loss)
before
extraordinary
items............ $ 5,484 $ (95) $ 91 $ 572 $ (562) $ 5,490 $(445)
======== ====== ====== ====== ====== ======== =====
Income before
extraordinary
items per common
share............ $ 0.27 $ 0.26
Weighted average
common shares.... 20,419 20,832(9)(10)
Income before
extraordinary
items per common
share, assuming
dilution......... $ 0.27 $ 0.26
Weighted average
common shares,
assuming
dilution......... 20,568 20,982(9)(10)
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------------
<S> <C> <C>
Revenues:
Equipment
rentals......... $ 79,197
Sales of parts,
supplies and
equipment....... 43,268
-----------------
Total revenues... 122,465
Cost of revenues:
Cost of
equipment
rentals,
excluding
equipment rental
depreciation.... 40,892
Depreciation,
equipment
rentals......... 17,088
Cost of sales of
parts, supplies
and equipment... 32,194
-----------------
Total cost of
revenues......... 90,174
-----------------
Gross profit..... 32,291
Selling, general
and
administrative
expense.......... 8,204
Depreciation and
amortization,
excluding
equipment rental
depreciation..... 2,208
Amortization of
intangibles...... 2,600
-----------------
Operating
income........... 19,279
Interest expense,
net.............. 10,459
-----------------
Income (loss)
before income
taxes and
extraordinary
items............ 8,820
Provision
(benefit) for
income taxes..... 3,775
-----------------
Income (loss)
before
extraordinary
items............ $ 5,045
=================
Income before
extraordinary
items per common
share............ $ 0.24
Weighted average
common shares.... 20,832(9)(10)
Income before
extraordinary
items per common
share, assuming
dilution......... $ 0.24
Weighted average
common shares,
assuming
dilution......... 20,982(9)(10)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations.
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(1) Represents the results of the Valley Acquisition, the 1998 Acquisitions
and the Other Acquisitions prior to their acquisition by the Company,
using in some cases estimates based on the mathematical annualization of
such results of operations. Results of the Valley Acquisition, the 1998
Acquisitions and certain of the Other Acquisitions subsequent to the
dates of their acquisition are included in the Historical Company results
for the three months ended March 31, 1998 from the date of effective
control of such acquisitions. See Note 2 to the Company's Consolidated
Financial Statements.
(2) Represents the elimination of the historical carrying value of rental
equipment depreciation of $2,328,000 and the Company's estimate of
$1,627,000 for 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 $701,000.
(3) Represents the elimination of compensation expense 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 elimination of the historical carrying value of
depreciation and amortization, excluding equipment rental depreciation,
of $71,000 and the Company's estimate of $56,000 for depreciation
excluding those assets not acquired and assuming the assets acquired were
adjusted to fair market value at the beginning of the period presented.
As a result, pro forma depreciation decreased by $15,000.
(5) Represents the Company's estimate of amortization of goodwill and
covenants not to compete for the Valley Acquisition, the 1998
Acquisitions and the Other Acquisitions of $513,000, as if the
acquisitions were consummated at the beginning of the period presented.
(6) Represents the elimination of historical interest expense of $531,000 and
the addition of $2,096,000 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 $1,565,000.
(7) Represents the reduction in historical interest expense on the Revolver
at an interest rate of 7.5% (after giving effect to the additional
borrowings resulting from the 1998 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 Offering,
the additional interest expense associated with the issuance of the
Private Notes pursuant to the Offering and the reduction of interest
expense resulting from the Company's amendment to the Revolver in May
1998, including the effects on capitalized debt issuance costs.
(8) Represents the adjustment to provide income taxes at the Company's
effective tax rate of 42.8%.
(9) The acquisition agreements for certain of the above acquisitions provide
for the potential issuance of certain amounts of Common Stock over
specified periods following the acquisitions if certain performance
objectives are met. The effects of the potential issuance of these shares
are not considered in the pro forma consolidated statement of operations
until the related performance objectives have been achieved. See Note 2
to the Company's Consolidated Financial Statements.
(10) Weighted average common shares includes 696,892 shares of Common Stock
for certain of the above acquisitions.
38
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998(1)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL OTHER ACQUISITION PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- ------------ ----------- --------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash
equivalents............ $ 4,462 $ 920 $ (151)(4) $ 5,231 $ -- $ 5,231
Accounts receivable,
net.................... 65,490 6,945 -- 72,435 -- 72,435
Other receivables and
prepaid expense........ 4,479 373 (24)(4) 4,828 -- 4,828
Income tax receivable... 638 -- -- 638 -- 638
Parts and supplies
inventories, net....... 35,825 1,296 -- 37,121 -- 37,121
Deferred taxes.......... 15,241 130 -- 15,371 -- 15,371
Rental equipment, net... 403,266 31,689 (350)(5) 434,605 -- 434,605
Operating property and
equipment, net......... 41,106 2,082 -- 43,188 -- 43,188
Intangible assets, net.. 287,651 506 65,835 (6) 353,992 -- 353,992
Other assets, net....... 6,718 251 (36)(4) 6,933 6,500 (7) 13,433
-------- ------- ------- -------- --------- --------
$864,876 $44,192 $65,274 $974,342 $ 6,500 $980,842
======== ======= ======= ======== ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Accounts payable........ $ 53,006 $ 2,434 $ (46)(4) $ 55,394 $ -- $ 55,394
Payroll and other
accrued expenses....... 33,040 1,277 (21)(4) 34,296 -- 34,296
Accrued interest
payable................ 1,781 116 -- 1,897 -- 1,897
Income taxes payable.... 5,812 (24) -- 5,788 -- 5,788
Deferred taxes.......... 30,857 2,448 -- 33,305 -- 33,305
Bank debt and long term
obligations............ 333,140 26,734 71,098 (8) 430,972 (193,500)(9) 237,472
Term Loan............... 100,000 -- -- 100,000 -- 100,000
9% Senior Subordinated
Notes due 2008......... -- -- -- -- 200,000 (10) 200,000
Related party notes
payable................ -- 159 (159)(4) -- -- --
-------- ------- ------- -------- --------- --------
Total liabilities...... 557,636 33,144 70,872 661,652 6,500 668,152
Stockholders' equity:
Common stock(2)......... 204 237 (235)(11) 206 -- 206
Additional paid-in
capital................ 284,155 239 5,209 (11) 289,603 -- 289,603
Common stock
issuable(3)............ 3,741 -- -- 3,741 -- 3,741
Retained earnings....... 19,140 10,572 (10,572)(11) 19,140 -- 19,140
-------- ------- ------- -------- --------- --------
Total stockholders'
equity................ 307,240 11,048 (5,598) 312,690 -- 312,690
-------- ------- ------- -------- --------- --------
$864,876 $44,192 $65,274 $974,342 $ 6,500 $980,842
======== ======= ======= ======== ========= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
39
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(1) The purchase method of accounting has been used in preparing the
Unaudited Pro Forma Consolidated Balance Sheet of the Company with
respect to the Other Acquisitions. Purchase accounting values have been
assigned to 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 certain acquisitions provide for the
potential issuance of certain amounts of Common Stock over specified
periods following the acquisitions if certain performance objectives are
met. The effects of the potential issuance of these shares are not
considered in the pro forma consolidated balance sheet until the related
performance objectives have been achieved. See Note 2 to the Company's
Consolidated Financial Statements.
(3) The Common Stock issuable is associated with Common Stock for certain of
the Company's acquisitions 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 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 the estimated capitalized debt issuance costs associated with
the Offering and the issuance of the Exchange Notes in exchange for the
Private Notes.
(8) Represents borrowings under the Revolver to fund the Other Acquisitions.
(9) Represents the use of the estimated net proceeds from the Offering to
reduce the Company's outstanding obligations under the Revolver.
(10) Represents the issuance of the Private Notes pursuant to the Offering and
the issuance of the Exchange Notes in exchange for the Private Notes.
(11) Represents the elimination of the equity accounts of the Other
Acquisitions and the effects of the issuance of Common Stock as a portion
of the consideration paid for certain of these acquisitions.
40
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated statement of operations data for the
years ended December 31, 1995, 1996 and 1997, and selected consolidated
balance sheet data as of December 31, 1996 and 1997, 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 years ended December
31, 1993 and 1994, and with respect to the balance sheet as of December 31,
1993, 1994 and 1995, have 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 statements of operations for the
three months ended March 31, 1997 and 1998, and with respect to the balance
sheet as of March 31, 1998, has been derived from the unaudited consolidated
financial statements of the Company, which, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the Company's results of operations and financial
position at such dates and for such periods. The results for the three months
ended March 31, 1998 are not necessarily indicative of the results which may
be expected for future periods, including for the year ending December 31,
1998. 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.
41
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
-------- ------- ------- ------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Revenues:
Equipment rentals...... $17,238 $27,775 $47,170 $94,218 $170,704 $27,527 $70,179
Sales of parts,
supplies and new
equipment............. 7,387 10,800 14,621 21,919 70,957 9,165 27,227
Sales of used
equipment............. 1,007 3,240 4,126 12,217 19,602 4,617 11,257
-------- ------- ------- ------- -------- ------- -------
Total revenues......... 25,632 41,815 65,917 128,354 261,263 41,309 108,663
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 11,405 16,284 27,854 55,202 87,552 14,316 37,073
Depreciation, equipment
rentals............... 2,161 4,020 7,691 17,840 37,413 6,306 15,461
Cost of sales of parts,
supplies and new
equipment............. 5,370 7,978 10,439 15,582 54,739 6,737 21,249
Cost of sales of used
equipment............. 589 2,320 2,178 8,488 12,927 2,972 7,944
-------- ------- ------- ------- -------- ------- -------
Total cost of
revenues.............. 19,525 30,602 48,162 97,112 192,631 30,331 81,727
-------- ------- ------- ------- -------- ------- -------
Gross profit............ 6,107 11,213 17,755 31,242 68,632 10,978 26,936
Selling, general and
administrative
expense................ 2,683 4,747 6,421 12,254 20,996 3,784 5,659
Depreciation and
amortization, excluding
equipment rental
depreciation........... 211 504 1,186 2,835 5,373 1,068 2,024
Amortization of
intangibles(2)......... 2,635 2,078 718 2,379 3,907 624 2,085
-------- ------- ------- ------- -------- ------- -------
Operating income........ 578 3,884 9,430 13,774 38,356 5,502 17,168
Interest expense, net... 407 731 3,314 7,063 14,877 1,597 7,583
-------- ------- ------- ------- -------- ------- -------
Income before income
taxes and extraordinary
items.................. 171 3,153 6,116 6,711 23,479 3,905 9,585
Provision for income
taxes.................. 465 1,177 2,401 2,722 10,330 1,722 4,101
-------- ------- ------- ------- -------- ------- -------
Income (loss) before
extraordinary items.... (294) 1,976 3,715 3,989 13,149 2,183 5,484
Extraordinary items(3).. -- -- (478) (1,269) (534) (534) --
-------- ------- ------- ------- -------- ------- -------
Net income (loss)....... (294) 1,976 3,237 2,720 12,615 1,649 5,484
Redeemable preferred
stock accretion........ 1,013 1,646 1,717 1,643 -- -- --
-------- ------- ------- ------- -------- ------- -------
Net income (loss)
available to common
stockholders........... $ (1,307) $ 330 $ 1,520 $ 1,077 $ 12,615 $ 1,649 $ 5,484
======== ======= ======= ======= ======== ======= =======
Income (loss) before
extraordinary items per
common share........... $ (.29) $ .08 $ .50 $ .34 $ .96 $ .19 $ .27
Income (loss) before
extraordinary items per
common share, assuming
dilution............... $ (.29) $ .08 $ .49 $ .33 $ .94 $ .19 $ .27
SELECTED OPERATING DATA:
Beginning locations..... 11 21 25 50 94 94 165
Locations acquired...... 11 1 26 25 64 12 22
Locations opened........ -- 3 10 19 16 -- 2
Locations closed, sold
or held for sale(4).... (1) -- (11) -- (9) -- (2)
-------- ------- ------- ------- -------- ------- -------
Ending locations........ 21 25 50 94 165 106 187
======== ======= ======= ======= ======== ======= =======
OTHER DATA:
Ratio of Earnings to
Fixed Charges(5)....... 1.3x 4.1x 2.5x 1.8x 2.4x 3.0x 2.2x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net book value of rental
equipment.............. $16,223 $24,138 $ 52,818 $116,921 $314,696 $403,266
Total assets............ 35,877 48,098 137,832 218,933 699,326 864,876
Total debt ............. 4,411 12,752 68,555 68,594 306,975 433,140
Redeemable preferred
stock (net of treasury
stock)................. 25,956 26,684 28,401 -- -- --
Common stockholders'
equity (deficit)....... (1,281) (1,474) 46 95,072 290,781 307,240
</TABLE>
42
<PAGE>
- --------
(1) 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 date of effective control of each
such acquisition. See Note 2 to the Company's Consolidated Financial
Statements.
(2) 1993 data includes $781,000 for the write-off of costs in excess of net
assets acquired.
(3) 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 represents the loss on extinguishment of debt related to the
amendment to the Revolver in September 1996. The extraordinary item in the
year ended December 31, 1997 represents the loss on extinguishment of debt
related to the amendment to the Revolver in January 1997.
(4) 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.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary items plus fixed
charges. Fixed charges consist of interest expense and 30% of rental
expense (the portion deemed representative of the interest factor).
43
<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 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
Since its formation in 1992 through June 5, 1998, the Company has acquired
56 businesses consisting of 172 locations and has opened 54 start-up
locations. 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 its
total revenues from $65.9 million in the year ended December 31, 1995 to
$261.3 million in the year ended December 31, 1997, and operating income has
increased from $9.4 million to $38.4 million during the same period,
representing increases of 296.4% and 306.7%, respectively. During the first
quarter of 1998, the Company generated revenues of $108.7 million with
operating income of $17.2 million, increases of 163.0% and 212.0%,
respectively, over the same period in 1997. The Company has also 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,
secured bank borrowings and internally generated cash flow. Such financings
have increased the Company's interest expense and resulted in the accretion of
dividends on its 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 non-binding letters of intent or binding acquisition
agreements. As of June 5, 1998, the Company was party to non-binding letters
of intent to acquire three equipment rental businesses with a combined eleven
locations in three states for a total combined purchase price of approximately
$33.2 million (including the assumption of approximately $7.4 million of
debt). In view of the fact that these letters of intent are non-binding and
that the Company has not completed its due diligence investigations with
respect thereto, the Company cannot predict whether these letters of intent
will lead to definitive agreements, whether the terms of any such definitive
agreements will be the same as the terms contemplated by the letters of intent
or whether any transaction contemplated by such letters of intent will be
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
44
<PAGE>
December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and
1998, the Company made capital expenditures of $23.6 million, $86.8 million,
$165.1 million, $44.1 million and $70.7 million, respectively. The Company
depreciates rental equipment over periods ranging from three to seven years,
which has resulted in equipment rental depreciation of $7.7 million, $17.8
million, $37.4 million, $6.3 million and $15.5 million for the years ended
December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and
1998, 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 utilization rates. In recent
years, the Company has also made substantial investments in its information
systems.
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
--------------------------------- -----------------------------------------
THREE
MONTHS THREE MONTHS
YEARS ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
------------------- ------------ -------------
1995 1996 1997 1997 1998 1996 VS. 1995 1997 VS. 1996 1998 VS. 1997
----- ----- ----- ----- ----- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... 71.6% 73.4% 65.3% 66.6% 64.6% 99.7% 81.2% 154.9%
Sales of parts,
supplies and new
equipment............. 22.2 17.1 27.2 22.2 25.0 49.9 223.7 197.1
Sales of used
equipment............. 6.2 9.5 7.5 11.2 10.4 196.1 60.4 143.8
----- ----- ----- ----- -----
Total revenues......... 100.0 100.0 100.0 100.0 100.0 94.7 103.5 163.0
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 42.3 43.0 33.5 34.6 34.1 98.2 58.6 159.0
Depreciation, equipment
rentals............... 11.7 13.9 14.3 15.3 14.2 132.0 109.7 145.2
Cost of sales of parts,
supplies and new
equipment............. 15.8 12.2 21.0 16.3 19.6 49.3 251.3 215.4
Cost of sales of used
equipment............. 3.3 6.6 4.9 7.2 7.3 289.7 52.3 167.3
----- ----- ----- ----- -----
Total cost of
revenues.............. 73.1 75.7 73.7 73.4 75.2 101.6 98.4 169.5
----- ----- ----- ----- -----
Gross profit............ 26.9 24.3 26.3 26.6 24.8 76.0 119.7 145.4
Selling, general and
administrative
expense................ 9.7 9.5 8.0 9.2 5.2 90.8 71.3 49.6
Depreciation and
amortization, excluding
equipment rental
depreciation........... 1.8 2.2 2.1 2.6 1.9 139.0 89.5 89.5
Amortization of
intangibles............ 1.1 1.9 1.5 1.5 1.9 231.3 64.2 234.1
----- ----- ----- ----- -----
Operating income........ 14.3 10.7 14.7 13.3 15.8 46.1 178.5 212.0
Interest expense, net... 5.0 5.5 5.7 3.9 7.0 113.1 110.6 374.8
----- ----- ----- ----- -----
Income before income
taxes and extraordinary
items.................. 9.3% 5.2% 9.0% 9.4% 8.8% 9.7 249.9 145.5
===== ===== ===== ===== =====
Selected Financial Data:
Gross profit on
equipment rentals..... 24.6% 22.5% 26.8% 25.1% 25.1% 82.2 116.0 155.5
Gross profit on sales
of parts, supplies and
new equipment......... 28.6 28.9 22.9 26.5 22.0 51.5 155.9 146.2
Gross profit on sales
of used equipment..... 47.2 30.5 34.1 35.6 29.4 91.4 79.0 101.4
Other Data:
EBITDA................. 28.9% 28.7% 32.6% 32.7% 33.8% 93.6 130.9 172.1
</TABLE>
45
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Revenues. Total revenues for the three months ended March 31, 1998 increased
163.0% to $108.7 million from $41.3 million for the three months ended March
31, 1997. This increase was primarily due to the inclusion of revenues from
acquisitions of 24 businesses (consisting of 78 locations) and the opening of
18 start-up locations since March 31, 1997. 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 154.9%
to $70.2 million from $27.5 million due to the larger rental fleet resulting
from acquisitions and capital expenditures. Sales of parts, supplies and new
equipment increased 197.1% to $27.2 million from $9.2 million due primarily to
the acquisition of IAT (effective in the Company's results of operations from
March 1, 1997), the increased number of rental locations selling these items
and the acquisitions of businesses that were dealers for certain new
equipment. Sales of used equipment increased 143.8% to $11.3 million from $4.6
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 three months ended March 31, 1998
increased to $26.9 million, or 24.8% of total revenues, from $11.0 million, or
26.6% of total revenues, for the three months ended March 31, 1997. This
increase is primarily attributable to the Company's increased number of
locations due to acquisitions and start-up locations and the increased rental
fleet resulting from capital expenditures. Gross margin on equipment rentals
was 25.1% of equipment rental revenues for the three months ended March 31,
1998 and 1997. Gross margin on sales of parts, supplies and new equipment
decreased to 22.0% of sales from 26.5%, 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 25.1% for the three
months ended March 31, 1998. The Company believes 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 29.4% of sales from 35.6%, due primarily to variations in the mix and age
of the equipment being sold.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the three months ended March 31, 1998 was $5.7
million, or 5.2% of total revenues, compared to $3.8 million, or 9.2% of total
revenues for the three months ended March 31, 1997. This increase is the
result of the greater number of locations and employees resulting from the
Company's acquisitions and start-ups since March 31, 1997.
Depreciation and Amortization, excluding equipment rental
depreciation. Depreciation and amortization, excluding equipment rental
depreciation, for the three months ended March 31, 1998 was $2.0 million, or
1.9% of total revenues, compared to $1.1 million, or 2.6% of total revenues
for the three months ended March 31, 1997. This increase is primarily
attributable to the larger fleet of service and delivery vehicles in 1998
versus 1997, 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 three
months ended March 31, 1998 was $2.1 million, or 1.9% of total revenues,
compared to $624,000, or 1.5% of total revenues for the three months ended
March 31, 1997. This increase is due to the additional goodwill and covenants
not to compete associated with acquisitions completed since March 31, 1997.
Interest Expense, net. Interest expense, net, for the three months ended
March 31, 1998 was $7.6 million, compared to $1.6 million for the three months
ended March 31, 1997. This increase is the result of the Company's increased
average debt outstanding for the three months ended March 31, 1998 versus the
three months ended March 31, 1997. The increased debt has resulted from
acquisitions, capital expenditures and start-up locations financed under the
Bank Facility. Interest expense will continue to increase in subsequent
periods to the extent the Company borrows under the Bank Facility, or
otherwise, to fund acquisitions and capital expenditures.
46
<PAGE>
Provision for Income Taxes. Provision for income taxes was $4.1 million for
the three months ended March 31, 1998, compared to $1.7 million for the three
months ended March 31, 1997. The Company's effective tax rate was 42.8% for
the three months ended March 31, 1998, compared to 44.1% for the three months
ended March 31, 1997. The decrease in the Company's effective tax rate is a
result of increased profitability, which has lessened the impact of the higher
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 three
months ended March 31, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Total revenues for the year ended December 31, 1997 increased
103.5% to $261.3 million from $128.4 million for the year ended December 31,
1996. This increase was primarily due to the inclusion of revenues from
acquisitions of 22 businesses (consisting of 64 locations) and the opening of
16 start-up locations since December 31, 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 81.2% to $170.7 million from $94.2 million due to the larger rental
fleet resulting from acquisitions and capital expenditures. Sales of parts,
supplies and new equipment increased 223.7% to $71.0 million from $21.9
million due primarily to the acquisition of IAT (effective in the Company's
results of operations from March 1, 1997), the increased number of rental
locations selling these items and the 1997 acquisitions of businesses that
were dealers for certain new equipment. Sales of used equipment increased
60.4% to $19.6 million from $12.2 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 year ended December 31, 1997 increased to
$68.6 million, or 26.3% of total revenues, from $31.2 million, or 24.3% of
total revenues, for the year ended December 31, 1996. Gross margin on
equipment rentals increased to 26.8% of equipment rental revenues from 22.5%
for the year ended December 31, 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 22.9% of sales from
28.9%, 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 26.2% for the year ended December 31, 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 increased to 34.1% of sales from
30.5%, 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 for the year ended December 31, 1997 was $21.0 million,
or 8.0% of total revenues, compared to $12.3 million, or 9.5% of total
revenues for the year ended December 31, 1996. This increase is the result of
the greater number of locations and employees resulting from the Company's
acquisitions and start-ups.
Depreciation and Amortization, excluding equipment rental
depreciation. Depreciation and amortization, excluding equipment rental
depreciation, for the year ended December 31, 1997 was $5.4 million, or 2.1%
of total revenues, compared to $2.8 million, or 2.2% of total revenues for the
year ended December 31, 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 year ended
December 31, 1997 was $3.9 million, or 1.5% of total revenues, compared to
$2.4 million, or 1.9% of total revenues for the year ended
47
<PAGE>
December 31, 1996. This increase is due to the additional goodwill and
covenants not-to-compete associated with acquisitions completed since December
31, 1996.
Interest Expense, net. Interest expense, net, for the year ended December
31, 1997 was $14.9 million, compared to $7.1 million for the year ended
December 31, 1996. This increase is the result of the Company's increased
average debt outstanding in 1997 versus 1996. The increased debt has resulted
from acquisitions, capital expenditures and start-up locations financed under
the Bank Facility. Interest expense will continue to increase in subsequent
periods to the extent the Company borrows under the Bank Facility, or
otherwise, to fund acquisitions and capital expenditures.
Provision for Income Taxes. Provision for income taxes was $10.3 million for
the year ended December 31, 1997, compared to $2.7 million for the year ended
December 31, 1996. The Company's effective tax rate was 44.0% for 1997,
compared to 40.6% for 1996. The increase in the Company's effective tax rate
is a result of increased levels of non-deductible items, primarily goodwill.
Extraordinary Items. 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 year
ended December 31, 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 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.
48
<PAGE>
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
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.
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 has
historically 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 $4.5 million at March 31, 1998, $8.9 million at
December 31, 1997 and $1.5 million at December 31, 1996.
Operating activities. During the three months ended March 31, 1997 and 1998,
the Company's operating activities provided net cash flow of $20.3 million and
$39.1 million, respectively. The principal causes for the variation in cash
flow between periods were higher net income, increased depreciation and
amortization and higher average accounts payable.
During the years ended December 31, 1995, 1996 and 1997, the Company's
operating activities provided net cash flow of $9.9 million, $23.5 million and
$46.0 million, respectively. The principal causes for the variations in cash
flow between years were higher net income, increased depreciation and
amortization and higher average accounts payable.
49
<PAGE>
Investing activities. Net cash used in investing activities was $51.5
million and $167.2 million for the three months ended March 31, 1997 and 1998,
respectively. The increase between periods was attributable to a higher
combined level of capital expenditures and acquisitions. Acquisition spending
totaled $12.0 million and $107.8 million for the three months ended March 31,
1997 and 1998, respectively. In addition, the Company had capital expenditures
of $44.1 million and $70.7 million for the three months ended March 31, 1997
and 1998, respectively. Capital expenditures were primarily for purchases of
rental equipment. Included in investing activities were proceeds from the sale
of used equipment, which were $4.6 million and $11.3 million for the three
months ended March 31, 1997 and 1998, respectively.
Net cash used in investing activities was $58.9 million, $84.7 million and
$424.4 million for the years ended December 31, 1995, 1996 and 1997,
respectively. The increases between years were attributable to a higher
combined level of capital expenditures and acquisitions. Acquisition spending
totaled $42.1 million, $27.3 million and $278.9 million for the years ended
December 31, 1995, 1996 and 1997, respectively. In addition, the Company had
capital expenditures of $23.6 million, $86.8 million and $165.1 million for
the years ended December 31, 1995, 1996 and 1997, respectively. Capital
expenditures were primarily for purchases of rental equipment. Included in
investing activities were proceeds from the sale of used equipment, which were
$4.1 million, $12.7 million and $19.6 million for the years ended December 31,
1995, 1996 and 1997, respectively. Also included in investing activities were
proceeds from assets held for sale of $2.7 million and $16.7 million for the
years ended December 31, 1995 and 1996, respectively.
Financing activities. Net cash provided by financing activities was $31.3
million and $123.6 million for the three months ended March 31, 1997 and 1998,
respectively. The net cash provided by financing activities during these
periods was primarily from borrowings under the Revolver.
Net cash provided by financing activities was $49.8 million, $61.3 million
and $385.9 million for the years ended December 31, 1995, 1996 and 1997,
respectively. During 1997, the net cash provided by financing activities was
primarily due to issuances of Common Stock in the public offerings completed
in June and December, and from borrowings under the Bank Facility. During
1996, the net cash provided by financing activities was primarily due to
issuances of Common Stock, primarily from the Company's initial public
offering in September 1996, and from borrowings under the Revolver. During
1995, the net cash provided by financing activities was primarily due to the
receipt of the proceeds from the Revolver and the Bank Note, which were used
to pay off the Old Revolver and to acquire RHI.
In September 1996, the Company received net proceeds of approximately $87.9
million from the sale of 6,027,813 shares of Common Stock in its initial
public offering. Additionally, 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 in June 1997, and approximately $98.3 million
from the sale of 4,345,224 shares of Common Stock in a public offering
completed in December 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 outstanding indebtedness under its Revolver to provide
borrowing availability for general corporate purposes, including acquisitions.
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, 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. In connection with the implementation of the January 1997
amendment, the Company recorded an extraordinary loss on extinguishment
50
<PAGE>
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 to $500.0
million and the implementation of the new $100.0 million Term Loan (together
with the Revolver, the "Bank 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; and amended
several covenants, including the computation methodology of certain financial
covenants.
In connection with the completion of the Offering in May 1998, the Company
amended the Revolver to (i) reduce the interest rate margins by 0.25%, (ii)
increase the allowed levels of capital expenditures and investments to $220.0
million in 1998, $235.0 million in 1999, $250.0 million in 2000, $270.0
million in 2001 and $340.0 million in each of 2002, 2003 and 2004 (plus
amounts reinvested from asset sales), (iii) change certain financial and other
covenants and (iv) permit the issuance of the Private Notes.
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 orderly
liquidation value) 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 Term Loan consists of a $100.0 million seven-year term loan facility,
which requires mandatory principal payments of $1.0 million on each of its
first six anniversaries, with the remaining principal
balance 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 Bank Facility has financial covenants for RSC regarding debt incurrence,
interest coverage, capital expenditures and investments (including
acquisitions), rental equipment utilization and minimum EBITDA levels. The
Bank Facility 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 of March 31, 1998, the
Company was in compliance with all covenants of the Bank Facility.
Borrowings under the Bank Facility are secured by all of the 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 also includes a $2.0 million letter of
credit facility. 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 obligation of the lenders to make loans
or issue letters of credit under the Bank Facility is subject to certain
customary conditions.
51
<PAGE>
At June 5, 1998, the principal amount outstanding under the Revolver was
$315.1 million, the average interest rate on such borrowings was 7.2%, and an
additional $184.9 million was available to the Company under the Revolver.
The Private Notes call for semi-annual interest payments each May 15 and
November 15 of each year beginning November 15, 1998 and mature on May 15,
2008. The Private Notes are guaranteed by substantially all of the Company's
current and future domestic subsidiaries, and contain covenants restricting
additional indebtedness, certain payments by the Company and its subsidiaries,
asset sales, liens, mergers and consolidations and transactions with
affiliates. See "Description of Exchange Notes--Certain Covenants."
Acquisitions and Start-ups. 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 non-binding letters of intent or acquisition
agreements. At December 31, 1997, the Company operated 165 locations
throughout the United States. Since December 31, 1997, the Company has
completed twelve acquisitions of rental equipment businesses (including
Valley, Metroquip and T&M) with an aggregate of 34 locations, has opened six
new start-up locations and has consolidated two acquired locations with
existing locations serving the same markets, bringing the Company's total
number of locations to 203 as of June 5, 1998.
During the three months ended March 31, 1998, the Company completed seven
acquisitions of rental equipment businesses with a combined total of 22
locations for an aggregate purchase price of approximately $107.8 million in
cash (including the payoff of assumed debt), 450,109 shares of Common Stock
and the assumption of approximately $5.5 million in liabilities. During the
three months ended March 31, 1997, the Company completed five acquisitions of
rental equipment businesses with a combined total of eight locations for an
aggregate purchase price of approximately $12.0 million in cash and the
assumption of approximately $1.3 million in liabilities.
During the year ended December 31, 1997, the Company completed 22
acquisitions of rental equipment businesses with a combined total of 64
locations for an aggregate purchase price of approximately $278.9 million in
cash (including the payoff of assumed debt), 1,299,709 shares of Common Stock
(of which 218,195 shares will be issued in future years) and the assumption of
approximately $23.6 million in liabilities. Additionally, 197,738 shares of
Common Stock may be paid for these acquisitions based on the achievement of
certain performance objectives by the acquired companies, of which 65,913
shares were earned and payable at December 31, 1997. During the year ended
December 31, 1996, the Company completed eleven acquisitions of rental
equipment businesses with a combined total of 25 locations for an aggregate
purchase price of approximately $27.3 million in cash and the assumption of
approximately $5.3 million in liabilities. During the year ended December 31,
1995, the Company completed five acquisitions of rental equipment businesses
(including RHI) with a combined total of 26 locations for an aggregate
purchase price of approximately $42.1 million in cash (including the payoff of
assumed debt) and the assumption of approximately $27.6 million in
liabilities.
During the three months ended March 31, 1998, the Company opened two new
start-up locations and consolidated two acquired locations with existing
locations serving the same markets.
During the year ended December 31, 1997, the Company opened 16 new start-up
locations, consolidated seven acquired locations with existing locations
serving the same markets and closed two underperforming locations. During the
year ended December 31, 1996, the Company opened 19 new start-up locations.
During the year ended December 31, 1995, the Company opened ten new start-up
locations and designated the eleven California locations acquired from RHI as
"assets held for sale." RHI's eleven California locations were sold or closed
during 1996.
On April 1, 1998, the Company acquired all of the outstanding stock of
Metroquip for $51.2 million in cash (including the payoff of assumed debt) and
193,090 shares of Common Stock. Up to an additional 95,727 shares
52
<PAGE>
of Common Stock may be paid to the seller over a three year period if certain
performance objectives are met. Metroquip rented, sold and supported aerial
work platforms and contractors' equipment and operated a total of five
locations in Minnesota and Nebraska. Metroquip's balance sheet was
consolidated with the Company's as of April 1, 1998. Pursuant to the
acquisition agreement, the Company assumed effective control of Metroquip's
operations on March 1, 1998 and has included Metroquip's revenues, costs and
expenses from such date in its consolidated statements of operations, net of
related imputed purchase price adjustments.
On April 2, 1998, the Company acquired all of the outstanding stock of T&M
for $21.9 million in cash (including the payoff of assumed debt). Up to
33,132 shares of Common Stock may be paid to the seller over a three year
period if certain performance objectives are met. T&M was an independent
rental company operating one location in Indiana. T&M's balance sheet was
consolidated with the Company's as of April 2, 1998. Pursuant to the
acquisition agreement, the Company assumed effective control of T&M's
operations on March 1, 1998 and has included T&M's revenues, costs and
expenses from such date in its consolidated statements of operations, net of
related imputed purchase price adjustments.
Subsequent to March 31, 1998, the Company has completed three additional
acquisitions for a total combined purchase price of approximately $17.1
million (including 53,693 shares of Common Stock). These acquisitions had a
combined six locations in Illinois, Missouri, Virginia and Wisconsin.
As of June 5, 1998, the Company was party to non-binding letters of intent
to acquire three equipment rental businesses with a combined eleven locations
in Illinois, Missouri and Oklahoma for a total combined purchase price of
approximately $33.2 million (including the assumption of approximately $7.4
million of debt). These acquisitions are subject to a number of closing
conditions, including the execution of definitive purchase agreements, RSC
board of directors approval and, in some cases, expiration or early
termination of the waiting period under the HSR Act. Furthermore, in view of
the fact that these letters of intent are non-binding and that the Company has
not completed its due diligence investigations with respect thereto, the
Company cannot predict whether these letters of intent will lead to definitive
agreements, whether the terms of any such definitive agreements will be the
same as the terms contemplated by the letters of intent or whether any
transaction contemplated by such letters of intent will be consummated.
General. 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 June 5, 1998, the
Company was obligated, under noncancellable purchase commitments, to purchase
approximately $90.8 million of equipment. Such purchases are expected to be
financed with cash flows from operations and through borrowings under the
Revolver.
The Company believes cash flow from operations, together with availability
under the Revolver, and vendor financing in appropriate cases, will be
sufficient to support its operations and capital liquidity requirements for at
least the next 12 months. However, if significant additional acquisition
opportunities arise, the Company may need to seek additional capital. Such
acquisitions and capital expenditures 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 generally 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.
53
<PAGE>
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 $594,000 and $652,000 at March 31, 1998 and December 31, 1997,
respectively, 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."
54
<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
March 31, 1998. 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>
1998
1996 QUARTERS ENDED 1997 QUARTERS ENDED QUARTER
------------------------- ---------------------------------- ENDED
JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
------- -------- ------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Equipment rentals....... $22,874 $25,212 $26,476 $27,527 $36,800 $47,222 $59,155 $ 70,179
Sales of parts, supplies
and new equipment...... 5,722 5,890 5,469 9,165 17,787 20,167 23,838 27,227
Sales of used
equipment.............. 2,671 3,529 3,314 4,617 3,967 5,080 5,938 11,257
------- ------- ------- ------- ------- ------- ------- --------
Total revenues.......... 31,267 34,631 35,259 41,309 58,554 72,469 88,931 108,663
COST OF REVENUES:
Cost of equipment
rentals, excluding
equipment rental
deprecation............ 13,551 14,977 14,225 14,316 19,361 23,829 30,046 37,073
Depreciation, equipment
rentals................ 4,156 4,586 5,465 6,306 7,730 10,457 12,920 15,461
Cost of sales of parts,
supplies and new
equipment.............. 4,121 4,225 3,783 6,737 13,869 15,777 18,356 21,249
Cost of sales of used
equipment.............. 1,681 2,525 2,668 2,972 2,724 3,565 3,666 7,944
------- ------- ------- ------- ------- ------- ------- --------
Total cost of revenues.. 23,509 26,313 26,141 30,331 43,684 53,628 64,988 81,727
------- ------- ------- ------- ------- ------- ------- --------
Gross profit............ 7,758 8,318 9,118 10,978 14,870 18,841 23,943 26,936
Selling, general and
administrative
expense................ 3,028 3,299 3,193 3,784 4,685 4,975 7,552 5,659
Depreciation and
amortization, excluding
equipment rental
depreciation........... 607 651 1,006 1,068 1,219 1,502 1,584 2,024
Amortization of
intangibles............ 600 664 554 624 745 1,094 1,444 2,085
------- ------- ------- ------- ------- ------- ------- --------
Operating income........ 3,523 3,704 4,365 5,502 8,221 11,270 13,363 17,168
Interest expense, net... 2,045 2,135 1,244 1,597 3,030 4,236 6,014 7,583
------- ------- ------- ------- ------- ------- ------- --------
Income before income
taxes and extraordinary
items.................. 1,478 1,569 3,121 3,905 5,191 7,034 7,349 9,585
Provision for income
taxes.................. 581 617 1,311 1,722 2,336 3,114 3,158 4,101
------- ------- ------- ------- ------- ------- ------- --------
Income before
extraordinary items.... 897 952 1,810 2,183 2,855 3,920 4,191 5,484
Extraordinary items, net
of income tax benefit
of $822 in 1996 and
$386 in 1997........... -- (1,269) -- (534) -- -- -- --
------- ------- ------- ------- ------- ------- ------- --------
Net income (loss)....... 897 (317) 1,810 1,649 2,855 3,920 4,191 5,484
Redeemable preferred
stock accretion........ 565 524 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- --------
Net income (loss)
available to common
stockholders........... $ 332 $ (841) $ 1,810 $ 1,649 $ 2,855 $ 3,920 $ 4,191 $ 5,484
======= ======= ======= ======= ======= ======= ======= ========
EARNINGS PER COMMON
SHARE:
Income (loss) before
extraordinary items... $ .06 $ .07 $ .16 $ .19 $ .23 $ .26 $ .26 $ .27
Extraordinary items.... -- (.21) -- (.04) -- -- -- --
------- ------- ------- ------- ------- ------- ------- --------
Net income (loss)...... $ .06 $ (.14) $ .16 $ .15 $ .23 $ .26 $ .26 $ .27
======= ======= ======= ======= ======= ======= ======= ========
Weighted average common
shares................ 5,169 5,977 11,231 11,298 12,412 15,002 15,838 20,419
EARNINGS PER COMMON
SHARE, ASSUMING
DILUTION:
Income (loss) before
extraordinary items... $ .06 $ .07 $ .16 $ .19 $ .23 $ .26 $ .26 $ .27
Extraordinary items.... -- (.20) -- (.05) -- -- -- --
------- ------- ------- ------- ------- ------- ------- --------
Net income (loss) per
common share.......... $ .06 $ (.13) $ .16 $ .14 $ .23 $ .26 $ .26 $ .27
======= ======= ======= ======= ======= ======= ======= ========
Weighted average common
shares, assuming
dilution.............. 5,501 6,273 11,504 11,511 12,612 15,317 16,208 20,568
Net increase in
locations at period
end.................... 17 3 11 8 29 3 31 22
</TABLE>
55
<PAGE>
INCOME TAXES
At December 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $18.4 million that expire in
years 2005 through 2012. In addition the Company had combined state net
operating loss carryforwards of approximately $20.1 million that expire in
years 1998 through 2012. Approximately $8.5 million of the federal
carryforwards and $800,000 of the state carryforwards are attributable to the
Company's acquisition of RHI. For financial reporting purposes a valuation
allowance of approximately $4.0 million and $3.7 million at December 31, 1996
and 1997, 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 future profitability of certain
subsidiaries of RHI.
The Company also has alternative minimum tax credit carryovers of
approximately $4.6 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. Approximately
$600,000 of the federal and all of the state alternative minimum tax credit
carryovers resulted from the Company's acquisition of RHI. For financial
reporting purposes a valuation allowance of approximately $800,000 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.
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.
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 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.
56
<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 June 5,
1998, RSC operated the largest equipment rental network in the United States
with 203 rental locations in 26 states. 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 56 businesses comprised of 172 locations and has
opened 54 start-up locations through June 5, 1998. 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 and profitability 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 and 1997 industry rental revenues were approximately $18 billion and $21
billion, respectively.
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
rental locations, the Company believes RSC benefits from several competitive
advantages, including
57
<PAGE>
sophisticated management information systems, volume purchasing discounts,
professional management, a diverse customer base and geographic locations, 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, 1997 rental revenues of the top 100 rental equipment
companies increased over 1996 rental revenues by approximately 35%, to more
than $4.2 billion, according to estimates by the RER. In spite of this growth,
these top 100 companies represented only a small percentage of the estimated
$21 billion in industry rental revenues in 1997. 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 scalable over a large number of locations, and
expects to add it to the Company's existing systems. See "--Fleet Management,"
"--Information Systems" and "Offering Memorandum 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
58
<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. 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 56 businesses consisting of 172 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 53 additional start-up locations. See "--
Business Strategy--Cluster Strategy" and "--Locations."
Internal Growth. The Company focuses on achieving internal growth through an
emphasis on disciplined fleet expansion, improved asset utilization and
targeted marketing efforts. The Company intends to replace assets
59
<PAGE>
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 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, 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 92,000 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, Ingersoll-Rand, JLG, Kobelco, Lull, Multiquip, Norton, Sky-Jack,
Sky Trak, Snorkel, Stanley Proto, Terramite, Wacker and Weldon Pumps. The
Company also offers 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 location by the Company's radio-dispatched
transportation fleet of trucks, trailers and independent carriers. The
60
<PAGE>
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. 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 1997, the Company rented equipment to over 100,000 customers, with no one
customer accounting for more than 0.5% of the Company's total revenues, and
the top ten customers representing less than 3% 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. The Company believes the loss of any one customer would not have a
material adverse effect on the Company's business. Through the formation 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."
SALES AND MARKETING
The Company markets its products and services through a sales force of
approximately 533 salespeople as of June 5, 1998 (excluding the employees of
Center). 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
61
<PAGE>
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."
LOCATIONS
As of June 5, 1998, the Company operated 203 rental locations in the
following 26 states: Alabama (13), Arizona (8), Arkansas (15), Colorado (6),
Delaware (1), Florida (23), Georgia (24), Illinois (7), Indiana (1), Iowa (6),
Kansas (4), Louisiana (7), Maryland (3), Minnesota (4), Mississippi (11),
Missouri (7), Nebraska (3), New Mexico (5), North Carolina (2), Oklahoma (1),
Pennsylvania (1), South Carolina (8), Tennessee (11), Texas (27), Virginia (4)
and Wisconsin (1). As of June 5, 1998, the Company was party to non-binding
letters of intent to acquire three equipment rental businesses with a combined
eleven locations in the following three states: Illinois (2), Missouri (2) and
Oklahoma (7).
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 1998 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., BET
Plant Services U.S.A. and United Rentals, Inc.); 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.
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
62
<PAGE>
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 and geographic locations, 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 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.
63
<PAGE>
TRADE NAMES
The Company currently does business under the name Rental Service
CorporationSM. 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 June 5, 1998 the Company employed 2,600 people, including 533
salespeople, 1,964 operational employees and 103 corporate and regional
management employees. With the acquisition of Center, the Company added
approximately 347 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 59 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.
64
<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
- ---- --- -----
<S> <C> <C>
Martin R. Reid.......... 55 Chairman of the Board and Chief Executive Officer
Robert M. Wilson........ 40 Senior Vice President, Chief Financial Officer, Secretary and Treasurer
Ronald Halchishak....... 50 Senior Vice President of Operations
David G. Ledlow......... 39 Senior Vice President of Operations
John Markle............. 42 Senior Vice President of Operations
Douglas A. Waugaman..... 40 Senior Vice President of Operations
David B. Harrington..... 44 Senior Vice President of Human Resources
William M. Barnum, Jr... 44 Director
James R. Buch........... 44 Director
David P. Lanoha......... 48 Director
Christopher A.
Laurence............... 31 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. From
October 1993 to February 1998, Mr. Reid served as 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.
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.
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 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.
JOHN MARKLE has served as a Senior Vice President of Operations of the
Company since January 1998. Mr. Markle joined the Company in conjunction with
the Center Acquisition in December 1997. Prior to joining the Company, Mr.
Markle served as President of Center since 1989. Prior to joining Center,
Mr. Markle spent ten years with Power Rental.
65
<PAGE>
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.
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.
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 the
Chief Executive Officer of Classroom Holdings, Inc. Previously, he served as
Director of U.S. Operations for Brittania Security Group.
DAVID P. LANOHA has served as a director of the Company since January 1998.
Mr. Lanoha initially joined the Company as Senior Vice President of Operations
in conjunction with the Center Acquisition. 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.
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. Since October 1996, Mr. Murdoch has been Chief Financial Officer of
Internet Capital Group, LLP, a privately held company. 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. Mr. Murdoch is
also a director of Susquehanna Banc Shares, Inc.
JOHN M. SULLIVAN has served as a director of the Company since July 1997. He
is presently a director of The Scotts Company 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.
66
<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 eight 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, the Acquisition Committee and the Nominating
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, Mattson and Lanoha. 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. Murdoch and Sullivan. The Audit Committee met two times and the
Compensation Committee met four times during 1997. The Acquisition Committee
was established on September 30, 1997 to approve acquisitions in which the
consideration to be paid by the Company is less than $10 million. The
Acquisition Committee consists of Messrs. Reid and Laurence. The Nominating
Committee was established on February 25, 1998 to make recommendations
regarding the nomination of members of the Board. The Nominating Committee
consists of Messrs. Barnum, Mattson and Murdoch.
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 an executive officer of Tuboscope until April 1996. He
served on the Executive Committee of the Board of Directors of Tuboscope,
which is responsible for Tuboscope's compensation policies, until February
1998. 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 1997; however, the Company
reimbursed directors for their out-of-pocket expenses incurred in connection
with attending meetings of 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."
67
<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.
68
<PAGE>
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 Company's four
other most highly compensated executive officers (collectively, the "Named
Executive Officers") for all services rendered in all capacities to the
Company during the fiscal years ended December 31, 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($) OPTIONS(#)
--------------------------- ---- --------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Martin R. Reid
Chairman and Chief Executive Officer.. 1997 339,361 300,000 10,122(2) 200,000(3)
1996 294,231 84,375 5,641(2) --
1995(4) 220,674 140,625(5) -- --
Robert M. Wilson
Senior Vice President, Chief Financial
Officer, Secretary and Treasurer...... 1997 99,300 -- 75,287(5) 75,000
1996 -- -- -- --
1995 -- -- -- --
Douglas A. Waugaman
Senior Vice President of Operations... 1997 166,531 200,000 2,121(2) 100,000
1996 155,923 42,900 7,149(2) --
1995(4) 139,550 48,050 126,940(6) --
Ronald Halchishak
Senior Vice President of Operations... 1997 148,260 75,000 1,408(2) --
1996 150,000 100,000 910(2) 71,250
1995(4) 147,115 26,520 -- 16,740
David G. Ledlow
Senior Vice President of Operations... 1997 137,132 75,000 16,754(2) --
1996 117,692 36,709 4,200(2) 71,250
1995 85,827 38,472 -- 16,740
</TABLE>
- --------
(1) The amount of bonus earned in each fiscal year is paid, and accounted for
in this table, in the next succeeding fiscal year. Bonuses earned with
respect to fiscal 1997 were as follows: Mr. Reid, $500,000; Mr. Wilson,
$103,185; Mr. Waugaman, $149,960; Mr. Halchishak, $123,058 and Mr. Ledlow,
$120,000. Such fiscal 1997 bonuses were paid during April 1998.
(2) Consists of one or more of the following: (i) an automobile allowance,
(ii) relocation expenses reimbursed by the Company, and (iii) insurance
premiums paid by the Company for life insurance and disability policies
covering such officer.
(3) In January 1998, Mr. Reid entered into an employment agreement with the
Company. In connection with such agreement, Mr. Reid's 200,000 outstanding
options to purchase Common Stock became immediately exercisable.
Additionally, Mr. Reid was granted stock options to purchase 190,000
shares of Common Stock, vesting in equal installments over four years (or
earlier if certain performance criteria are met), and was granted 10,000
shares of restricted stock, vesting in equal installments over four years.
On February 25, 1998, Mr. Reid surrendered to the Company options to
purchase 57,000 shares of Common Stock in order to ensure the number of
shares of Common Stock available for issuance pursuant to the 1996 Plan
was sufficient to allow certain grants of stock options to other officers.
On April 29, 1998, Mr. Reid was granted stock options to purchase 40,411
shares of Common Stock, vesting in equal installments over four years (or
earlier if certain performance criteria are met), and was granted 16,589
shares of restricted stock, vesting in equal installments over four years.
(4) Includes amounts paid by RHI.
(5) Consists of relocation expenses reimbursed by the Company ($70,309), an
automobile allowance and insurance premiums paid by the Company for life
insurance and disability policies covering Mr. Wilson.
(6) Consists of relocation expenses reimbursed by the Company ($19,598), a
relocation bonus ($100,000) and insurance premiums paid by the Company for
life insurance and disability policies covering Mr. Waugaman.
69
<PAGE>
Stock Options Granted in Fiscal 1997. The following table sets forth
information concerning individual grants of stock options made by the Company
during the fiscal year ended December 31, 1997 to each of the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED EXERCISE OR OPTION TERM
UNDERLYING TO EMPLOYEES BASE PRICE ---------------------
NAME OPTIONS GRANTED(#) IN FISCAL YEAR ($/SH) EXP. DATE 5%($) 10%($)
---- ------------------ ---------------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Martin R. Reid
Chairman and Chief
Executive Officer...... 200,000(1)(2) 27.9% $20.25 2007 2,547,023 6,454,657
Robert M. Wilson
Senior Vice President,
Chief Financial
Officer, Secretary and
Treasurer.............. 75,000(1) 10.4% $18.00 2007 849,008 2,151,552
Douglas A. Waugaman
Senior Vice President
of Operations.......... 100,000(1) 13.9% $20.25 2007 1,273,512 3,227,328
Ronald Halchishak
Senior Vice President
of Operations.......... -- -- -- -- -- --
David G. Ledlow
Senior Vice President
of Operations.......... -- -- -- -- -- --
</TABLE>
- --------
(1) Such options vest equally over four years from the date of grant.
(2) In connection with his employment agreement in January 1998, the vesting of
Mr. Reid's previously outstanding options was accelerated, and such options
became immediately exercisable.
70
<PAGE>
Aggregated Option Exercises. The following table sets forth information (on
an aggregated basis) concerning each exercise of stock options during the year
ended December 31, 1997 by each of the Named Executive Officers and the year-
end value of unexercised options.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- "IN-THE-MONEY" OPTIONS
SHARES END AT FISCAL YEAR-END(1)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin R. Reid
Chairman and Chief
Executive Officer...... -- -- 200,000(2) -- (2) 862,500(2) --
Robert M. Wilson
Senior Vice President,
Chief Financial
Officer, Secretary and
Treasurer.............. -- -- -- 75,000 -- 492,188
Douglas A. Waugaman
Senior Vice President
of Operations.......... -- -- -- 100,000 -- 431,250
Ronald Halchishak
Senior Vice President
of Operations.......... -- -- 27,120 55,290 171,861 260,156
David G. Ledlow
Senior Vice President
of Operations.......... -- -- 21,753 55,503 177,091 333,887
</TABLE>
- --------
(1) Options are "in-the-money" at the fiscal year end if the fair market value
(based on the closing price of the Common Stock on the NYSE on December
31, 1997 of $24.5625 per share, less the exercise price) of the underlying
securities on such date exceeds the exercise or base price of the option.
(2) In connection with his employment agreement in January 1998, the vesting
of all of Mr. Reid's previously outstanding options was accelerated, and
such options became immediately exercisable.
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
71
<PAGE>
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, thereby stimulating their
personal and active interest in the Company's development and financial
success, and inducing 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 May 31, 1998, none 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.
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 2,000,000 shares of Common Stock (or
the equivalent in other equity securities) are authorized for issuance upon
exercise or vesting of any Awards. As of May 31, 1998, 916,183 shares of
Common Stock were available for future 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.
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 150 officers and other employees are currently
eligible to participate in the 1996 Plan. During the term of the 1996 Plan and
pursuant to a formula, (a) each non-employee director is automatically granted
an NQSO 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 an NQSO to purchase 2,500 shares of Common Stock at each subsequent
annual meeting at which he is reelected to the Board.
72
<PAGE>
MANAGEMENT INCENTIVE COMPENSATION PLAN
The Company maintains an annual bonus plan (the "Management Incentive
Compensation Plan") under which the chief executive officer and certain of the
Company's other executives ("Covered Employees") are eligible to receive bonus
payments. The Management Incentive Compensation Plan is intended to provide an
incentive for superior work, to motivate Covered Employees toward even higher
achievement and business results, to tie their goals and interests to those of
the Company and its stockholders and to enable the Company to attract and
retain highly qualified senior employees.
The Management Incentive Compensation Plan will be administered by a
committee consisting of at least two members of the Board of Directors of the
Company who qualify as "outside directors" under Code Section 162(m) (the
"Bonus Committee"). Initially, the Bonus Committee will be the members of the
Compensation Committee. The Bonus Committee will have the sole discretion and
authority to administer and interpret such portion of the Management Incentive
Compensation Plan.
A Covered Employee may receive a bonus payment based upon the attainment of
performance objectives established by the Bonus Committee and related to one
or more of the following corporate business criteria, which may be limited,
where applicable with respect to any Covered Employee, to store-level or
regional operations: pre-tax income, operating income, cash flow, earnings per
share, EBITDA, return on equity, return on invested capital or assets, cost
reductions and savings, return on revenues, collection of accounts receivable
or productivity. The actual amount of future bonus payments under the
Management Incentive Compensation Plan is not presently determinable. However,
the Management Incentive Compensation Plan provides that the maximum bonus for
a Covered Employee shall not exceed $1,000,000 with respect to any fiscal
year.
The Management Incentive Compensation Plan is designed to ensure that the
annual bonuses paid thereunder to Covered Employees are deductible by the
Company, without limit under Code Section 162(m). Section 162(m), which was
added to the Code in 1993, places a limit of $1,000,000 on the amount of
compensation that may be deducted by the Company in any tax year with respect
to Covered Employees. However, certain performance-based compensation is not
subject to the deduction limit. The Management Incentive Compensation Plan is
designed to provide this type of performance-based compensation to Covered
Employees.
Bonuses paid to Covered Employees will be based upon bonus formulas that tie
bonuses to one or more objective performance standards. Bonus formulas for
Covered Employees will be adopted in each performance period by the Bonus
Committee no later than the latest time permitted by Code Section 162(m). No
bonuses will be paid to Covered Employees unless and until the Bonus Committee
makes a certification in writing with respect to the attainment of the
objective performance standards as required by Code Section 162(m); and,
although the Bonus Committee may in its sole discretion reduce a bonus payable
to a Covered Employee, the Bonus Committee has no discretion to increase the
amount of a Covered Employee's bonus. The Bonus Committee has the discretion
to apply or not apply the foregoing provisions to bonuses paid to eligible
employees who have not been designated as Covered Employees.
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
73
<PAGE>
maintain a high level of profitability and asset utilization and to achieve
the Company's financial goals in their individual market. Bonuses under the
Operations Bonus Plan are based on the degree to which region or individual
location operating profit objectives are met and 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.
EXECUTIVE DEFERRED COMPENSATION PLAN AND SURVIVOR PROTECTION PROGRAM
In January 1998, the Board of Directors approved the Executive Deferred
Compensation Plan (the "EDCP") and Survivor Protection Program (the "SPP"),
pursuant to which senior executives of the Company may defer portions of their
cash compensation and senior executives and certain other senior management of
the Company received life insurance policies.
Senior executives of the Company may defer the receipt of a portion of their
cash compensation pursuant to the EDCP, whereby amounts, while deferred, earn
interest at a rate of (i) for the first five years of the program, the greater
of 10% or the average long-term bond yield and (ii) after the first five years
of the program, the average of the long-term bond yield. In addition, an
annual deferral incentive rate will be determined each year, beginning with
the third year of the program, which rate will be added to the rates described
in the previous sentence. Participants will receive payments under the EDCP
upon the later of retirement or upon reaching age 55 with at least seven years
of service to the Company. If a participant's employment is terminated by the
Company, such participant will receive payments under the EDCP upon reaching
age 62. The payments will be made over a fifteen-year period, subject to the
one-time right of participants to elect to receive 90% of their EDCP account
balance and forfeit the remainder. The trust administering the EDCP has
purchased life insurance policies to fund future payments under the EDCP,
which policies are owned by the trust.
Pursuant to the SPP, the Company has purchased life insurance policies for
the benefit of the survivors of senior executive and other senior management.
The amount of the benefit under the SPP will be three times annual base salary
(less $100,000) for senior executives and two times base salary (less
$100,000) for other senior management participants, with a maximum benefit of
$500,000 for both groups. In addition, a bonus will be paid to participants in
the amount of any tax due on imputed income associated with the life
insurance. The life insurance benefits under the SPP will continue after a
participant's retirement from the Company, with eligibility to begin upon the
earlier of (i) the participant reaching age 62 or (ii) the participant
reaching age 55 with at least seven years of service to the Company.
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. 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.
74
<PAGE>
Each employee of the Company who has been employed by the Company for not
less than six months 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
1,900 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. As of May 31, 1998, 241,660 shares of
Common Stock remain available under the QSP Plan.
75
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock outstanding as of May 31, 1998 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 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>
COMMON STOCK
BENEFICIALLY OWNED(1)
-------------------------
NAME NUMBER PERCENT
---- ------------- -----------
<S> <C> <C>
William M. Barnum, Jr.(2)(3)........................ 644,425 3.1%
Martin R. Reid(3)(4)(5)............................. 270,533 1.3
Robert M. Wilson(3)(4).............................. 18,825 *
Ronald Halchishak(3)(4)............................. 39,340 *
David G. Ledlow(3)(4)............................... 34,531 *
John Markle(3)(6)................................... 43,029 *
Douglas A. Waugaman(3)(4)........................... 83,806 *
David B. Harrington(3)(4)........................... 6,250 *
James R. Buch(3)(4)................................. 3,850 *
David P. Lanoha(3)(6)............................... 146,730 *
Christopher A. Laurence(2)(3)....................... 3,736 *
Eric L. Mattson(3)(7)............................... 2,500 *
Britton H. Murdoch(3)(8)............................ 4,500 *
John M. Sullivan(3)(4).............................. 2,500 *
All directors and executive officers as a group
(14 persons)(2)(3)(5).............................. 1,304,555 6.2
</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) Mr. Barnum, a director of the Company, is a general partner of BBP, the
general partner of Brentwood RSC Partners, which owns 617,972 shares of
Common Stock; accordingly, Mr. Barnum may be deemed to be the beneficial
owner of the shares owned by BBP and for purposes of this table they are
included. Mr. Barnum disclaims beneficial ownership of such shares. The
address of Brentwood RSC Partners, Mr. Barnum and Mr. Laurence is 11150
Santa Monica Boulevard, Suite 1200, Los Angeles, California 90025.
(3) 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--173,411 shares; Mr.
Wilson--72,250 shares; Mr. Halchishak--64,750 shares; Mr. Ledlow--64,750
shares; Mr. Markle--25,000 shares; Mr. Waugaman--91,000 shares; Mr.
Harrington--27,275 shares; Mr. Buch--8,650 shares; Mr. Lanoha--12,500
shares; Mr. Laurence--10,000 shares; Mr. Mattson--10,000 shares; Mr.
Murdoch--10,000 shares; and Mr. Sullivan--10,000 shares.
(4) The address of such person is c/o Rental Service Corporation, 6929 E.
Greenway Parkway, Suite 200, Scottsdale, Arizona 85254.
(5) Includes shares subject to vesting that may be repurchased by the Company
if they fail to vest.
76
<PAGE>
(6) The address of such person is c/o Center Rental & Sales, 11250 East 40th
Avenue, Denver, Colorado 60239.
(7) The address of such person is c/o Baker Hughes Incorporated, 3900 Essex
Lane, Suite 1200, Houston, Texas 77027.
(8) The address of such person is c/o Internet Capital Group, LLP, 800 The
Safeguard Building, 435 Devon Park Drive, Suite 411, Wayne, Pennsylvania
19087.
77
<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, $1,084,000 and $0 during
the years ended December 31, 1996 and 1997 and the three months ended March
31, 1998, respectively. The Company's obligation to pay such monitoring and
investment banking fees terminated upon completion of its initial public
offering; however, the Company, at its discretion, may utilize the
stockholder's investment banking services under the same fee arrangement. Mr.
Barnum, a general partner of BBP, who also serves as a director of the
Company, does not receive additional compensation from BBP for service as a
director.
EMPLOYMENT AGREEMENT WITH MARTIN R. REID
RSC and Martin R. Reid are parties to an employment agreement pursuant to
which Mr. Reid is employed as Chairman of the Board and Chief Executive
Officer (the "Employment Agreement"). The term of the Employment Agreement
initially is through December 31, 2001, but is automatically extended for one
additional year at the end of each calendar year unless earlier terminated
(the "Term of the Employment Agreement"). The Employment Agreement provides
for a base salary of no less than $500,000. Subject to stockholder approval of
an Executive Incentive and Bonus Plan, Mr. Reid is also eligible to receive a
yearly bonus of up to $500,000 pursuant to such plan, if certain performance
criteria are met. In addition, Mr. Reid is entitled to four weeks vacation and
all benefits generally available to other RSC executives. In January 1998, Mr.
Reid was granted options to purchase 190,000 shares of Common Stock, vesting
in equal installments over four years (or earlier if certain performance
criteria are met), and 10,000 shares of restricted stock, vesting in equal
installments over four years. However, the options will vest immediately if
Mr. Reid presents a chief executive officer succession plan which is approved
by the Board, but in no event earlier than one year from the grant of such
options. On February 25, 1998, Mr. Reid surrendered to the Company options to
purchase 57,000 shares of Common Stock in order to ensure the number of shares
of Common Stock available for issuance pursuant to the 1996 Plan was
sufficient to allow certain grants of stock options to other officers. On
April 29, 1998, Mr. Reid was granted options to purchase 40,411 shares of
Common Stock and 16,589 shares of restricted stock. These options and
restricted stock are subject to the same vesting as those granted in January
1998.
The Employment Agreement may be terminated by Mr. Reid or the Company at any
time, with or without cause. In addition, if requested by the Board of
Directors, Mr. Reid will resign as Chief Executive Officer (a "Resignation"),
but will remain as Chairman of the Board and devote at least 50% of his time
to the Company. Beginning with the first full year after his Resignation, Mr.
Reid's base salary and corresponding bonus opportunity will each be reduced to
$250,000. However, if the Board of Directors also asks him to step down as
Chairman of the Board (a "Step Down"), Mr. Reid will remain an RSC employee at
a base salary not in excess of $125,000, depending on the time he devotes.
Except where there has been a Change of Control, if Mr. Reid's active
employment in all capacities is terminated by RSC without "cause" (as defined
in the Employment Agreement), Mr. Reid will be entitled to receive severance
pay equal to his then-current base salary through the remaining Term of the
Employment Agreement plus the maximum bonus opportunity available if he had
continued in the position from which he was terminated. Additionally, Mr. Reid
will be entitled to immediate vesting of all his unvested options and
78
<PAGE>
restricted stock. In addition, for the remainder of the Term of the Employment
Agreement, Mr. Reid will be treated as an active employee for purposes of all
benefits and the exercise of his options, and Mr. Reid will be entitled to
health insurance coverage until age 65. No severance pay or benefit
continuation will be available if Mr. Reid is terminated for "cause" or if he
resigns other than due to the Company's breach or at the Board of Directors'
request as a Resignation or Step Down.
Upon a Change of Control (as defined in the Employment Agreement), all of
Mr. Reid's unvested stock options and restricted stock will vest. In addition,
if within 24 months after a Change of Control, Mr. Reid is terminated without
"cause" or voluntarily terminates his employment for "good reason" (as defined
in the Employment Agreement), then, in place of other severance payments, he
will receive a payment equal to two and one-half times his highest base salary
and annual bonus opportunity during the Term of the Employment Agreement prior
to the Change of Control. The Company must also continue to provide Mr. Reid
health and life insurance comparable to that in effect on the date of the
Change of Control for 30 months or until he is re-employed and eligible for
health and life insurance benefits from a new employer that are at least as
favorable as those provided by RSC. In addition, Mr. Reid will either be fully
vested in his account under the 401(k) Plan upon the Change of Control or
receive payment equal to the unvested portion of such account. RSC must also
transfer to Mr. Reid the company-owned car he was using at the time of the
Change of Control or pay him two and one-half times his annual car allowance.
During the Term of the Employment Agreement, and for four years after any
termination of employment for any reason, Mr. Reid cannot directly or
indirectly engage in any business that competes with RSC, whether as an owner,
director, officer, employee, consultant or otherwise, subject to limited
investments in public companies and a pre-existing loan to a family member.
Upon Mr. Reid's death or disability, all of his unvested options and
restricted stock will vest, and he or his estate will receive his unpaid base
salary through the date of such death or disability plus a pro rata portion of
his maximum bonus opportunity for that year.
In connection with the Employment Agreement, in January 1998 the Company
accelerated the vesting of Mr. Reid's 200,000 outstanding options to purchase
Common Stock and such options became immediately exercisable.
OTHER ARRANGEMENTS
In connection with the Center Acquisition, the Company entered leases for
certain of Center's facilities with David P. Lanoha, a director of the
Company, and certain partnerships affiliated with Mr. Lanoha. The leases
initially expire in 2002, with options to extend for three periods of five
years each. The aggregate annual rent under such leases is $720,000. The
Company believes the terms of these leases are no less favorable than those
that could be obtained from unaffiliated third parties. Prior to the Center
Acquisition, these locations had been leased by Center from Mr. Lanoha and his
affiliates. The previous leases were terminated in connection with the Center
Acquisition.
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.
79
<PAGE>
The Company has entered into a severance agreement with each of Messrs.
Halchishak, Harrington, Ledlow 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
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, that with Mr. Wilson
will continue in effect through April 2000 and that with Mr. Harrington will
continue in effect through June 2000.
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.
80
<PAGE>
DESCRIPTION OF THE BANK FACILITY
The Company's bank credit facility consists of a $500.0 million revolving
credit facility (the "Revolver") and a $100.0 million seven-year term loan
facility (the "Term Loan" and together with the Revolver, the "Bank
Facility").
The 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 orderly liquidation value) 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 Term Loan consists of a $100.0 million seven-year term loan facility,
which requires mandatory principal payments of $1.0 million on each of its
first six anniversaries, with the remaining principal
balance 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 Bank Facility has financial covenants for RSC regarding debt incurrence,
interest coverage, capital expenditures and investments (including
acquisitions), rental equipment utilization and minimum EBITDA levels. The
Bank Facility 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 of March 31, 1998, the
Company was in compliance with all covenants of the Bank Facility.
Borrowings under the Bank Facility are secured by all of the 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 also includes a $2.0 million letter of
credit facility. 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 obligation of the lenders to make loans
or issue letters of credit under the Bank Facility is subject to certain
customary conditions.
At June 5, 1998, the principal amount outstanding under the Revolver was
$315.1 million, the average interest rate on such borrowings was 7.2%, and an
additional $184.9 million was available to the Company under the Revolver.
Additionally, $100.0 million was outstanding under the Term Loan at an
interest rate of 8.1% at June 5, 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
81
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued under an indenture (the "Indenture"), to
be dated as of May 13, 1998 by and between the Company, the Subsidiary
Guarantors and Norwest Bank Minnesota, N.A., as Trustee (the "Trustee"). The
following summary of certain provisions of the Indenture does not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the
provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part of the Indenture by reference to the TIA
as in effect on the date of the Indenture. A copy of the Indenture may be
obtained from the Company or the Initial Purchasers. The definitions of
certain capitalized terms used in the following summary are set forth below
under "--Certain Definitions." For purposes of this "Description of Exchange
Notes," references to the "Company" mean only Rental Service Corporation and
not its Subsidiaries.
The Exchange Notes will be unsecured obligations of the Company, ranking
subordinate in right of payment to all Senior Indebtedness.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Exchange Notes. The
Exchange Notes may be presented for registration or transfer and exchange at
the offices of the Registrar, which initially will be the Trustee's corporate
trust office. The Company may change any Paying Agent and Registrar without
notice to registered holders of the Exchange Notes (the "Holders"). The
Company will pay principal (and premium, if any) on the Exchange Notes at the
Trustee's corporate office in New York, New York. At the Company's option,
interest may be paid at the Trustee's corporate trust office or by check
mailed to the registered address of Holders. Any Private Notes that remain
outstanding after the completion of the Exchange Offer, together with the
Exchange Notes issued in connection with the Exchange Offer, will be treated
as a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes are limited in aggregate principal amount to $300.0
million, of which $200.0 million in aggregate principal amount will be issued
in the Exchange Offer, and will mature on May 15, 2008. Additional amounts may
be issued from time to time, subject to the limitations set forth under "--
Certain Covenants--Limitation on Incurrence of Additional Indebtedness."
Interest on the Exchange Notes will accrue at the rate of 9% per annum and
will be payable semiannually in cash on each May 15 and November 15,
commencing on November 15, 1998, to the Holders at the close of business on
the May 1 and November 1 immediately preceding the applicable interest payment
date. Interest on the Exchange from the most recent date to which interest has
been paid or, if no interest has been paid, from and including the date of
issuance.
The Exchange Notes will not be entitled to the benefit of any mandatory
sinking fund.
REDEMPTION
Optional Redemption. The Exchange Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after May
15, 2003, upon not less than 30 nor more than 60 days' notice, at the
following redemption prices (expressed as percentages of the principal amount
thereof) if redeemed during the twelve-month period commencing on May 15 of
the year set forth below, plus, in each case, accrued and unpaid interest
thereon, if any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003............................................................ 104.5%
2004............................................................ 103.0%
2005............................................................ 101.5%
2006 and thereafter............................................. 100.0%
</TABLE>
82
<PAGE>
Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to May 15, 2001, the Company may, at its option, use the net
cash proceeds of one or more Equity Offerings (as defined below) to redeem up
to 35% of the principal amount of the Exchange Notes originally issued under
the Indenture at a redemption price equal to 109% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
redemption; provided that at least 65% of the principal amount of Notes issued
under the Indenture remains outstanding immediately after any such redemption.
In order to effect the foregoing redemption with the proceeds of any Equity
Offering, the Company shall make such redemption not more than 120 days after
the consummation of any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means a public or
private issuance of Qualified Capital Stock of the Company for cash.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Exchange Notes are to be redeemed at
any time, selection of such Notes for redemption will be made by the Trustee
in compliance with the requirements of the principal national securities
exchange, if any, on which Notes are listed or, if such Notes are not then
listed on a national securities exchange, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate; provided, however,
that no Notes of a principal amount of $1,000 or less shall be redeemed in
part; provided, further, that if a partial redemption is made with the
proceeds of an Equity Offering, selection of the Exchange Notes or portions
thereof for redemption shall be made by the Trustee only on a pro rata basis
or on as nearly a pro rata basis as is practicable (subject to DTC
procedures), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days
before the redemption date to each Holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Exchange Notes is subordinated in
right of payment to the prior payment in full in cash or Cash Equivalents of
all Obligations on Senior Indebtedness. Upon any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors or marshaling of
assets of the Company or in a bankruptcy, reorganization, insolvency,
receivership or other similar proceeding relating to the Company or its
property, whether voluntary or involuntary, all Obligations due or to become
due upon all Senior Indebtedness shall first be paid in full in cash or Cash
Equivalents, or such payment duly provided for to the satisfaction of the
holders of Senior Indebtedness, before any payment or distribution of any kind
or character is made on account of any Obligations on the Exchange Notes, or
for the acquisition of any of the Exchange Notes for cash or property or
otherwise. If any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by declaration or otherwise, of any
principal of, interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, any Senior
Indebtedness, no payment of any kind or character shall be made by or on
behalf of the Company or any other Person on its or their behalf with respect
to any Obligations on the Exchange Notes or to acquire any of the Exchange
Notes for cash or property or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Indebtedness, as such event of default is
defined in the instrument creating or evidencing such Designated Senior
Indebtedness, permitting the holders of such Designated Senior Indebtedness
then outstanding to accelerate the maturity thereof and if the Representative
for the respective issue of Designated Senior Indebtedness gives
83
<PAGE>
written notice of the event of default to the Trustee (a "Default Notice"),
then, unless and until all events of default with respect to such Designated
Senior Indebtedness have been cured (if capable of being cured) or waived in
writing or have ceased to exist or the Trustee receives notice from the
Representative for the respective issue of Designated Senior Indebtedness
terminating the Blockage Period (as defined below), during the 179 days after
the delivery of such Default Notice (the "Blockage Period"), neither the
Company nor any other Person on its behalf shall (x) make any payment of any
kind or character with respect to any Obligations on the Exchange Notes or (y)
acquire any of the Exchange Notes for cash or property or otherwise.
Notwithstanding anything herein to the contrary, in no event will a Blockage
Period extend beyond 179 days from the date the payment on the Exchange Notes
was due and only one such Blockage Period may be commenced within any 360
consecutive days. No event of default which existed or was continuing on the
date of the commencement of any Blockage Period with respect to the Designated
Senior Indebtedness shall be, or be made, the basis for commencement of a
second Blockage Period by the Representative of such Designated Senior
Indebtedness whether or not within a period of 360 consecutive days, unless
such event of default shall have been cured or waived for a period of not less
than 90 consecutive days (it being acknowledged that any subsequent action, or
any breach of any financial covenants for a period commencing after the date
of commencement of such Blockage Period that, in either case, would give rise
to an event of default pursuant to any provisions under which an event of
default previously existed or was continuing shall constitute a new event of
default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Indebtedness,
including the Holders of the Exchange Notes, may recover less, ratably, than
holders of Senior Indebtedness.
As of March 31, 1998, on a pro forma basis after giving effect to the
Offering and the Other Acquisitions, the aggregate amount of Senior
Indebtedness would have been approximately $337.5 million.
SUBSIDIARY GUARANTEES
Each Subsidiary Guarantor will unconditionally guarantee, on a senior
subordinated basis, jointly and severally, to each Holder and the Trustee, the
full and prompt performance of the Company's obligations under the Indenture
and the Exchange Notes, including the payment of principal of and interest on
the Exchange Notes. The Guarantees will be subordinated to Guarantor Senior
Indebtedness on the same basis as the Exchange Notes are subordinated to
Senior Indebtedness.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount which, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor
under its Guarantee or pursuant to its contribution obligations under the
Indenture, will result in the obligations of such Subsidiary Guarantor under
the Guarantee not constituting a fraudulent conveyance or fraudulent transfer
under federal or state law.
Each Subsidiary Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in an amount pro rata, based on the net assets of each Subsidiary
Guarantor, determined in accordance with GAAP.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor that is a Wholly Owned
Restricted Subsidiary of the Company without limitation, or with other Persons
upon the terms and conditions set forth in the Indenture. See "--Certain
Covenants--Merger, Consolidation and Sale of Assets." In the event all of the
Capital Stock of a Subsidiary Guarantor is (or all or substantially all of the
assets of a Subsidiary Guarantor are) sold by the Company and the sale
complies with the provisions set forth under "--Certain Covenants--Limitation
on Asset Sales," the Subsidiary Guarantor's Guarantee will be released.
84
<PAGE>
Separate financial statements of the Subsidiary Guarantors are not included
herein because such Subsidiary Guarantors are jointly and severally liable
with respect to the Company's obligations pursuant to the Exchange Notes, and
the aggregate net assets, earnings and equity of the Subsidiary Guarantors are
substantially equivalent to the net assets, earnings and equity of the Company
and its Subsidiaries on a consolidated basis.
CHANGE OF CONTROL
The Indenture will provide that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof, plus accrued interest thereon, if any, to the date of purchase
(the "Change of Control Offer Price").
Within 30 days following the date upon which the Change of Control occurred,
the Company must send, by first class mail, a notice to each Holder, with a
copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 60 days from the date
such notice is mailed, other than as may be required by law (the "Change of
Control Payment Date"). Holders electing to have an Exchange Note purchased
pursuant to a Change of Control Offer will be required to surrender the Note,
with the form entitled "Option of Holder to Elect to Purchase" on the reverse
of the Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the business day prior to the Change
of Control Payment Date.
Notwithstanding the foregoing, the Company shall not be required to make a
Change of Control Offer, as provided above, if, in connection with any Change
of Control, it had made an offer to purchase (an "Alternate Offer") any and
all Notes validly tendered at a cash price equal to or higher than the Change
of Control Offer Price and has purchased all Notes properly tendered in
accordance with the terms of such Alternate Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Exchange Notes that might be delivered by Holders
seeking to accept the Change of Control Offer. In the event the Company is
required to purchase outstanding Notes pursuant to a Change of Control Offer,
the Company expects that it would seek third party financing to the extent it
does not have available funds to meet its purchase obligations. However, there
can be no assurance that the Company would be able to obtain such financing.
The Change of Control feature of the Exchange Notes may make it more
difficult or discourage a takeover of the Company, and, thus, the removal of
incumbent management. Except as described herein with respect to a Change of
Control, the Indenture does not contain provisions that permit the Holders to
require the Company to repurchase or redeem the Exchange Notes in the event of
a takeover, recapitalization or similar restructuring. Restrictions in the
Indenture described herein on the ability of the Company and its Restricted
Subsidiaries to incur additional Indebtedness, to grant liens on their
property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Exchange
Notes, and there can be no assurance that the Company or the acquiring party
will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain circumstances, make more difficult or discourage
any leveraged buyout of the Company or any of its Subsidiaries by the
management of the Company. While such restrictions cover a wide variety of
arrangements which have traditionally been used to effect highly leveraged
transactions, the Indenture may not afford the Holders protection in all
circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company
85
<PAGE>
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the "Change of Control"
provisions of the Indenture by virtue thereof.
The Bank Facility will, and future credit agreements or other agreements
relating to Senior Indebtedness to which the Company becomes a party may,
prohibit the Company from purchasing any Notes as a result of a Change of
Control and/or provide that certain change of control events with respect to
the Company would constitute a default thereunder. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing the
Exchange Notes, the Company could seek the consent of its lenders to the
purchase of the Exchange Notes or could attempt to refinance the borrowings
that contain such prohibition. If the Company does not obtain such a consent
or repay such borrowings, the Company will remain prohibited from purchasing
the Exchange Notes. In such case, the Company's failure to purchase tendered
Exchange Notes would constitute an Event of Default under the Indenture. If,
as a result thereof, a default occurs with respect to any Senior Indebtedness,
the subordination provisions in the Indenture would likely restrict payments
to the Holders.
BOOK ENTRY; DELIVERY AND FORM
Except as set forth below, the Exchange Notes will be issued in registered,
global form in minimum denominations of $1,000 and integral multiples of
$1,000 in excess thereof.
The Exchange Notes initially will be represented by one or more Exchange
Notes in registered, global form without interest coupons (collectively, the
"Global Notes"). The Global Notes will be deposited upon issuance with the
Trustee as custodian for its nominee, in each case for credit to an account of
a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Exchange Notes in certificated form except in the limited circumstances
described below. See "--Exchange of Book-Entry Notes for Certificated Notes."
Except in the limited circumstances described below, owners of beneficial
interest in the Global Notes will not be entitled to receive physical delivery
of Certificated Notes (as defined below). Transfers of beneficial interests in
the Global Notes will be subject to the applicable rules and procedures of DTC
and its direct or indirect participants, which may change from time to time.
Initially, the Trustee will act as Paying Agent and Registrar. The Exchange
Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITARY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry charges in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in each security held by or on behalf of DTC
are recorded on the records of the Participants and the Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established by
it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes and (ii) ownership of such interest in
the Global Notes will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect
86
<PAGE>
to the Participants) or by the Participants and the Indirect Participants
(with respect to other owners of beneficial interest in the Global Notes).
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE GLOBAL NOTES WILL NOT
HAVE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF THE EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED
THE REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY
PURPOSE.
Payments in respect of the principal of, and premium, if any, interest and
additional interest in a Global Note registered in the name of DTC or its
nominee will be payable to DTC in its capacity as the registered Holder under
the Indenture. Under the terms of the Indenture, the Company and the Trustee
will treat the persons in whose names the Exchange Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Company, the Trustee nor any agent of the Company or the Trustee has or
will have any responsibility or liability for (i) any aspect of DTC's records
or any Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Notes or (ii) any other matter
relating to the actions and practices of DTC or any of its Participants or
Indirect Participants. DTC has advised the Company that its current practice
upon receipt of any payment in respect of securities such as the Exchange
Notes (including principal and interest), is to credit the accounts of the
relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings unless DTC has reason to believe it
will not receive payment on such payment date. Payments by the Participants
and the Indirect Participants to the beneficial owners of Exchange Notes will
be governed by standing instructions and customary practices and will be the
responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the Exchange Notes, and the Company
and the Trustee may conclusively rely on and will be protected in relying on
the instructions from DTC or its nominee for all purposes.
Interests in the Global Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System, and secondary market trading activity in
such interests will, therefore, settle in immediately available funds, subject
in all cases to the rules and procedures of DTC and its Participants.
Transfers between Participants in DTC will be effected in accordance with
the DTC's procedures, and will be settled in same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Exchange Notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the Global
Notes and only in respect of such portion of the aggregate principal amount of
the Exchange Notes as to which Participant or Participants has or have given
such direction. However, if there is an Event of Default under the Exchange
Notes, DTC reserves the right to exchange the Global Notes for legended
Exchange Notes in certificated form, and to distribute such Exchange Notes to
its Participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interest in the Global Notes among Participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the
Trustee nor any of their respective agents will have any obligations under the
rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Exchange Notes in registered
certificated form ("Certificated Notes") if (i) DTC (x) notifies the Company
that it is unwilling or unable to continue as depositary for the Global Notes
and the Company thereupon fails to appoint a successor depositary or (y) has
ceased to be a clearing agency registered under the Exchange Act, (ii) if the
Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the Certificated Notes or (iii) there shall have
occurred and be continuing a
87
<PAGE>
Default or Event of Default with respect to the Exchange Notes. In all cases,
Certificated Notes delivered in exchange for any Global Note or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures).
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible
for payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any Subsidiary Guarantor
may incur Indebtedness (including, without limitation, Acquired Indebtedness),
if on the date of the incurrence of such Indebtedness, after giving effect to
the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the
Company is greater than (i) 2.25 to 1.0 if the date of such incurrence is on
or prior to May 15, 2001 or (ii) 2.50 to 1.0 if the date of such incurrence is
after May 15, 2001.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Equity Interests of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock, (c) make any principal
payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire
or retire for value, prior to any scheduled final maturity, scheduled
repayment or scheduled sinking fund payment, any Indebtedness of the Company
that is subordinate or junior in right of payment of the Exchange Notes or (d)
make any Investment (other than Permitted Investments) (each of the foregoing
actions set forth in clauses (a), (b), (c) and (d) being referred to as a
"Restricted Payment"), if at the time of such Restricted Payment or
immediately after giving effect thereto, (i) a Default or an Event of Default
shall have occurred and be continuing or (ii) the Company is not able to incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
in compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant or (iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date (the amount
expended for such purposes, if other than in cash, being the fair market value
of such property as determined in good faith by the Board of Directors of the
Company) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net
Income (or if cumulative Consolidated Net Income shall be a loss, minus 100%
of such loss) of the Company earned during the period beginning on the first
day of the fiscal quarter including the Issue Date (the "Reference Date")
(treating such period as a single accounting period), provided, however, that
if the Exchange Notes achieve an Investment Grade Rating as of the end of any
fiscal quarter, the percentage for the fiscal quarter after such fiscal
quarter (and for any other fiscal quarter where, on the first day of such
fiscal quarter, the Exchange Notes shall have an Investment Grade Rating) will
be 100% of Consolidated Net Income during each fiscal quarter after such
fiscal quarter; provided further, however, that if such Restricted Payment is
to be made in reliance upon an additional amount permitted pursuant to the
immediately preceding proviso, the Exchange Notes must have an Investment
Grade Rating at the time such Restricted Payment is declared or, if not
declared, made, plus (x) 100% of the aggregate net cash proceeds received by
the Company from any Person (other than a Subsidiary of the Company) from (i)
the issuance and sale subsequent to the Issue Date and on or prior to the
Reference Date of Qualified Equity Interests of the Company (other than
Qualified Equity Interests applied pursuant to clauses 2(ii) and 3(ii) of the
next succeeding paragraph) and (ii) Indebtedness or Disqualified Capital Stock
that has been converted into or exchanged for Qualified Equity Interests
together with the aggregate net cash proceeds received by the Company at the
time of such conversion or exchange, plus (y) without duplication of any
amounts
88
<PAGE>
included in clause (iii)(x) above, 100% of the aggregate net cash proceeds of
any equity contribution received by the Company from a holder of the Company's
Capital Stock and plus (z) an amount equal to the sum of (1) any net reduction
in Investments made pursuant to this first paragraph of the "Limitation on
Restricted Payments" covenant in any Person resulting from payments of
interest on Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or any Restricted Subsidiary
(except to the extent any such payment is included in the calculation of
Consolidated Net Income) and (2) the consolidated net Investments, as of the
date of Revocation, made by the Company or any of its Restricted Subsidiaries
in any Subsidiary of the Company that had been designated as an Unrestricted
Subsidiary after the Issue Date, upon its redesignation as a Restricted
Subsidiary in accordance with the covenant described under "--Limitation on
Designations of Unrestricted Subsidiaries."
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) if no Default or Event of
Default shall have occurred and be continuing, the acquisition of any shares
of Capital Stock of the Company, either (i) solely in exchange for Qualified
Equity Interests of the Company or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of Qualified Equity Interests of the Company; (3)
if no Default or Event of Default shall have occurred and be continuing, the
purchase, redemption, defeasance or other acquisition or retirement for value
of any Indebtedness of the Company that is subordinate or junior in right of
payment to the Exchange Notes either (i) solely in exchange for Qualified
Equity Interests of the Company or (ii) through the application of net
proceeds of (A) a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of Qualified Equity Interests of the Company or
(B) Refinancing Indebtedness; (4) so long as no Default or Event of Default
shall have occurred and be continuing, repurchases by the Company of Common
Stock of the Company from employees of the Company or any of its Subsidiaries
or their authorized representatives upon the death, disability or termination
of employment of such employees, in an aggregate amount not to exceed $2.0
million in any calendar year; and (5) other Restricted Payments in an
aggregate amount not to exceed $15.0 million. In determining the aggregate
amount of Restricted Payments made subsequent to the Issue Date in accordance
with clause (iii) of the immediately preceding paragraph, amounts expended
pursuant to clauses (1), (4) and (5) shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations
may be based upon the Company's latest available internal quarterly financial
statements.
Limitation on Asset Sales. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary (excluding liabilities
that are not subordinated to the Exchange Notes that have been assumed by a
transferee of such assets to the extent that the applicable agreement releases
or indemnifies the Company or such Restricted Subsidiary from such
liabilities), as the case may be, from such Asset Sale shall be in the form of
cash or Cash Equivalents and is received at the time of such disposition or
securities which are converted into cash or Cash Equivalents within 60 days;
and (iii) upon the consummation of an Asset Sale, the Company shall apply, or
cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to
such Asset Sale within 365 days of receipt thereof either (A) to prepay any
Senior Indebtedness and, in the case of any Senior Indebtedness under any
revolving credit facility, including the Bank Facility, effect a permanent
reduction in the availability under such revolving credit facility, (B) to
make an investment in or acquire properties and assets that replace the
properties and assets that were the subject of such Asset Sale or in
properties and assets that will be used (including acquisitions of other
businesses) in the business of the Company and its Restricted Subsidiaries as
existing on the Issue Date or in businesses reasonably related thereto
("Replacement Assets"), or (C) a combination of prepayment and investment
permitted by the
89
<PAGE>
foregoing clauses (iii)(A) and (iii)(B). On the 366th day after an Asset Sale
or such earlier date, if any, as the Board of Directors of the Company or of
such Restricted Subsidiary, as the case may be, determines not to apply the
Net Cash Proceeds relating to such Asset Sale as set forth in clauses
(iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds
which have not been applied on or before such Net Proceeds Offer Trigger Date
as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding
sentence (each a "Net Proceeds Offer Amount"), shall be applied by the Company
or such Restricted Subsidiary, as the case may be, to make an offer to
purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment
Date") not less than 30 nor more than 45 days following the applicable Net
Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that amount
of Notes issued under the Indenture equal to the Net Proceeds Offer Amount at
a price equal to 100% of the principal amount of the Exchange Notes to be
purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided, however, that if at any time any non-cash consideration
received by the Company or any Restricted Subsidiary of the Company, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to
any such non-cash consideration), then such conversion or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof
shall be applied in accordance with this covenant. The Company may defer the
Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer
Amount equal to or in excess of $10.0 million resulting from one or more Asset
Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not
just the amount in excess of $10.0 million, shall be applied as required
pursuant to this paragraph); provided, that in no event will the net cash
proceeds from an Asset Sale be subject to more than one Net Proceeds Offer.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold
the properties and assets of the Company and its Restricted Subsidiaries not
so transferred for purposes of this covenant, and shall comply with the
provisions of this covenant with respect to such deemed sale as if it were an
Asset Sale. In addition, the fair market value of such properties and assets
of the Company or its Restricted Subsidiaries deemed to be sold shall be
deemed to be Net Cash Proceeds for purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value as determined in good faith by the Board
of Directors of the Company; provided that any consideration not constituting
Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated
under this paragraph shall constitute Net Cash Proceeds subject to the
provisions of the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly
tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of
tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset
Sale" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the Indenture by
virtue thereof.
90
<PAGE>
The Bank Facility will, and future credit agreements or other agreements
relating to Senior Indebtedness to which the Company becomes a party may,
prohibit the Company from purchasing any Notes pursuant to this "Limitation on
Asset Sales" covenant. In the event the Company is prohibited from purchasing
the Exchange Notes, the Company could seek the consent of its lenders to the
purchase of the Exchange Notes or could attempt to refinance the borrowings
that contain such prohibition. If the Company does not obtain such a consent
or repay such borrowings, the Company will remain prohibited from purchasing
the Exchange Notes. In such case, the Company's failure to purchase tendered
Notes would constitute an Event of Default under the Indenture. If, as a
result thereof, a default occurs with respect to any Senior Indebtedness, the
subordination provisions in the Indenture would likely restrict payments to
the Holders.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or
make any other distributions on or in respect of its Capital Stock; (b) make
loans or advances or to pay any Indebtedness or other obligation owed to the
Company or any other Restricted Subsidiary of the Company; or (c) transfer any
of its property or assets to the Company or any other Restricted Subsidiary of
the Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture; (3) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person or
the properties or assets of the Person so acquired; (5) agreements (other than
the Bank Facility) existing on the Issue Date to the extent and in the manner
such agreements are in effect on the Issue Date or as amended in a manner that
is not more disadvantageous to the Holders in any material respect than the
agreement existing on the Issue Date; (6) the Bank Facility; provided,
however, that, except during a period when an event of default under the Bank
Facility shall have occurred and be continuing, no such encumbrances or
restrictions shall limit the ability of such Subsidiary to dividend, loan,
advance or otherwise transfer funds to the Company in an amount required to
pay when due the scheduled interest (including Additional Interest) and
principal at maturity of the Exchange Notes; (7) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (c) above; (8) contracts for
the sale of assets, including, without limitation, customary restrictions with
respect to a Subsidiary pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the Capital Stock
or assets of such Subsidiary; (9) secured Indebtedness otherwise permitted to
be incurred pursuant to the covenants described under "--Limitation on
Incurrence of Additional Indebtedness" and "--Limitation on Liens" that limit
the right of the debtor to dispose of the assets securing such Indebtedness;
(10) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business; (11) any
credit facility or similar agreement entered into in accordance with clause
(xv) of the definition of "Permitted Indebtedness"; provided, however, that,
except during a period when an event of default under such credit facility
shall have occurred and be continuing, no such encumbrances or restrictions
shall limit the ability of any Foreign Subsidiary to dividend, loan, advance
or otherwise transfer funds to the Company in an amount required to pay when
due the scheduled interest (including Additional Interest) and principal at
maturity of the Exchange Notes; (12) customary provisions in joint venture
agreements; or (13) an agreement governing Indebtedness incurred to Refinance
the Indebtedness issued, assumed or incurred pursuant to an agreement referred
to in clause (2), (4), (5), (6), (7), (8), (9), (10), (11) or (12) above;
provided, however, that the provisions relating to such encumbrance or
restriction contained in any such Refinancing Indebtedness are no less
favorable to the Company in any material respect as determined by the Board of
Directors of the Company in their reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction contained in agreements
referred to in such clause (2), (4), (5), (6), (7), (8), (9), (10), (11) or
(12).
Limitation on Liens. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Restricted Subsidiaries
whether owned on the Issue Date or
91
<PAGE>
acquired after the Issue Date, or any proceeds therefrom, or assign or
otherwise convey any right to receive income or profits therefrom unless (i)
in the case of Liens securing Indebtedness that is expressly subordinate or
junior in right of payment to the Exchange Notes or any Guarantee, the
Exchange Notes and the Guarantees are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Liens and (ii) in all
other cases, the Exchange Notes and the Guarantees are equally and ratably
secured, except for (A) Liens existing as of the Issue Date to the extent and
in the manner such Liens are in effect on the Issue Date; (B) Liens securing
Senior Indebtedness and Liens securing Guarantor Senior Indebtedness; (C)
Liens of the Company or a Wholly Owned Restricted Subsidiary of the Company on
assets of any Restricted Subsidiary of the Company; (D) Liens securing
Refinancing Indebtedness incurred in accordance with the provisions of the
Indenture which is incurred to Refinance any Indebtedness which has been
secured by a Lien permitted under the Indenture; provided, however, that such
Liens (i) are no less favorable to the Holders and are no more favorable to
the lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced and (ii) do not extend to or cover any property
or assets of the Company or any of its Restricted Subsidiaries not securing
the Indebtedness so Refinanced; (E) Liens securing Indebtedness incurred in
accordance with clause (xv) of the definition of "Permitted Indebtedness" and
(F) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. The Company will not
incur or suffer to exist Indebtedness that is senior in right of payment to
the Exchange Notes and subordinate in right of payment to any other
Indebtedness of the Company. No Subsidiary Guarantor will incur or suffer to
exist Indebtedness that is senior in right of payment to such Subsidiary
Guarantor's Guarantee and subordinate in right of payment to any other
Indebtedness of such Subsidiary Guarantor. Notwithstanding anything to the
contrary contained herein, no Indebtedness incurred at any time under the Bank
Facility (as such facility is in existence on the Issue Date) shall be
considered subordinate in right of payment to any other Indebtedness incurred
under the Bank Facility (as such facility is in existence on the Issue Date).
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or
into any Person, or sell, assign, transfer, lease, convey or otherwise dispose
of (or cause or permit any Restricted Subsidiary of the Company to sell,
assign, transfer, lease, convey or otherwise dispose of) all or substantially
all of the Company's assets (determined on a consolidated basis for the
Company and the Company's Restricted Subsidiaries) whether as an entirety or
substantially as an entirety to any Person unless: (i) either (1) the Company
shall be the surviving or continuing corporation or (2) the Person (if other
than the Company) formed by such consolidation or into which the Company is
merged or the Person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the properties and assets of the Company and
of the Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia and (y) shall expressly assume, by supplemental indenture (in form
and substance satisfactory to the Trustee), executed and delivered to the
Trustee, the due and punctual payment of the principal of, and premium, if
any, and interest on all of the Exchange Notes and the performance of every
covenant of the Exchange Notes, the Indenture and the Registration Rights
Agreement on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred
in connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Incurrence of Additional Indebtedness" covenant;
(iii) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; and (iv) the Company or the
Surviving Entity shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of the Indenture
and that all conditions precedent in the Indenture relating to such
transaction have been satisfied.
92
<PAGE>
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company (other than to the Company or another Restricted
Subsidiary) the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer
of all or substantially all of the properties and assets of the Company.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the
Company in accordance with the foregoing, in which the Company is not the
continuing corporation, the successor Person formed by such consolidation or
into which the Company is merged or to which such conveyance, lease or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture and the Exchange
Notes with the same effect as if such surviving entity had been named as such.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of the Guarantee and
the Indenture in connection with any transaction complying with the provisions
of "--Limitation on Asset Sales") will not, and the Company will not cause or
permit any Subsidiary Guarantor to, consolidate with or merge with or into any
Person other than the Company or any other Subsidiary Guarantor unless: (i)
the entity formed by or surviving any such consolidation or merger is a
corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia; (ii) such entity, if not already a
Subsidiary Guarantor, assumes by supplemental indenture all of the obligations
of the Subsidiary Guarantor on the Guarantee; (iii) immediately after giving
effect to such transaction, no Default or Event of Default shall have occurred
and be continuing; and (iv) immediately after giving effect to such
transaction and the use of any proceeds therefrom on a pro forma basis, the
Company could satisfy the provisions of clause (ii) of the first paragraph of
this covenant. Any merger or consolidation of a Subsidiary Guarantor with and
into the Company (with the Company being the surviving entity) or another
Subsidiary Guarantor that is a Wholly Owned Restricted Subsidiary of the
Company need only comply with clause (iv) of the first paragraph of this
covenant.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with, or for the
benefit of, any of its Affiliates (each an "Affiliate Transaction"), other
than (x) Affiliate Transactions permitted under paragraph (b) below and (y)
Affiliate Transactions on terms that are no less favorable than those that
might reasonably have been obtained in a comparable transaction at such time
on an arm's-length basis from a Person that is not an Affiliate of the Company
or such Restricted Subsidiary. All Affiliate Transactions (and each series of
related Affiliate Transactions which are similar or part of a common plan)
involving aggregate payments or other property with a fair market value in
excess of $5.0 million shall be approved by the Board of Directors of the
Company or such Restricted Subsidiary, as the case may be, such approval to be
evidenced by a Board Resolution stating that such Board of Directors has
determined that such transaction complies with the foregoing provisions. If
the Company or any Restricted Subsidiary of the Company enters into an
Affiliate Transaction (or a series of related Affiliate Transactions related
to a common plan) that involves an aggregate fair market value of more than
$10.0 million, the Company or such Restricted Subsidiary, as the case may be,
shall, prior to the consummation thereof, obtain a favorable opinion as to the
fairness of such transaction or series of related transactions to the Company
or the relevant Restricted Subsidiary, as the case may be, from a financial
point of view, from an Independent Financial Advisor and file the same with
the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i) fees and
compensation and benefits paid to and indemnity provided on behalf of
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company's Board
of Directors (including, without limitation, any issuance of securities,
grants of cash, securities, stock options or otherwise, pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors of the Company or the Board of Directors of
the relevant Restricted Subsidiary);
93
<PAGE>
(ii) transactions exclusively between or among the Company and any of its
Wholly Owned Restricted Subsidiaries or exclusively between or among such
Wholly Owned Restricted Subsidiaries, provided such transactions are not
otherwise prohibited by the Indenture; (iii) any agreement as in effect as of
the Issue Date or any amendment thereto or any transaction contemplated
thereby (including pursuant to any amendment thereto) in any replacement
agreement thereto so long as such amendment or replacement agreement is not
more disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date; (iv) loans and advances to officers
and employees or consultants of the Company or any of its Restricted
Subsidiaries in the ordinary course of business not to exceed $1,000,000 at
any time outstanding; and (v) Restricted Payments permitted by the Indenture.
Additional Subsidiary Guarantees. If the Company or any of its Restricted
Subsidiaries transfers or causes to be transferred, in one transaction or a
series of related transactions, any property to any Restricted Subsidiary
(other than a Foreign Subsidiary, unless the Company elects to have a Foreign
Subsidiary execute a Guarantee) that is not a Subsidiary Guarantor, or if the
Company or any Restricted Subsidiary shall organize, acquire or otherwise
invest in or hold an Investment in a Restricted Subsidiary (other than a
Foreign Subsidiary, unless the Company elects to have a Foreign Subsidiary
execute a Guarantee) having total consolidated assets with a book value in
excess of $500,000, then such transferee or acquired or other Restricted
Subsidiary shall (a) execute and deliver to the Trustee a supplemental
indenture in form reasonably satisfactory to the Trustee pursuant to which
such Restricted Subsidiary shall unconditionally guarantee jointly and
severally with the other Subsidiary Guarantors, on a senior subordinated
basis, all of the Company's obligations under the Exchange Notes and the
Indenture on the terms set forth in the Indenture and (b) deliver to the
Trustee an opinion of counsel that such supplemental indenture has been duly
authorized, executed and delivered by such Restricted Subsidiary and
constitutes a legal, valid, binding and enforceable obligation of such
Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a
Subsidiary Guarantor for all purposes of the Indenture.
Conduct of Business. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar or reasonably related
to the businesses in which the Company and its Restricted Subsidiaries are
engaged on the Issue Date.
Reports to Holders. The Indenture will provide that the Company will deliver
to the Trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the information,
documents and other reports, if any, which the Company is required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The
Indenture further provides that, notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of TIA (S)314(a).
Limitation on Designations of Unrestricted Subsidiaries. The Company may
designate any Subsidiary of the Company (other than a Subsidiary of the
Company which owns any Capital Stock of, or owns or holds any Lien on any
property of, the Company or any Restricted Subsidiary) as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Designation;
(b) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of
(i) fair market value of the Capital Stock of such Subsidiary owned by the
Company and the Restricted Subsidiaries on such date and (ii) the aggregate
amount of other Investments of the Company and the Restricted Subsidiaries
in such Subsidiary on such date; and
(c) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "--Limitation on Incurrence of Additional Indebtedness" at
the time of Designation (assuming the effectiveness of such Designation).
94
<PAGE>
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount. The Indenture will further provide that
the Company shall not, and shall not permit any Restricted Subsidiary to, at
any time (x) provide direct or indirect credit support for or a guarantee of
any Indebtedness of any Unrestricted Subsidiary (including a guarantee of any
undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable with respect to any Indebtedness of any
Unrestricted Subsidiary or (z) be directly or indirectly liable with respect
to any Indebtedness which provides that the holder thereof may (upon notice,
lapse of time or both) declare a default thereon or cause the payment thereof
to be accelerated or payable prior to its final scheduled maturity upon the
occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the
extent permitted under the covenant described under "--Limitation on
Restricted Payments."
The Indenture will further provide that the Company may revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"),
whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default or Event of Default shall have occurred and be continuing
at the time of and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by Board Resolution of
the Company certifying compliance with the foregoing provisions which shall be
filed with the Trustee.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days;
(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer);
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period
of 30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Exchange
Notes (except in the case of a default with respect to the "Merger,
Consolidation and Sale of Assets" covenant, which will constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary of the
Company, or the acceleration of the final stated maturity of any such
Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has been
accelerated, aggregates $10.0 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of $10.0
million shall have been rendered against the Company or any of its
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
95
<PAGE>
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any of the Guarantees of a Subsidiary Guarantor that is a
Significant Subsidiary ceases to be in full force and effect or any of such
Guarantees is declared to be null and void and unenforceable or any of such
Guarantees is found to be invalid, in each case by a court of competent
jurisdiction in a final non-appealable judgment, or any of such Subsidiary
Guarantors denies in writing its liability under its Guarantee (other than
by reason of release of any such Subsidiary Guarantor in accordance with
the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above relating to the Company) shall occur and be continuing, the Trustee
or the Holders of at least 25% in principal amount of outstanding Notes may
declare the principal of and accrued interest on all the Exchange Notes to be
due and payable by notice in writing to the Company and the Trustee specifying
the respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same shall become immediately due and payable;
provided, however, that so long as any Indebtedness permitted to be incurred
under the Indenture pursuant to the Bank Facility shall be outstanding, no
such acceleration shall be effective until the earlier of (i) acceleration of
any such Indebtedness under the Bank Facility or (ii) five business days after
giving notice to the Representative under the Bank Facility of such
acceleration. If an Event of Default specified in clause (vi) above relating
to the Company occurs and is continuing, then all unpaid principal of, and
premium, if any, and accrued and unpaid interest on all of the outstanding
Notes shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Exchange Notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the Exchange Notes
may rescind and cancel such declaration and its consequences (i) if the
rescission would not conflict with any judgment or decree, (ii) if all
existing Events of Default have been cured or waived except non-payment of
principal or interest that has become due solely because of the acceleration,
(iii) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid, (iv) if the
Company has paid the Trustee its reasonable compensation and reimbursed the
Trustee for its expenses, disbursements and advances and (v) in the event of
the cure or waiver of an Event of Default of the type described in clause (vi)
of the description above of Events of Default, the Trustee shall have received
an officers' certificate and an opinion of counsel that such Event of Default
has been cured or waived. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Exchange Notes may
waive any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest
on any Notes.
Holders of the Exchange Notes may not enforce the Indenture or the Exchange
Notes except as provided in the Indenture and under the TIA. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless
such Holders have offered to the Trustee reasonable indemnity. Subject to all
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default
or Event of Default) that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof.
96
<PAGE>
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or its Subsidiaries, as such, shall have any liability for any obligations of
the Company under the Exchange Notes, the Guarantees, the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Exchange Notes and the Guarantees. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes, except for (i) the rights
of Holders to receive payments in respect of the principal of, premium, if
any, and interest on the Exchange Notes when such payments are due, (ii) the
Company's obligations with respect to the Exchange Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen
Notes and the maintenance of an office or agency for payments, (iii) the
rights, powers, trust, duties and immunities of the Trustee and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Exchange Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, reorganization and insolvency events) described
under "--Events of Default" will no longer constitute an Event of Default with
respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest on the Exchange Notes on
the stated date for payment thereof or on the applicable redemption date, as
the case may be; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance,
the Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that the Holders
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred; (iv) no Default or
Event of Default shall have occurred and be continuing on the date of such
deposit or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under the Indenture or
any other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions
97
<PAGE>
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with; (viii) the Company shall have delivered to
the Trustee an opinion of counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied. Notwithstanding the foregoing, the Opinion
of Counsel required by clause (ii) above with respect to a Legal Defeasance
need not be delivered if all Notes not theretofore delivered to the Trustee
for cancellation (x) have become due and payable, (y) will become due and
payable on the maturity date within one year or (z) are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Exchange Notes, as expressly provided for in the Indenture) as to all
outstanding Notes when (i) either (a) all the Exchange Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust) have been
delivered to the Trustee for cancellation or (b) all Notes not theretofore
delivered to the Trustee for cancellation have become due and payable and the
Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire Indebtedness on
the Exchange Notes not theretofore delivered to the Trustee for cancellation,
for principal of, premium, if any, and interest on the Exchange Notes to the
date of deposit together with irrevocable instructions from the Company
directing the Trustee to apply such funds to the payment thereof at maturity
or redemption, as the case may be; (ii) the Company has paid all other sums
payable under the Indenture by the Company; and (iii) the Company has
delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Subsidiary Guarantors and the Trustee,
without the consent of the Holders, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies,
so long as such change does not adversely affect the rights of any of the
Holders in any material respect. Other modifications and amendments of the
Indenture may be made with the consent of the Holders of a majority in
principal amount of the then outstanding Notes issued under the Indenture,
except that, without the consent of each Holder affected thereby, no amendment
may: (i) reduce the amount of Notes whose Holders must consent to an
amendment; (ii) reduce the rate of or change or have the effect of changing
the time for payment of interest, including defaulted interest, on any Notes;
(iii) reduce the principal of or change or have the effect of changing the
fixed maturity of any Notes, or change the date on which any Notes may be
subject to redemption or repurchase, or reduce the redemption or repurchase
price therefor; (iv) make any Notes payable in money other than that stated in
the Exchange Notes; (v) make any change in provisions of the Indenture
protecting the right of each Holder to receive payment of principal of and
interest on such Note on or after the due date thereof or to bring suit to
enforce such payment, or permitting Holders of a majority in principal amount
of Notes to waive Defaults or Events of Default; (vi) amend, change or modify
in any material respect the obligation of the Company to make and consummate a
Change of Control Offer in the event of a Change of Control or make and
consummate a Net Proceeds Offer with respect to any Asset Sale that has been
consummated or modify any of the provisions or definitions with respect
thereto; (vii) modify or change any of the subordination provisions of the
Indenture or the related definitions in a manner that would adversely affect
the Holders, or (viii) release all of the Subsidiary Guarantors at any one
time from all of their obligations under the Guarantees otherwise than in
accordance with the terms of the Indenture.
98
<PAGE>
GOVERNING LAW
The Indenture will provide that it and the Exchange Notes and the Guarantees
will be governed by, and construed in accordance with, the laws of the State
of New York but without giving effect to applicable principles of conflicts of
law to the extent that the application of the law of another jurisdiction
would be required thereby.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture,
and use the same degree of care and skill in its exercise as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustee will be permitted to engage in other transactions; provided
that if the Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of is
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
of the Company or at the time it merges or consolidates with the Company or
any of its Restricted Subsidiaries or assumed in connection with the
acquisition of assets from such Person and in each case not incurred by such
Person in connection with, or in anticipation or contemplation of, such Person
becoming a Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or of any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other
than a Restricted Subsidiary of the Company) which constitute all or
substantially all of the assets of such Person or comprises any division or
line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of (a) any Capital Stock of any Restricted
Subsidiary of the Company; or (b) any other property or assets of the Company
or any Restricted Subsidiary of the Company other than in the ordinary course
of business; provided, however, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $500,000
and (ii) the sale, lease, conveyance, disposition or other transfer of
99
<PAGE>
all or substantially all of the assets of the Company as permitted under "--
Certain Covenants--Merger, Consolidation and Sale of Assets."
"Bank Facility" means the Second Amended and Restated Credit Agreement,
dated as of December 2, 1997, among the Company, the Subsidiaries of the
Company, the lenders party thereto in their capacities as lenders thereunder,
Bankers Trust Company, as issuing bank, and BT Commercial Corporation, as
agent, as amended, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be further amended (including any amendment and
restatement thereof), supplemented or otherwise modified from time to time,
including any agreement or agreements extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided that such increase in borrowings is
permitted by the "Limitation on Incurrence of Additional Indebtedness"
covenant above) or adding Restricted Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness
under such agreement or any successor or replacement agreement and whether by
the same or any other agent, lender or group of lenders.
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have
been duly adopted by the Board of Directors of such Person and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Borrowing Base" means, with respect to any Foreign Subsidiary as of any
date, an amount equal to the sum of (a) 85% of the net book value of accounts
receivable (other than intercompany receivables) owned by such Foreign
Subsidiary as of such date that are not more than 90 days past due and (b) 85%
of the value (the lower of net book value or orderly liquidation value) of all
rental equipment owned by such Foreign Subsidiary as of such date, all
calculated on a consolidated basis for such Foreign Subsidiary and its
Restricted Subsidiaries in accordance with the method of accounting used for
financial calculations under the applicable credit facility for such Foreign
Subsidiary. To the extent that information is not available as to the amount
of accounts receivable or rental equipment as of a specific date, a Foreign
Subsidiary may utilize the most recent available information provided to the
lenders under the applicable credit facility for the purpose of calculating
the Borrowing Base.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to
any Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means (1) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the
100
<PAGE>
date of acquisition thereof issued by any bank organized under the laws of the
United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clause (i) above entered into with any bank meeting
the qualifications specified in clause (iv) above; and (vi) investments in
money market funds which invest substantially all their assets in securities
of the types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets of
the Company to any Person or group or related Persons for purposes of Section
13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof
(whether or not otherwise in compliance with the provisions of the Indenture)
other than to the Principals and their Related Parties; (ii) any Person or
Group (other than the Principals and their Related Parties) shall become the
owner, directly or indirectly, beneficially or of record, of shares
representing more than 35% of the aggregate ordinary voting power represented
by the issued and outstanding Capital Stock of the Company and the Principals
and their Related Parties beneficially own, directly or indirectly, shares
representing a lesser percentage of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of the Company and do
not have the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the Board of Directors; or (iii) the
replacement of a majority of the Board of Directors of the Company over a two-
year period from the directors who constituted the Board of Directors of the
Company at the beginning of such period, and such replacement shall not have
been approved by a vote of at least a majority of the Board of Directors of
the Company then still in office who either were members of such Board of
Directors at the beginning of such period or whose election as a member of
such Board of Directors was previously so approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on
the Issue Date or issued after the Issue Date, and includes, without
limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes
of such Person and its Restricted Subsidiaries paid or accrued in accordance
with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or taxes attributable
to sales or dispositions outside the ordinary course of business), (B)
Consolidated Interest Expense and (C) Consolidated Non-cash Charges less any
non-cash items increasing Consolidated Net Income for such period, all as
determined on a consolidated basis for such Person and its Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters for which internal financials are available (the "Four Quarter
Period") ending on or prior to the date of the transaction giving rise to the
need to calculate the Consolidated Fixed Charge Coverage Ratio (the
"Transaction Date") to Consolidated Fixed Charges of such Person for the Four
Quarter Period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis for the
period of such calculation to (i) the incurrence or repayment of any
Indebtedness of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence or repayment
of Indebtedness in the ordinary course of business for working capital
purposes, occurring during the Four Quarter Period or at any time subsequent
to the last day of the Four Quarter Period and on or prior to the Transaction
Date, as if such incurrence or repayment, as the case may be (and the
application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including any
101
<PAGE>
Person who becomes a Restricted Subsidiary as a result of the Asset
Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA (including any pro
forma expense and cost reductions as determined in accordance with Regulation
S-X under the Exchange Act) attributable to the assets which are the subject
of the Asset Acquisition or Asset Sale during the Four Quarter Period)
occurring during the Four Quarter Period or at any time subsequent to the last
day of the Four Quarter Period and on or prior to the Transaction Date, as if
such Asset Sale or Asset Acquisition (including the incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first day of the
Four Quarter Period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the
preceding sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if such Person or any Restricted Subsidiary of such Person had
directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated
Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness
determined on a fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter shall be deemed to have accrued at a
fixed rate per annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; (2) if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four Quarter
Period; and (3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Swap Obligations, shall be deemed to accrue at
the rate per annum resulting after giving effect to the operation of such
agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense,
plus (ii) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of such Person (other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during such
period times (y) a fraction, the numerator of which is one and the denominator
of which is one minus the then current effective consolidated federal, state
and local tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-
off of deferred financing costs (but excluding any write-offs of deferred
financing fees in connection with any refinancing or retirement of the Bank
Facility undertaken in conjunction with the offering of the Exchange Notes on
the Issue Date), (b) the net costs under Interest Swap Obligations, (c) all
capitalized interest and (d) the interest portion of any deferred payment
obligation; and (ii) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
from Asset Sales or abandonments or reserves relating thereto, (b) after-tax
items classified as extraordinary or nonrecurring gains, (c) the net income of
any Person acquired in a "pooling of interests" transaction accrued prior to
the date it becomes a Restricted Subsidiary of the referent Person or is
merged or consolidated with the referent Person or any Restricted Subsidiary
of the referent Person, (d) the net income (but not loss) of any Restricted
Subsidiary of the referent Person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that
income is restricted by a contract, operation of law or otherwise, (e) the net
income of any Person, other than a Restricted Subsidiary of the referent
Person, except to the extent of cash dividends or distributions paid to the
referent Person or to a Wholly Owned Restricted Subsidiary of the referent
Person by such Person, (f) any restoration to income of any contingency
reserve, except to the extent that provision for
102
<PAGE>
such reserve was made out of Consolidated Net Income accrued at any time
following the Issue Date, (g) income or loss attributable to discontinued
operations (including, without limitation, operations disposed of during such
period whether or not such operations were classified as discontinued), and
(h) in the case of a successor to the referent Person by consolidation or
merger or as a transferee of the referent Person's assets, any earnings of the
successor corporation prior to such consolidation, merger or transfer of
assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net
Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP (excluding any such
charges constituting an extraordinary item or loss of any such charge which
requires an accrual of or a reserve for cash charges for any future period).
"Currency Swap Obligations" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
the Company or any of its Restricted Subsidiaries against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Indebtedness" means (i) Indebtedness under or in respect
of the Bank Facility and (ii) any other Indebtedness constituting Senior
Indebtedness or Guarantor Senior Indebtedness which, at the time of
determination, has an aggregate principal amount of at least $25,000,000 and
is specifically designated in the instrument evidencing such Senior
Indebtedness as "Designated Senior Indebtedness" by the Company.
"Designation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or is redeemable at the sole option of the holder thereof on or prior to the
final maturity date of the Exchange Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting in
good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"Foreign Subsidiary" means any Restricted Subsidiary that is not organized
under the laws of the United States of America or any state thereof or the
District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as
103
<PAGE>
may be approved by a significant segment of the accounting profession of the
United States, which are in effect as of the Issue Date.
"Guarantee" means the guarantee of the Exchange Notes by the Subsidiary
Guarantors.
"Guarantor Senior Indebtedness" means with respect to any Subsidiary
Guarantor, (i) the principal of, premium, if any, and interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law) on any Indebtedness of
a Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Guarantee of such Subsidiary
Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior
Indebtedness" shall also include the principal of, premium, if any, interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all other amounts owing in respect of, (x) all monetary obligations of every
nature of the Company under the Bank Facility, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities, (y) all Interest Swap
Obligations and (z) all Currency Swap Obligations, in each case whether
outstanding on the Issue Date or thereafter incurred. Notwithstanding the
foregoing, "Guarantor Senior Indebtedness" shall not include (i) any
Indebtedness of such Subsidiary Guarantor to a Restricted Subsidiary of such
Subsidiary Guarantor, (ii) Indebtedness to, or guaranteed on behalf of, any
shareholder, director, officer or employee of such Subsidiary Guarantor or any
Restricted Subsidiary of such Subsidiary Guarantor (including, without
limitation, amounts owed for compensation), (iii) Indebtedness to trade
creditors and other amounts incurred in connection with obtaining goods,
materials or services, (iv) Indebtedness represented by Disqualified Capital
Stock, (v) any liability for federal, state, local or other taxes owed or
owing by such Subsidiary Guarantor, (vi) Indebtedness incurred in violation of
the Indenture provisions set forth under "--Certain Covenants--Limitation on
Incurrence of Additional Indebtedness," (vii) Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title
11, United States Code, is without recourse to the Company and (viii) any
Indebtedness which is, by its express terms, subordinated in right of payment
to any other Indebtedness of such Subsidiary Guarantor. Notwithstanding
anything to the contrary contained herein, no Indebtedness incurred at any
time under the Bank Facility (as such facility is in existence on the Issue
Date) shall be considered subordinate in right of payment to any other
Indebtedness incurred under the Bank Facility (as such facility is in
existence on the Issue Date).
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all
Obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all Obligations under any title
retention agreement (but excluding trade accounts payable and other accrued
liabilities arising in the ordinary course of business and payable in
accordance with customary terms or that are not overdue by 90 days or more or
are being contested in good faith), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
Obligation so secured, (viii) all Obligations under currency agreements and
interest swap agreements of such Person, and (ix) all Disqualified Capital
Stock issued by such Person with the amount of Indebtedness represented by
such Disqualified Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of
104
<PAGE>
such Disqualified Capital Stock as if such Disqualified Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by,
the fair market value of such Disqualified Capital Stock, such fair market
value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company (other than an interest in less
than 1% of the Company's Common Stock or any other publicly traded securities
of the Company) and (ii) which, in the judgment of the Board of Directors of
the Company, is otherwise independent and qualified to perform the task for
which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated
by applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit
by the Company and its Restricted Subsidiaries on commercially reasonable
terms in accordance with normal trade practices of the Company or such
Restricted Subsidiary, as the case may be. For the purposes of the "Limitation
on Restricted Payments" covenant, (i) "Investment" shall include a portion
(proportionate to the Company's equity interest in such Subsidiary) of the
fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude a portion (proportionate to the Company's equity interest in
such Subsidiary) of the fair market value of the net assets of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary and (ii) the amount of any Investment shall
be the original cost of such Investment plus the cost of all additional
Investment by the Company or any of its Restricted Subsidiaries, without any
adjustments for increases or decreases in value, or write-ups, write-downs, or
write-offs with respect to such Investment, reduced by the payment of
dividends or distributions in connection with such Investment or any other
amounts received in respect of such Investment; provided that no such payment
of dividends or distributions or receipt of any such other amounts shall
reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in Consolidated
Net Income. If the Company or any Restricted Subsidiary of the Company sells
or otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, at least 51%
of the outstanding Common Stock of such Restricted Subsidiary, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.
"Investment Grade Rating" means a rating of BBB- or higher by Standard &
Poor's Ratings Group (or its successor) and Baa3 or higher by Moody's
Investors Service, Inc. or the equivalent of such rating by such rating
agencies.
"Issue Date" means the date of original issuance of the Exchange Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement
to give any security interest).
105
<PAGE>
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (b) taxes paid or payable after taking
into account any reduction in consolidated tax liability due to available tax
credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness represented by the Exchange Notes in an aggregate
principal amount not to exceed $200.0 million, and the Guarantees thereof,
issued in the Offering;
(ii) Indebtedness of the Company and the Subsidiary Guarantors (A)
incurred pursuant to the revolving credit provisions of the Bank Facility
or one or more other credit facilities in an aggregate principal amount at
any time outstanding not to exceed $500.0 million; provided that such
amount shall be reduced by any amounts applied to the permanent reduction
of such Indebtedness pursuant to "--Certain Covenants--Limitation on Asset
Sales" and (B) incurred pursuant to the term loan provisions of the Bank
Facility or one or more other credit facilities in an aggregate principal
amount at any time outstanding not to exceed $100.0 million, less any
amounts applied to the permanent reduction of such Indebtedness pursuant to
"--Certain Covenants--Limitation on Asset Sales" and less the amount of any
scheduled amortization payments or mandatory prepayments when actually paid
or permanent reductions thereof (excluding any such payments to the extent
refinanced at the time of payment under any Refinancing of the Bank
Facility);
(iii) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date;
(iv) Interest Swap Obligations or Currency Swap Obligations of the
Company covering Indebtedness of the Company or any of the Subsidiary
Guarantors and Interest Swap Obligations or Currency Swap Obligations of
any Subsidiary Guarantor covering Indebtedness of such Subsidiary
Guarantor; provided, however, that (a) such Interest Swap Obligations are
entered into to protect the Company and the Subsidiary Guarantors from
fluctuations in interest rates on Indebtedness incurred in accordance with
the Indenture and (b) such Currency Swap Obligations are entered into to
protect the Company and the Subsidiary Guarantors from fluctuations in
currency values;
(v) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company
to the Company or to a Wholly Owned Restricted Subsidiary of the Company
for so long as such Indebtedness is held by the Company or a Wholly Owned
Restricted Subsidiary of the Company, in each case subject to no Lien held
by a Person other than the Company or a Wholly Owned Restricted Subsidiary
of the Company, or other than a Lien on the related intercompany note
securing Indebtedness under the Bank Facility; provided that if as of any
date any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company owns or holds any such Indebtedness or holds a
Lien in respect of such Indebtedness, other than a lien on the related
intercompany note securing Indebtedness under the Bank Facility, such date
shall be deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the issuer of such Indebtedness;
106
<PAGE>
(vi) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary
of the Company for so long as such Indebtedness is held by a Wholly Owned
Restricted Subsidiary of the Company, in each case subject to no Lien,
other than a Lien on the related intercompany note securing Indebtedness
under the Bank Facility; provided that (a) any Indebtedness of the Company
to any Wholly Owned Restricted Subsidiary of the Company is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Indenture and the Exchange Notes and (b) if as of the date any
Person other than a Wholly Owned Restricted Subsidiary of the Company owns
or holds any such Indebtedness or any Person holds a Lien in respect of
such Indebtedness, other than a lien on the related intercompany note
securing Indebtedness under the Bank Facility, such date shall be deemed
the incurrence of Indebtedness not constituting Permitted Indebtedness by
the Company;
(vii) Indebtedness of the Company and the Subsidiary Guarantors arising
from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business; provided, however, that such Indebtedness is extinguished within
two business days of incurrence;
(viii) Indebtedness of the Company and the Subsidiary Guarantors
represented by letters of credit for the account of the Company or such
Subsidiary Guarantors, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;
(ix) Indebtedness of the Company or a Subsidiary Guarantor in connection
with one or more standby letters of credit, guarantees, performance bonds
or other reimbursement obligations, in each case, issued in the ordinary
course of business and not in connection with the borrowing of money;
(x) Indebtedness of the Company or a Subsidiary Guarantor arising from
agreements of the Company or a Subsidiary Guarantor providing for
indemnification, adjustment of purchase price or similar obligations, in
each case, incurred or assumed in connection with the acquisition or
disposition of any business, assets or a Subsidiary;
(xi) Indebtedness of the Company and the Subsidiary Guarantors
represented by Capitalized Lease Obligations and Purchase Money
Indebtedness incurred in the ordinary course of business in an amount not
to exceed $20.0 million at any one time outstanding;
(xii) Refinancing Indebtedness;
(xiii) guarantees by the Company of Indebtedness of a Restricted
Subsidiary permitted to be incurred under the Indenture and guarantees by a
Subsidiary Guarantor of Indebtedness of the Company or any Restricted
Subsidiary permitted to be incurred under the Indenture;
(xiv) additional Indebtedness of the Company and any Subsidiary Guarantor
in an aggregate principal amount not to exceed $15.0 million at any one
time outstanding; and
(xv) Indebtedness of a Foreign Subsidiary other than a Foreign Subsidiary
which is a Subsidiary Guarantor which, when aggregated with the principal
amount of all other Indebtedness of such Foreign Subsidiary then
outstanding and incurred pursuant to this clause (xv), does not exceed the
amount of the Borrowing Base of such Foreign Subsidiary.
For purposes of determining whether any Indebtedness is Permitted
Indebtedness, (i) in the event that an item of Indebtedness meets the criteria
of more than one of the types of Indebtedness described above, the Company, in
its sole discretion, will classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of the
above clauses and (ii) an item of Indebtedness may be divided and classified
in more than one of the types of Indebtedness described above.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted
107
<PAGE>
Subsidiary of the Company, (ii) Investments in the Company by any Restricted
Subsidiary of the Company; provided that any Indebtedness evidencing such
Investment is unsecured and subordinated, pursuant to a written agreement, to
the Company's obligations under the Exchange Notes and the Indenture; (iii)
investments in cash and Cash Equivalents; (iv) loans and advances to employees
and officers of the Company and its Restricted Subsidiaries in the ordinary
course of business for bona fide business purposes not in excess of $1,000,000
at any one time outstanding; (v) Interest Swap Obligations or Currency Swap
Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with the
Indenture; (vi) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers; (vii)
promissory notes or other securities accepted from trade creditors or
customers in the ordinary course of business; (viii) guarantees by the Company
or any Subsidiary Guarantor of Indebtedness otherwise permitted to be incurred
under the Indenture; (ix) Investments made by the Company or its Restricted
Subsidiaries as a result of consideration received in connection with an Asset
Sale made in compliance with the "Limitation on Asset Sales" covenant; and (x)
Investments in joint ventures and Unrestricted Subsidiaries in an aggregate
amount at any one time not to exceed $15.0 million.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provisions, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business in connection therewith, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, contracts, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of
borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the Company
or any Restricted Subsidiary of the Company acquired in the ordinary course
of business; provided, however, that (A) the related Purchase Money
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired
and proceeds thereof and (B) the Lien securing such Indebtedness shall be
created within 90 days of such acquisition;
108
<PAGE>
(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and set-
off;
(xi) Liens securing Interest Swap Obligations or Currency Swap
Obligations which Interest Swap Obligations or Currency Swap Obligations,
as the case may be, relate to Indebtedness that is otherwise permitted
under the Indenture;
(xii) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant;
provided that (A) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and
(B) such Liens do not extend to or cover any property or assets of the
Company or of any of its Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary of the Company and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness of the Company or a Restricted Subsidiary of the
Company; and
(xiii) Liens not permitted by clauses (i) through (xii) that are incurred
in the ordinary course of business of the Company or any Restricted
Subsidiary of the Company with respect to obligations that do not exceed
$5,000,000 at any one time outstanding.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Principals" means each officer or employee of the Company and any spouse,
sibling, child or grandchild of the foregoing (in each case, whether such
relationship arises from birth, adoption or through marriage).
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Equity Interest" means any Qualified Capital Stock and all
warrants, options or other rights to acquire Qualified Capital Stock (but
excluding any debt security or Disqualified Capital Stock that is convertible
into or exchangeable for Qualified Capital Stock).
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Subsidiary Guarantor of Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), or (ix) of the
definition of Permitted Indebtedness),
109
<PAGE>
in each case that does not (1) result in an increase in the aggregate
principal amount of Indebtedness of such Person as of the date of such
proposed Refinancing (plus the amount of any premium required to be paid under
the terms of the instrument governing such Indebtedness and plus the amount of
reasonable expenses incurred by the Company in connection with such
Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is Indebtedness of the Company or a Subsidiary
Guarantor, then such Refinancing Indebtedness shall be Indebtedness solely of
the Company or a Subsidiary Guarantor and (y) if such Indebtedness being
Refinanced is subordinate or junior to the Exchange Notes, then such
Refinancing Indebtedness shall be subordinate to the Exchange Notes at least
to the same extent and in the same manner as the Indebtedness being
Refinanced.
"Related Party" with respect to any Principal means (A) any controlling
stockholder or 80% (or more) owned Subsidiary of such Principal or (B) trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Board
Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to
and in compliance with the covenant described under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries." Any such Designation
may be revoked by a Board Resolution of the Company delivered to the Trustee
subject to the provisions of such covenant.
"Revocation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether
owned by the Company or any Restricted Subsidiary at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom
funds have been or are to be advanced by such Person on the security of such
Property.
"Senior Indebtedness" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Exchange Notes. Without limiting the
generality of the foregoing, "Senior Indebtedness" shall also include the
principal of, premium, if any, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for
in the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other amounts owing in respect
of, (x) all monetary obligations of every nature of the Company under the Bank
Facility, including, without limitation, obligations to pay principal and
interest, reimbursement obligations under letters of credit, fees, expenses
and indemnities, (y) all Interest Swap Obligations and (z) all Currency Swap
Obligations, in each case whether outstanding on the Issue Date or thereafter
incurred. Notwithstanding the foregoing, "Senior Indebtedness" shall not
include (i) any Indebtedness of the Company to a Restricted Subsidiary of the
Company, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of the Company or any Restricted Subsidiary of
the Company (including, without limitation, amounts owed for compensation),
(iii) Indebtedness to trade creditors and other amounts incurred in connection
with obtaining goods, materials or services, (iv) Indebtedness represented by
Disqualified Capital Stock, (v) any liability for federal, state, local or
other taxes owed or owing by the Company, (vi) Indebtedness incurred in
violation of the Indenture provisions set forth under "--Certain Covenants--
Limitation on Incurrence of Additional Indebtedness," (vii) Indebtedness
which, when incurred and without
110
<PAGE>
respect to any election under Section 1111(b) of Title 11, United States Code,
is without recourse to the Company and (viii) any Indebtedness which is, by
its express terms, subordinated in right of payment to any other Indebtedness
of the Company. Notwithstanding anything to the contrary contained herein, no
Indebtedness incurred at any time under the Bank Facility (as such facility is
in existence on the Issue Date) shall be considered subordinate in right of
payment to any other Indebtedness incurred under the Bank Facility (as such
facility is in existence on the Issue Date).
"Significant Subsidiary," with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Exchange
Act.
"Subsidiary," with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantor" means (i) each of the Company's Restricted
Subsidiaries existing on the Issue Date and (ii) each of the Company's
Restricted Subsidiaries (other than any Foreign Subsidiary, unless the Company
elects to have a Foreign Subsidiary execute a Guarantee) created or acquired
after the Issue Date that executes a supplemental indenture pursuant to "--
Certain Covenants--Additional Subsidiary Guarantees."
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "--
Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries."
Any such designation may be revoked by a Board Resolution of the Company
delivered to the Trustee, subject to the provisions of such covenant.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities
(other than in the case of a foreign Restricted Subsidiary, directors'
qualifying shares or an immaterial amount of shares required to be owned by
other Persons pursuant to applicable law) are owned by such Person or any
Wholly Owned Restricted Subsidiary of such Person.
111
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion, to the extent that it constitutes matters of law,
summaries of legal matters or legal conclusions, is the opinion of Latham &
Watkins, counsel to the Company, as to the material federal income tax
consequences expected to result to Holders whose Private Notes are exchanged
for Exchange Notes in the Exchange Offer. Such opinion is based upon current
provisions of the Internal Revenue Code of 1986, as amended, applicable
Treasury regulations, judicial authority and administrative rulings and
practice. There can be no assurance that the Internal Revenue Service (the
"Service") will not take a contrary view, and no ruling from the Service has
been or will be sought with respect to the Exchange Offer. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conclusions set forth herein. Any
such changes or interpretations may or may not be retroactive and could affect
the tax consequences to Holders. Certain Holders (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations, and persons who are not citizens or residents of the
United States) may be subject to special rules not discussed below. EACH
HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
The exchange of Private Notes for Exchange Notes will be treated as a "non-
event" for federal income tax purposes (that is, the exchange will not be
treated as an exchange for federal income tax purposes because the Exchange
Notes will not be considered to differ materially in kind or extent from the
Private Notes). As a result, no material federal income tax consequences will
result to Holders exchanging Private Notes for Exchange Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with the resale of Exchange Notes received in exchange for
Private Notes where such Private Notes were acquired as a result of market-
making activities or other trading activities. The Company has agreed that for
a period of up to 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer that
requests such document in the Letter of Transmittal for use in connection with
any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the Holders of Private Notes (including any broker-
112
<PAGE>
dealers), and certain parties related to such Holders, against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby 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.
EXPERTS
The consolidated financial statements and financial statement schedules of
Rental Service Corporation as of December 31, 1996 and 1997, and for each of
the three years in the period ended December 31, 1997, 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
and are included in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing. 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 and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing. 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 and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing. 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 and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing. 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, 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
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing. The financial statements of
JDW Enterprises, Inc. d/b/a Valley Rentals as of December 31, 1996 and 1997
and for the years 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 and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
113
<PAGE>
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, 1996 and 1997, and March 31,
1998 (unaudited)....................................................... F-4
Consolidated Statements of Operations--for the years ended December 31,
1995, 1996 and 1997, and for the three months ended March 31, 1997 and
1998 (unaudited)....................................................... F-5
Consolidated Statements of Redeemable Preferred Stock and Common
Stockholders' Equity
(Deficit)--for the years ended December 31, 1995, 1996 and 1997, and
for the three months ended March 31, 1998 (unaudited).................. F-6
Consolidated Statements of Cash Flows--for the years ended December 31,
1995, 1996 and 1997, and for the three months ended March 31, 1997 and
1998 (unaudited)....................................................... F-7
Notes to Consolidated Financial Statements--December 31, 1997, and March
31, 1998 (unaudited)................................................... F-8
Consolidated Financial Statements of Acme Holdings Inc.
Report of Independent Auditors.......................................... F-28
Consolidated Balance Sheets--December 31, 1993 and 1994, and June 30,
1995 (unaudited)....................................................... F-29
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-30
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-31
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-32
Notes to Consolidated Financial Statements--December 31, 1994, and June
30, 1995 (unaudited)................................................... F-34
Combined Financial Statements of Industrial Air Tool
Report of Independent Auditors.......................................... F-46
Combined Balance Sheets--March 31, 1996 and 1997........................ F-47
Combined Statements of Operations--for the years ended March 31, 1996
and 1997 .............................................................. F-48
Combined Statements of Redeemable Stock and Other Stockholders' and
Partners' Equity--for the years ended March 31, 1996 and 1997 ......... F-49
Combined Statements of Cash Flows--for the years ended March 31, 1996
and 1997 .............................................................. F-50
Notes to Combined Financial Statements--March 31, 1997.................. F-51
Financial Statements of Brute Equipment Co. d/b/a Foxx Hy-Reach
Independent Auditor's Report............................................ F-56
Balance Sheets--December 31, 1995 and 1996, and March 31, 1997
(unaudited)............................................................ F-57
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-58
Statements of Stockholders' Equity--for the years ended December 31,
1995 and 1996, and for the three months ended March 31, 1997
(unaudited) ........................................................... F-59
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-60
Notes to Financial Statements--December 31, 1996, and March 31, 1997
(unaudited)............................................................ F-61
</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-66
Combined Balance Sheets--October 31, 1996 and 1997...................... F-67
Combined Statements of Operations--for the years ended October 31, 1995,
1996 and 1997.......................................................... F-68
Combined Statements of Stockholders' and Members' Equity (Deficit)--for
the years ended October 31, 1995, 1996 and 1997 ....................... F-69
Combined Statements of Cash Flows--for the years ended October 31, 1995,
1996 and 1997.......................................................... F-70
Notes to Combined Financial Statements--October 31, 1997................ F-71
Financial Statements of JDW Enterprises, Inc. d.b.a. Valley Rentals
Independent Auditor's Report............................................ F-80
Balance Sheets--December 31, 1996 and 1997.............................. F-81
Statements of Operations--for the years ended December 31, 1996 and
1997................................................................... F-82
Statements of Changes in Stockholders' Equity--for the years ended
December 31, 1996
and 1997............................................................... F-83
Statements of Cash Flows--for the years ended December 31, 1996 and
1997................................................................... F-84
Notes to the Financial Statements--December 31, 1997.................... F-86
</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 (the "Company") as of December 31, 1996 and 1997, 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, 1997. 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, 1996 and 1997, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
February 12, 1998
F-3
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Cash and cash equivalents............... $ 1,452,000 $ 8,932,000 $ 4,462,000
Accounts receivable, net of allowance
for doubtful accounts of $2,165,000 and
$2,925,000 at December 31, 1996 and
1997, respectively, and $3,630,000 at
March 31, 1998......................... 20,856,000 62,028,000 65,490,000
Other receivables and prepaid expense... 3,170,000 3,217,000 4,479,000
Income tax receivable................... 1,563,000 638,000 638,000
Parts and supplies inventories, net of
reserve for obsolescence of $782,000
and $2,181,000 at December 31, 1996 and
1997, respectively, and $3,286,000 at
March 31, 1998......................... 10,099,000 31,714,000 35,825,000
Deferred taxes (Note 11)................ 8,645,000 15,241,000 15,241,000
Rental equipment, principally machinery,
at cost, net of accumulated
depreciation of $24,743,000 and
$54,506,000 at December 31, 1996 and
1997, respectively, and $67,192,000 at
March 31, 1998 (Note 6)................ 116,921,000 314,696,000 403,266,000
Operating property and equipment, at
cost, net (Note 4)..................... 20,043,000 35,799,000 41,106,000
Intangible assets, net (Note 5)......... 34,801,000 220,166,000 287,651,000
Other assets, primarily deferred
financing costs, net................... 1,383,000 6,895,000 6,718,000
------------ ------------ ------------
$218,933,000 $699,326,000 $864,876,000
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable........................ $ 20,302,000 $ 34,911,000 $ 53,006,000
Payroll and other accrued expenses...... 21,540,000 31,937,000 33,040,000
Accrued interest payable................ 514,000 2,179,000 1,781,000
Income taxes payable (Note 11).......... 48,000 1,686,000 5,812,000
Deferred taxes (Note 11)................ 12,863,000 30,857,000 30,857,000
Bank debt and long term obligations
(Note 6)............................... 68,594,000 306,975,000 433,140,000
------------ ------------ ------------
Total liabilities....................... 123,861,000 408,545,000 557,636,000
Commitments and contingencies (Notes 6
and 9)
Stockholders' equity (Note 7):
Preferred stock, $.01 par value:
Authorized shares--500,000
Issued and outstanding shares--none... -- -- --
Common stock, $.01 par value:
Authorized shares--40,000,000
Issued and outstanding shares--
11,376,378 and 19,833,437 at December
31, 1996 and 1997, respectively, and
20,421,968 at March 31, 1998......... 114,000 198,000 204,000
Additional paid-in capital............ 93,917,000 270,927,000 284,155,000
Common stock issuable--284,108 shares
at December 31, 1997 and 184,050
shares at March 31, 1998............. -- 6,000,000 3,741,000
Retained earnings..................... 1,041,000 13,656,000 19,140,000
------------ ------------ ------------
Total stockholders' equity.............. 95,072,000 290,781,000 307,240,000
------------ ------------ ------------
$218,933,000 $699,326,000 $864,876,000
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $47,170,000 $94,218,000 $170,704,000 $27,527,000 $ 70,179,000
Sales of parts,
supplies and new
equipment............. 14,621,000 21,919,000 70,957,000 9,165,000 27,227,000
Sales of used
equipment............. 4,126,000 12,217,000 19,602,000 4,617,000 11,257,000
----------- ----------- ------------ ----------- ------------
Total revenues....... 65,917,000 128,354,000 261,263,000 41,309,000 108,663,000
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 27,854,000 55,202,000 87,552,000 14,316,000 37,073,000
Depreciation,
equipment rentals..... 7,691,000 17,840,000 37,413,000 6,306,000 15,461,000
Cost of sales of
parts, supplies and
new equipment......... 10,439,000 15,582,000 54,739,000 6,737,000 21,249,000
Cost of sales of used
equipment............. 2,178,000 8,488,000 12,927,000 2,972,000 7,944,000
----------- ----------- ------------ ----------- ------------
Total cost of
revenues............ 48,162,000 97,112,000 192,631,000 30,331,000 81,727,000
----------- ----------- ------------ ----------- ------------
Gross profit............ 17,755,000 31,242,000 68,632,000 10,978,000 26,936,000
Selling, general and
administrative
expense................ 6,421,000 12,254,000 20,996,000 3,784,000 5,659,000
Depreciation and
amortization, excluding
equipment rental
depreciation........... 1,186,000 2,835,000 5,373,000 1,068,000 2,024,000
Amortization of
intangibles............ 718,000 2,379,000 3,907,000 624,000 2,085,000
----------- ----------- ------------ ----------- ------------
Operating income........ 9,430,000 13,774,000 38,356,000 5,502,000 17,168,000
Interest expense, net... 3,314,000 7,063,000 14,877,000 1,597,000 7,583,000
----------- ----------- ------------ ----------- ------------
Income before income
taxes and extraordinary
items.................. 6,116,000 6,711,000 23,479,000 3,905,000 9,585,000
Provision for income
taxes (Note 11)........ 2,401,000 2,722,000 10,330,000 1,722,000 4,101,000
----------- ----------- ------------ ----------- ------------
Income before
extraordinary items.... 3,715,000 3,989,000 13,149,000 2,183,000 5,484,000
Extraordinary items,
loss on extinguishment
of debt less applicable
income tax benefit of
$305,000, $822,000 and
$386,000 in 1995, 1996
and 1997, respectively
(Note 6)............... 478,000 1,269,000 534,000 534,000 --
----------- ----------- ------------ ----------- ------------
Net income.............. 3,237,000 2,720,000 12,615,000 1,649,000 5,484,000
Redeemable preferred
stock accretion........ 1,717,000 1,643,000 -- -- --
----------- ----------- ------------ ----------- ------------
Net income available to
common stockholders.... $ 1,520,000 $ 1,077,000 $ 12,615,000 $ 1,649,000 $ 5,484,000
=========== =========== ============ =========== ============
Earnings per common
share (Note 3):
Income before
extraordinary items... $ .50 $ .34 $ .96 $ .19 $ .27
Extraordinary items.... (.12) (.18) (.04) (.04) --
----------- ----------- ------------ ----------- ------------
Net income............. $ .38 $ .16 $ .92 $ .15 $ .27
=========== =========== ============ =========== ============
Weighted average common
shares................. 4,032,315 6,875,618 13,652,933 11,297,950 20,418,671
=========== =========== ============ =========== ============
Earnings per common
share, assuming
dilution (Note 3):
Income before
extraordinary items... $ .49 $ .33 $ .94 $ .19 $ .27
Extraordinary items.... (.12) (.18) (.03) (.05) --
----------- ----------- ------------ ----------- ------------
Net income............. $ .37 $ .15 $ .91 $ .14 $ .27
=========== =========== ============ =========== ============
Weighted average common
shares, assuming
dilution............... 4,116,412 7,179,980 13,927,414 11,510,711 20,567,885
=========== =========== ============ =========== ============
</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,
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
redeemable
preferred
stock........... 75,000 7,500,000 --
Issuance of
common stock,
net of issuance
costs of
$8,723,000...... -- -- --
Exercise of
stock options... -- -- --
Redemption of
redeemable
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
$9,937,000...... -- -- --
Issuance of
common stock in
connection with
acquisitions.... -- -- --
Common stock
issuable in
connection with
acquisitions.... -- -- --
Exercise of
stock options... -- -- --
Tax benefit of
stock options... -- -- --
Net income...... -- -- --
-------- ------------ -----------
Balance at
December 31,
1997............ -- -- --
Issuance of
common stock in
connection with
acquisitions
(unaudited)..... -- -- --
Issuance of
common stock
issuable in
connection with
acquisitions
(unaudited)..... -- -- --
Exercise of
stock options
(unaudited)..... -- -- --
Issuance of
common stock in
connection with
the QSP Plan
(unaudited)..... -- -- --
Net income
(unaudited)..... -- -- --
-------- ------------ -----------
Balance at March
31, 1998
(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,
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
redeemable
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
Redemption of
redeemable
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
$9,937,000...... 7,345,224 73,000 -- 153,901,000 -- -- 153,974,000
Issuance of
common stock in
connection with
acquisitions.... 1,081,514 11,000 -- 22,788,000 -- -- 22,799,000
Common stock
issuable in
connection with
acquisitions.... -- -- -- -- 6,000,000 -- 6,000,000
Exercise of
stock options... 30,321 -- -- 85,000 -- -- 85,000
Tax benefit of
stock options... -- -- -- 236,000 -- -- 236,000
Net income...... -- -- -- -- -- 12,615,000 12,615,000
----------- --------- ---------- ------------- ------------ ------------ -------------
Balance at
December 31,
1997............ 19,833,437 198,000 -- 270,927,000 6,000,000 13,656,000 290,781,000
Issuance of
common stock in
connection with
acquisitions
(unaudited)..... 450,109 5,000 -- 10,745,000 -- -- 10,750,000
Issuance of
common stock
issuable in
connection with
acquisitions
(unaudited)..... 100,058 1,000 -- 2,258,000 (2,259,000) -- --
Exercise of
stock options
(unaudited)..... 30,024 -- -- 53,000 -- -- 53,000
Issuance of
common stock in
connection with
the QSP Plan
(unaudited)..... 8,340 -- -- 172,000 -- -- 172,000
Net income
(unaudited)..... -- -- -- -- -- 5,484,000 5,484,000
----------- --------- ---------- ------------- ------------ ------------ -------------
Balance at March
31, 1998
(unaudited)..... 20,421,968 $204,000 $ -- $284,155,000 $ 3,741,000 $19,140,000 $307,240,000
=========== ========= ========== ============= ============ ============ =============
</TABLE>
See accompanying notes.
F-6
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------- ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............. $ 3,237,000 $ 2,720,000 $ 12,615,000 $ 1,649,000 $ 5,484,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization.......... 9,595,000 23,054,000 46,693,000 7,998,000 19,570,000
Extraordinary items.... 478,000 1,269,000 534,000 534,000 --
Interest paid in
kind.................. 710,000 1,706,000 -- -- --
Provision for losses
on accounts
receivable............ 1,040,000 1,692,000 2,596,000 446,000 428,000
Gain on sale of used
equipment............. (1,948,000) (3,729,000) (6,675,000) (1,766,000) (3,313,000)
Changes in operating
assets and
liabilities, net of
effect of business
acquisitions:
Accounts receivable.. (3,346,000) (5,725,000) (20,923,000) (1,677,000) 4,033,000
Other receivables and
prepaid expenses.... (1,182,000) (1,703,000) 845,000 341,000 (971,000)
Income tax
receivable.......... -- (1,563,000) 925,000 39,000 --
Other assets......... 1,351,000 379,000 792,000 68,000 181,000
Parts and supplies
inventories......... (1,403,000) (2,444,000) (8,826,000) 88,000 (3,592,000)
Accounts payable..... 1,866,000 10,077,000 9,712,000 12,963,000 17,971,000
Payroll and other
accrued expenses.... (1,000,000) (3,523,000) (2,776,000) (1,485,000) (4,389,000)
Accrued interest
payable............. 737,000 (257,000) 1,665,000 227,000 (398,000)
Income taxes
payable............. (375,000) (172,000) 1,591,000 891,000 4,128,000
Deferred taxes, net.. 132,000 1,713,000 7,217,000 -- --
------------ ------------- ------------- ------------ -------------
Net cash provided by
operating activities... 9,892,000 23,494,000 45,985,000 20,316,000 39,132,000
INVESTING ACTIVITIES
Acquisitions of rental
operations, net of cash
acquired (Note 2)...... (42,057,000) (27,270,000) (278,883,000) (12,015,000) (107,753,000)
Cash purchases of rental
equipment and operating
property and
equipment.............. (23,632,000) (86,842,000) (165,123,000) (44,119,000) (70,664,000)
Proceeds from sale of
used equipment......... 4,126,000 12,695,000 19,602,000 4,617,000 11,257,000
Proceeds from assets
held for sale.......... 2,652,000 16,668,000 -- -- --
------------ ------------- ------------- ------------ -------------
Net cash used in
investing activities... (58,911,000) (84,749,000) (424,404,000) (51,517,000) (167,160,000)
FINANCING ACTIVITIES
Proceeds from bank
debt................... 114,826,000 225,335,000 628,478,000 71,400,000 216,904,000
Payments on bank debt... (69,108,000) (213,511,000) (489,870,000) (38,262,000) (93,568,000)
Payments of debt
issuance costs......... (2,024,000) (984,000) (6,402,000) (1,702,000) --
Proceeds from long term
obligations............ 10,000,000 -- 100,000,000 -- --
Payments on long term
obligations............ (3,873,000) (13,493,000) (366,000) (109,000) (3,000)
Proceeds from issuance
of redeemable preferred
stock.................. -- 7,500,000 -- -- --
Redemption of redeemable
preferred stock........ -- (37,874,000) -- -- --
Proceeds from issuance
common stock, net of
issuance costs......... -- 95,223,000 153,974,000 -- --
Proceeds from exercise
of stock options....... -- 1,000 85,000 -- 53,000
Proceeds from QSP Plan
offering............... -- -- -- -- 172,000
Repurchase of common
stock warrants......... -- (945,000) -- -- --
------------ ------------- ------------- ------------ -------------
Net cash provided by
financing activities... 49,821,000 61,252,000 385,899,000 31,327,000 123,558,000
------------ ------------- ------------- ------------ -------------
Net increase (decrease)
in cash and cash
equivalents............ 802,000 (3,000) 7,480,000 126,000 (4,470,000)
Cash and cash
equivalents at
beginning of period.... 653,000 1,455,000 1,452,000 1,452,000 8,932,000
------------ ------------- ------------- ------------ -------------
Cash and cash
equivalents at end of
period................. $ 1,455,000 $ 1,452,000 $ 8,932,000 $ 1,578,000 $ 4,462,000
============ ============= ============= ============ =============
Supplemental disclosure
of cash flow
information:
Cash paid for interest.. $ 1,863,000 $ 5,614,000 $ 13,212,000 $ 1,369,000 $ 7,981,000
Cash paid for income
taxes.................. $ 1,545,000 $ 1,850,000 $ 279,000 $ 67,000 $ --
</TABLE>
See accompanying notes.
F-7
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND MARCH 31, 1998
(THE INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. ACCOUNTING POLICIES
Basis of Presentation
Rental Service Corporation ("RSC" or the "Company"), a Delaware corporation,
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
Most 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 26 states. 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............................. 3-36 years
Leasehold improvements....................................... Term of lease
</TABLE>
Rental equipment and operating property and equipment is depreciated to a
salvage value of 10% of cost. Amortization of assets under capital leases is
included in depreciation expense.
Intangible Assets
Intangible assets are recorded at cost and are amortized using the straight-
line method over their estimated useful lives; 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 of realization in future periods.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Advertising Expense
The cost of advertising is expensed as incurred. The Company incurred
$491,000, $1,050,000, $1,108,000, $233,000 and $424,000 in advertising costs
during the years ended December 31, 1995, 1996 and 1997 and the three months
ended March 31, 1997 and 1998, respectively.
Debt Costs
Deferred financing costs are amortized using the straight-line method over
the lives of the related debt. Recorded deferred financing costs are written
off 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 6) 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.
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.
F-9
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings Per Share. SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. Earnings per share amounts for all periods have
been presented, and where appropriate, restated to conform to the requirements
of SFAS No. 128, as well as Staff Accounting Bulletin No. 98 (issued by the
Securities and Exchange Commission in February 1998), which amends the
determination of and accounting for "cheap stock" in periods prior to an
initial public offering. The effect of dilutive securities is computed using
the treasury stock method.
Interim Financial Statements
The accompanying consolidated balance sheet at March 31, 1998 and the
consolidated statements of operations, redeemable preferred stock and common
stockholders' equity and cash flows for the three-month periods ended March
31, 1997 and 1998 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.
Impact of Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which was 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 that would be included in
comprehensive income, the adoption of SFAS No. 130 did not have a material
effect on the consolidated financial position, results of operations or cash
flows of the Company.
F-10
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. BUSINESS ACQUISITIONS
A principal component of the Company's business strategy is to continue to
grow through acquisitions that augment its present operations as well as
provide entry 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 are 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, except as described below.
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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------- MARCH 31,
1995 1996 1997 1998
------------ ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Assets acquired......... $ 50,109,000 $20,316,000 $142,043,000 $ 54,508,000
Goodwill and covenants
not to compete......... 19,513,000 12,221,000 189,206,000 69,489,000
Less: common stock
issued or issuable..... -- -- (28,799,000) (10,750,000)
Less: liabilities
assumed................ (27,565,000) (5,267,000) (23,567,000) (5,494,000)
------------ ----------- ------------ ------------
Cash purchase price..... $ 42,057,000 $27,270,000 $278,883,000 $107,753,000
============ =========== ============ ============
Number of acquisitions.. 5 11 22 7
</TABLE>
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 above acquisitions were consummated at the beginning of the
immediately preceding year:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------- MARCH 31,
1995 1996 1997 1998
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues.......... $118,954,000 $320,897,000 $443,644,000 $118,583,000
Income before non-
recurring and
extraordinary items ... 1,660,000 2,256,000 11,985,000 5,331,000
Net income.............. 47,030,000 (a) 987,000 11,451,000 5,331,000
Earnings (loss) per com-
mon share:
Income (loss) before
non-recurring and
extraordinary items.. (.01) .07 .79 .26
Net income (loss)..... 11.24 (a) (.08) .75 .26
Earnings (loss) per
common share, assuming
dilution:
Income (loss) before
non-recurring and
extraordinary items.. (.01) .07 .77 .25
Net income (loss)....... 11.01 (a) (.08) .74 .25
</TABLE>
- --------
(a) Net income in 1995 includes non-recurring and extraordinary items related
to RHI's prepackaged bankruptcy of $45,370,000 ($11.25 per share; $11.02
per share, assuming dilution), including a gain on extinguishment of debt
of $52,079,000 and charges for fresh start accounting adjustment and
reorganization items of $6,709,000.
F-11
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On September 12, 1995, the Company acquired all of the assets and assumed
all of the liabilities of Acme Holdings Inc. (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 6), 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 Company's 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 year ended December 31,
1997, the remaining accrual was utilized for expenses relating to the disposal
of the California locations.
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, of which 36,036 shares
were earned and payable at December 31, 1997. Such contingent shares will be
valued and recorded at the date such contingencies are resolved. IAT was an
"on-site" small tool provider, rental management company and maintenance,
repair and operations ("MRO") supplier, operating in Texas and Louisiana.
IAT's balance sheet was consolidated with the Company's as of April 25, 1997.
This acquisition resulted in approximately $25.1 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.
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
issued 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, of which 29,877 shares were earned and payable
at December 31, 1997. Such contingent shares will be valued and recorded at
the date such contingencies are resolved. Foxx specialized in the rental and
sale of aerial equipment to construction and industrial customers and operated
in Iowa and Illinois. This acquisition resulted in approximately $22.3 million
in goodwill, which is being amortized over 40 years.
F-12
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 million in cash and 204,867 shares of RSC
common stock, of which 102,435 shares of RSC common stock will be issued to
the sellers over a five year period, and may be accelerated to three years if
certain performance objectives are met (of which 34,145 shares were payable at
December 31, 1997). Central specialized in the rental and sale of aerial
equipment, ladders and scaffolding and operated in Kansas, Missouri and
Oklahoma. This acquisition resulted in approximately $11.7 million in
goodwill, which is being amortized over 40 years.
On December 2, 1997, the Company acquired all of the outstanding 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 $116.9 million in cash (including the payoff of approximately
$16.0 million of assumed debt) and 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).
Center was an independent equipment rental company that also sold a variety of
equipment ranging from small tools to heavy equipment, including related
commodity supplies. Center operated in Colorado, New Mexico, Texas, Kansas,
Missouri and Nebraska. Center's balance sheet was consolidated with the
Company's as of December 2, 1997. This acquisition resulted in approximately
$90.6 million in goodwill, which is being amortized over 40 years. 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 December 12, 1997, the Company acquired all of the outstanding stock of
Siems Rental & Sales Co., Inc. ("Siems") for approximately $21.3 million in
cash (including the payoff of approximately $13.3 million of assumed debt) and
126,315 shares of RSC common stock. Siems was an independent equipment rental
company engaged in the rental, sales and service of various types of
construction and industrial equipment, operating in Maryland, Delaware,
Pennsylvania and Virginia. Siems' balance sheet is consolidated with the
Company's as of December 12, 1997. This acquisition resulted in approximately
$6.8 million in goodwill, which is being amortized over 40 years. 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 February 3, 1998, the Company acquired substantially all of the assets of
JDW Enterprises, Inc. d/b/a Valley Rentals ("Valley") for $93.6 million in
cash and 435,602 shares of RSC common stock. Valley was an independent
equipment rental company operating in Arizona and New Mexico. This acquisition
resulted in approximately $57.0 million in goodwill, which is being amortized
over 40 years.
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), Central (102,435 shares) and Center (64,544 shares) that vests over
future time periods, and the common stock relating to the acquisitions of IAT
(36,036 shares) and Foxx (29,877 shares) that was earned and payable at
December 31, 1997 based on the achievement of performance objectives. During
the first quarter of 1998, 100,058 shares of the common stock issuable were
paid to the sellers of IAT (36,036 shares), Foxx (29,877 shares) and Central
(34,145 shares).
F-13
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share and
earnings per share, assuming dilution:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Income before
extraordinary items.. $ 3,715,000 $ 3,989,000 $13,149,000 $ 2,183,000 $ 5,484,000
Preferred stock
accretion............ (1,717,000) (1,643,000) -- -- --
----------- ----------- ----------- ----------- -----------
Income before
extraordinary items
available to common
stockholders......... $ 1,998,000 $ 2,346,000 $13,149,000 $ 2,183,000 $ 5,484,000
=========== =========== =========== =========== ===========
Net income............ $ 3,237,000 $ 2,720,000 $12,615,000 $ 1,649,000 $ 5,484,000
Preferred stock
accretion............ (1,717,000) (1,643,000) -- -- --
----------- ----------- ----------- ----------- -----------
Net income available
to common
stockholders......... $ 1,520,000 $ 1,077,000 $12,615,000 $ 1,649,000 $ 5,484,000
=========== =========== =========== =========== ===========
Denominator:
Weighted average
shares outstanding... 4,116,412 7,020,405 13,637,747 11,376,378 20,173,845
Common stock issuable
in connection with
acquisitions......... -- -- 89,088 -- 250,755
Unvested restricted
stock outstanding.... (84,097) (144,787) (73,902) (78,428) (5,929)
----------- ----------- ----------- ----------- -----------
Denominator for earnings
per share.............. 4,032,315 6,875,618 13,652,933 11,297,950 20,418,671
Effect of dilutive
securities:
Add-back of unvested
restricted stock
outstanding.......... 84,097 144,787 73,902 78,428 5,929
Common stock options.. -- 120,414 182,016 134,333 134,840
Unvested restricted
stock not yet
outstanding.......... -- -- -- -- 8,445
Common stock issuable
in connection with
acquisitions based on
the achievement of
performance
objectives........... -- -- 16,478 -- --
Common stock to be
issued in connection
with the QSP Plan.... -- -- 2,085 -- --
Common stock
warrants............. -- 39,161 -- -- --
----------- ----------- ----------- ----------- -----------
Dilutive potential
common shares...... 84,097 304,362 274,481 212,761 149,214
----------- ----------- ----------- ----------- -----------
Denominator for earnings
per share, assuming
dilution............... 4,116,412 7,179,980 13,927,414 11,510,711 20,567,885
=========== =========== =========== =========== ===========
</TABLE>
In accordance with SFAS No. 128, weighted average common shares excludes the
effects of the potential issuance of all shares contingent on the achievement
of performance objectives, until the related objectives have been achieved.
F-14
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. OPERATING PROPERTY AND EQUIPMENT
Operating property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Vehicles, machinery and equipment........ $14,638,000 $30,539,000 $35,192,000
Leasehold improvements................... 2,695,000 4,391,000 4,876,000
Furniture, fixtures and computer
equipment............................... 5,385,000 8,269,000 9,519,000
Land and buildings....................... 1,828,000 2,277,000 2,296,000
----------- ----------- -----------
Total.................................. 24,546,000 45,476,000 51,883,000
Less: accumulated depreciation and
amortization............................ 4,503,000 9,677,000 10,777,000
----------- ----------- -----------
$20,043,000 $35,799,000 $41,106,000
=========== =========== ===========
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1996 1997 1998
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Covenants not to compete............... $ 2,281,000 $ 3,201,000 $ 3,499,000
Goodwill............................... 34,766,000 223,052,000 292,306,000
----------- ------------ ------------
Total................................ 37,047,000 226,253,000 295,805,000
Less: accumulated amortization......... 2,246,000 6,087,000 8,154,000
----------- ------------ ------------
$34,801,000 $220,166,000 $287,651,000
=========== ============ ============
</TABLE>
The Company has entered into non compete 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.
F-15
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. BANK DEBT AND LONG TERM OBLIGATIONS
Bank debt and long term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1996 1997 1998
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
$500,000,000 Revolving Line of Credit
(the "Revolver") with banks; interest at
the prime rate plus 0.25%, due monthly,
or the Eurodollar rate plus 1.75%, due
on demand, at the Company's option;
principal due December 2, 2002. The
interest rate in effect at December 31,
1996 and 1997 and March 31, 1998 was
8.3%, 7.8% and 7.5%, respectively....... $67,867,000 $206,475,000 $329,810,000
$100,000,000 Term Loan (the "Term Loan")
with banks; interest at the prime rate
plus 1.0%, due monthly, or the
Eurodollar rate plus 2.5%, due on
demand, at the Company's option;
principal due in annual installments of
$1,000,000 on each of the first six
anniversaries, with the remaining
principal balance due on December 2,
2004. The interest rate in effect at
December 31, 1997 and March 31, 1998 was
8.5% and 8.2%, respectively............. -- 100,000,000 100,000,000
Other.................................... 727,000 500,000 3,330,000
----------- ------------ ------------
$68,594,000 $306,975,000 $433,140,000
=========== ============ ============
</TABLE>
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 to $500.0
million and the implementation of the new $100.0 million Term Loan (together
with the Revolver, the "Bank 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, $150.0 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 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 orderly
liquidation value) 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 Term Loan consists of a $100.0 million seven-year term loan facility,
which requires mandatory principal payments of $1.0 million on each of its
first six anniversaries, with the remaining principal balance 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).
F-16
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Bank Facility has financial covenants for RSC regarding debt incurrence,
interest coverage, capital expenditures and investments (including
acquisitions), rental equipment utilization and minimum EBITDA levels. The
Bank Facility 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 of March 31, 1998, the
Company was in compliance with all covenants of the Bank Facility.
Borrowings under the Bank Facility are secured by all of the 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 March 31, 1998) 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. The obligation of the
lenders to make loans or issue letters of credit under the Bank Facility is
subject to certain customary conditions.
The amounts outstanding under the Revolver at December 31, 1996 and 1997 and
March 31, 1998 were $67.9 million, $206.5 million and $329.8 million,
respectively, with approximately $28.9 million, $138.0 million and $102.3
million, respectively, available based on the borrowing base. Outstanding
letters of credit totaled $0, $200,000 and $200,000 at December 31, 1996 and
1997 and March 31, 1998, respectively.
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 year ended December 31, 1997.
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 $2.5 million 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
(the "Bank Note") on September 12, 1995 with a financial institution that
provided $10.0 million of 13% senior secured notes. Additionally, the
financial institution was issued warrants entitling the purchase of 87,120
shares of common stock. On September 24, 1996, the Company repaid the Bank
Note and repurchased the related warrants for $13.0 million, 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.
F-17
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate annual maturities of bank debt and long term obligations as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
REVOLVER TERM LOAN OTHER TOTAL
------------ ------------ -------- ------------
<S> <C> <C> <C> <C>
1998....................... $ -- $ 1,000,000 $238,000 $ 1,238,000
1999....................... -- 1,000,000 27,000 1,027,000
2000....................... -- 1,000,000 27,000 1,027,000
2001....................... -- 1,000,000 27,000 1,027,000
2002....................... 206,475,000 1,000,000 27,000 207,502,000
Thereafter................. -- 95,000,000 154,000 95,154,000
------------ ------------ -------- ------------
$206,475,000 $100,000,000 $500,000 $306,975,000
============ ============ ======== ============
</TABLE>
7. 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.
The Company had outstanding at December 31, 1995, 244,805 shares of a series
of cumulative redeemable preferred stock (the "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 $37.9 million. 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.
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, $.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.
Stock Purchase Agreements
In 1995, the Company entered into stock purchase agreements with the current
chairman and a current senior vice president of operations (the former chief
financial officer) for the sale of 278,685 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 repurchase any unvested shares at the original issuance price.
At December 31, 1996 and 1997 and March 31, 1998, there were 81,923, 9,529
and none of these shares, respectively, which had not yet vested and were
subject to the Company's repurchase option at $.01 per share.
F-18
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Option Plans
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 a Stock
Option Plan (the "1995 Plan") whereby 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. The aggregate number
of such shares that may be issued upon exercise of options under the 1995 Plan
may not exceed 324,000. Generally, the stock options granted under the 1995
Plan will expire ten years from the date such options were granted. The
options currently outstanding under the 1995 Plan 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. At March 31, 1998, no shares were available for
future stock option grants under the 1995 Plan.
On February 5, 1997, the Company's stockholders approved and the Company
adopted the 1996 Equity Participation Plan of Rental Service Corporation (the
"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.
Generally, the stock options granted under the 1996 Plan will expire ten years
from the date such options were granted. The options currently outstanding
under the 1996 Plan generally become exercisable in equal installments over a
four-year period from the date of grant. At March 31, 1998, 7,453 shares of
common stock were available for future Awards under the 1996 Plan.
On January 14, 1998, the Company granted its current chairman, 190,000 stock
options and 10,000 shares of restricted stock under the 1996 Plan. The options
and restricted stock are subject to vesting in equal installments over four
years, however, the options may vest earlier if certain performance criteria
are met. The options were granted at an exercise price equal to the fair
market value of the Company's common stock on the date of grant. On February
25, 1998, the chairman surrendered to the Company options to purchase 57,000
shares of common stock in order to ensure the number of shares of common stock
available for issuance pursuant to the 1996 Plan was sufficient to allow
certain grants of stock options to other officers.
On February 25, 1998, 183,820 options were granted under the 1996 Plan at an
exercise price equal to the fair market value of the Company's common stock on
the date of grant ($22.875 per share). These options vest in equal
installments over a four-year period from the date of grant.
F-19
<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, 1996 and 1997 and the three months
ended March 31, 1998 follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
AVAILABLE NUMBER EXERCISE PRICE PER
FOR OPTIONS OF SHARES PER 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 7.032--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.. 1,000,000 -- -- --
Grants--1996 Plan............. (717,913) 717,913 18.00--26.875 20.66
Exercises--1995 Plan.......... -- (30,321) .01--14.11 2.82
Forfeitures--1996 Plan........ 80,580 (80,580) 18.00--20.25 18.72
Cancellations--1995 Plan...... -- (5,400) 14.11 14.11
--------- --------- -------
Balance at December 31, 1997.. 364,527 876,952 .01--26.875 19.09
Grants--1995 Plan
(unaudited).................. (1,860) 1,860 22.875 22.875
Grants--1996 Plan
(unaudited).................. (425,402) 425,402 20.1875-22.875 21.48
Restricted Stock Grants--1996
Plan (unaudited)............. (10,000) 10,000 0.01 0.01
Exercises--1995 Plan
(unaudited).................. -- (30,024) .01--7.032 1.79
Forfeitures--1996 Plan
(unaudited).................. 80,188 (80,188) 18.00--25.875 21.83
--------- --------- -------
Balance at March 31, 1998
(unaudited).................. 7,453 1,204,002 $ 0.01--26.875 $ 20.03
========= ========= =======
</TABLE>
Options outstanding at December 31, 1997 have exercise prices ranging from
$.01 to $26.875 per share, with a weighted average exercise price of $19.09
per share, as outlined in the following table:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE
EXERCISE AVERAGE EXERCISE
NUMBER OF PRICE REMAINING NUMBER OF PRICE
RANGE OF OPTIONS PER CONTRACTUAL OPTIONS PER
EXERCISE PRICES OUTSTANDING SHARE LIFE EXERCISABLE SHARE
--------------- ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.01.................. 45,675 $ .01 7.56 23,745 $ .01
$7.032--$14.11........ 73,944 12.16 8.19 19,325 12.06
$18.00--$21.00........ 637,070 19.99 9.12 55,000 19.64
$24.75--$26.875....... 120,263 25.81 9.70 -- --
------- ------ ---- ------ ------
Totals.............. 876,952 $19.09 9.04 98,070 $13.39
======= ====== ==== ====== ======
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1995, 1996 and 1997 was $.01, $10.23 and $9.23, respectively.
F-20
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 (the "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. At March 31, 1998, 241,660 shares of common stock remain available under
the QSP Plan.
Pro Forma Information
Pro forma information regarding net income and earnings per share is
required by SFAS 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, 1996 and 1997: risk-free interest rates of 6.28%, 6.28%
and 5.71%, respectively; a dividend yield of 0%; volatility factors of the
expected market price of the Company's Common Stock of .641, .641 and .415,
respectively; 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 1997
---------- ---------- -----------
<S> <C> <C> <C>
Pro forma net income................... $3,237,000 $2,597,000 $10,964,000
Pro forma net income per share......... .38 .14 .80
Pro forma net income per share,
assuming dilution..................... .37 .13 .79
</TABLE>
Because SFAS 123 is applicable only to options granted after December 31,
1994, its pro forma effect is not fully reflected until 1997. The effects of
applying SFAS 123 for the years ended December 31, 1995, 1996 and 1997 are not
likely to be representative of the effects on reported net income for future
years.
F-21
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. EMPLOYEE BENEFIT PLANS
The Company maintains a Section 401(k) employee savings plan (Savings Plan)
covering substantially all full-time employees upon completion of at least
1,000 hours of service and nine months of continuous employment.
The Savings Plan is a defined contribution plan and provides for the Company
to make discretionary contributions as deemed appropriate by the
administrative committee. During the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 and 1998, the Company made
discretionary contributions totaling $0, $150,000, $436,000, $100,000 and
$230,000, respectively.
9. COMMITMENTS AND CONTINGENCIES
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 $2,397,000, $3,081,000,
$5,353,000, $1,060,000 and $2,252,000 for the years ended December 31, 1995,
1996 and 1997 and the three months ended March 31, 1997 and 1998,
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, 1997:
<TABLE>
<S> <C>
1998........................................................... $ 8,018,000
1999........................................................... 7,136,000
2000........................................................... 6,089,000
2001........................................................... 4,797,000
2002........................................................... 3,282,000
Thereafter..................................................... 4,831,000
-----------
$34,153,000
===========
</TABLE>
Purchase Obligations
At March 31, 1998, the Company was obligated, under noncancellable purchase
commitments, to purchase $43.1 million of equipment.
Risk Management
The Company currently has an insurance deductible of $5,000 per occurrence
for physical damage or loss to its rental equipment, and is self-insured for
physical damage or loss to its delivery vehicles. Presently, the Company has
an insurance deductible of $50,000 per occurrence for claims related to
general and vehicle liability. The general and vehicle policy includes per
occurrence and annual aggregate liability limits of $1.0 million, with excess
umbrella coverage up to $100.0 million.
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
F-22
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $763,000,
$652,000 and $594,000 at December 31, 1996 and 1997 and March 31, 1998,
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
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.
10. RELATED PARTY TRANSACTIONS
During 1995, the Company paid RHI approximately $742,000 in connection with
certain management services. Also during 1995, certain expenses incurred by
RHI were paid by the Company and vice versa.
One of the stockholders of the Company receives an investment banking fee
from the Company in connection with certain of 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, 1995, 1996 and 1997 and the three months
ended March 31, 1997 and 1998 totaled $663,000, $388,000, $1,084,000, $0 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, 1995, 1996 and 1997 totaled
$235,000, $235,000 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, may utilize the stockholder's investment banking services under
the same fee arrangement.
In connection with the acquisition of Center, the Company entered into
leases for certain of Center's facilities with David P. Lanoha, a director of
the Company, and certain partnerships affiliated with Mr. Lanoha. The leases
initially expire in 2002, with options to extend for three periods of five
years each. The aggregate annual rent under such leases is $720,000. Prior to
the acquisition of Center, these locations had been leased by Center from Mr.
Lanoha and his affiliates. The previous leases were terminated in connection
with the acquisition of Center.
From time to time, the Company also leases facilities from former owners of
acquired businesses, who may be current employees of the Company.
F-23
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal................................. $1,135,000 $ -- $ 2,669,000
State................................... 337,000 187,000 279,000
---------- ---------- -----------
1,472,000 187,000 2,948,000
Deferred:
Federal................................. 581,000 1,550,000 6,402,000
State................................... 43,000 163,000 594,000
---------- ---------- -----------
624,000 1,713,000 6,996,000
Extraordinary item........................ 305,000 822,000 386,000
---------- ---------- -----------
$2,401,000 $2,722,000 $10,330,000
========== ========== ===========
</TABLE>
For interim periods, the provision for income taxes is based upon the
estimated income tax rate for the full fiscal year.
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,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities........................... $ 3,310,000 $ 5,004,000
Inventory reserve............................. 677,000 1,496,000
Bad debt reserve.............................. 1,245,000 504,000
Net operating loss carryforwards.............. 6,563,000 7,948,000
Alternative minimum tax credit................ 1,590,000 4,776,000
Valuation allowance........................... (4,740,000) (4,487,000)
------------ ------------
8,645,000 15,241,000
Deferred tax liabilities:
Depreciation and amortization................. (12,863,000) (30,857,000)
------------ ------------
Net deferred tax liability...................... $ (4,218,000) $(15,616,000)
============ ============
</TABLE>
The Company's effective income tax rate varied from the statutory U.S.
federal income tax rate (34% in 1995 and 1996, 35% in 1997) as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
----------- ---------- -----------
<S> <C> <C> <C>
Expected provision using the statutory
tax rate............................. $ 2,079,000 $2,282,000 $ 8,218,000
State taxes, net of federal tax
benefit.............................. 290,000 204,000 753,000
Permanent differences, primarily
amortization of intangibles.......... 213,000 341,000 732,000
Other................................. (181,000) (105,000) 627,000
----------- ---------- -----------
$ 2,401,000 $2,722,000 $10,330,000
=========== ========== ===========
</TABLE>
F-24
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $18.4 million that expire in
years 2005 through 2012. In addition the Company had combined state net
operating loss carryforwards of approximately $20.1 million that expire in
years 1998 through 2012. Approximately $8.5 million of the federal
carryforwards and $800,000 of the state carryforwards are attributable to the
Company's acquisition of RHI. For financial reporting purposes a valuation
allowance of approximately $4.0 million and $3.7 million at December 31, 1996
and 1997, 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 future profitability of certain
subsidiaries of RHI.
In connection with the 1997 acquisitions of IAT, Center and Siems,
approximately $4.5 million of net deferred tax liabilities were assumed by the
Company. As a result of these acquisitions, the Company also obtained
approximately $500,000 of alternative minimum tax credit carryovers. The
separate company alternative minimum tax credit carryovers are subject to
restrictions in accordance with Internal Revenue Service Code Section 383, and
the ultimate utilization of the alternative minimum tax credits is further
limited based upon the future profitability of the acquired companies.
The Company also has alternative minimum tax credit carryovers of
approximately $4.6 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. Approximately
$600,000 of the federal and all of the state alternative minimum tax credit
carryovers resulted from the Company's acquisition of RHI. For financial
reporting purposes a valuation allowance of approximately $800,000 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 allowances decreased approximately $3.1 million in 1996 and
$253,000 in 1997. The decrease in the 1996 valuation allowance is principally
due to an approximately $9.5 million decrease in the estimated net operating
loss that is not expected to be realized from the Company's discontinued
California operations. The decrease in the 1997 valuation allowance is
principally due to a decrease in the estimated state 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.
F-25
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH YEAR-TO-
QUARTER QUARTER QUARTER QUARTER DATE
-------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Total revenues:
1996........................... $ 27,197 $31,267 $34,631 $35,259 $128,354
1997........................... 41,309 58,554 72,469 88,931 261,263
1998........................... 108,663 N/A N/A N/A 108,663
Gross profit:
1996........................... 6,048 7,758 8,318 9,118 31,242
1997........................... 10,978 14,870 18,841 23,943 68,632
1998........................... 26,936 N/A N/A N/A 26,936
Income before extraordinary
items:
1996........................... 330 897 952 1,810 3,989
1997........................... 2,183 2,855 3,920 4,191 13,149
1998........................... 5,484 N/A N/A N/A 5,484
Net income (loss):
1996........................... 330 897 (317) 1,810 2,720
1997........................... 1,649 2,855 3,920 4,191 12,615
1998........................... 5,484 N/A N/A N/A 5,484
Earnings (loss) per common share:
1996
Income (loss) before
extraordinary items........... $ (.04) $ .06 $ .07 $ .16 $ .34
Extraordinary items............ -- -- (.21) -- (.18)
-------- ------- ------- ------- --------
Net income (loss).............. $ (.04) $ .06 $ (.14) $ .16 $ .16
======== ======= ======= ======= ========
1997
Income before extraordinary
items......................... $ .19 $ .23 $ .26 $ .26 $ .96
Extraordinary items............ (.04) -- -- -- (.04)
-------- ------- ------- ------- --------
Net income..................... $ .15 $ .23 $ .26 $ .26 $ .92
======== ======= ======= ======= ========
1998
Income before extraordinary
items......................... $ .27 $ .27
Extraordinary items............ -- --
-------- --------
Net income..................... $ .27 N/A N/A N/A $ .27
======== ========
Earnings (loss) per common share,
assuming dilution:
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 $ .26 $ .94
Extraordinary items............ (.05) -- -- -- (.03)
-------- ------- ------- ------- --------
Net income..................... $ .14 $ .23 $ .26 $ .26 $ .91
======== ======= ======= ======= ========
1998
Income before extraordinary
items......................... $ .27 $ .27
Extraordinary items............ -- --
-------- --------
Net income..................... $ .27 N/A N/A N/A $ .27
======== ========
</TABLE>
The earnings per share amounts for 1996 and the first three quarters of 1997
have been restated to comply with the requirements of SFAS No. 128.
F-26
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUBSEQUENT EVENTS (UNAUDITED)
On April 1, 1998, the Company acquired all of the outstanding stock of
James S. Peterson Enterprises, Inc. d/b/a Metroquip Rental Centers
("Metroquip") for $51.2 million in cash (including the payoff of assumed debt)
and 193,090 shares of RSC common stock. Up to an additional 95,727 shares of
RSC common stock may be paid to the seller over a three-year period if certain
performance objectives are met. Such contingent shares will be valued and
recorded at the date such contingencies are resolved. Metroquip rented, sold
and supported aerial work platforms and contractors equipment, and operated in
Minnesota and Nebraska. Metroquip's balance sheet was consolidated with the
Company's as of April 1, 1998. This acquisition is expected to result in
approximately $33.0 million in goodwill, which will be amortized over
40 years. Pursuant to the acquisition agreement, the Company assumed effective
control of Metroquip's operations on March 1, 1998 and has included
Metroquip's revenues, costs and expenses from such date in its consolidated
statements of operations, net of related imputed purchase price adjustments.
On April 2, 1998, the Company acquired all of the outstanding stock of
T&M Rental, Inc. ("T&M") for $21.9 million in cash (including the payoff of
assumed debt). Up to 33,132 shares of RSC common stock may be paid to the
seller over a three-year period if certain performance objectives are met.
Such contingent shares will be valued and recorded at the date such
contingencies are resolved. T&M was an independent rental company operating in
Indiana. T&M's balance sheet was consolidated with the Company's as of
April 2, 1998. This acquisition is expected to result in approximately
$16.0 million in goodwill, which will be amortized over 40 years. Pursuant to
the acquisition agreement, the Company assumed effective control of T&M's
operations on March 1, 1998 and has included T&M's revenues, costs and
expenses from such date in its consolidated statements of operations, net of
related imputed purchase price adjustments.
Subsequent to March 31, 1998, the Company has completed three additional
acquisitions for a total combined purchase price of approximately $17.1
million (including 53,693 shares of RSC common stock).
On April 29, 1998, the Company's stockholders approved a proposal to
increase the number of shares of the Company's common stock authorized for
issuance under the 1996 Plan to 2,000,000. On the same date, the Company
granted its current chairman 40,411 stock options and 16,589 shares of
restricted stock under the 1996 Plan. The options and restricted stock are
subject to vesting in equal installments over four years, however, the options
may vest earlier if certain performance criteria are met. The options were
granted at an exercise price equal to the fair market value of the Company's
common stock on the date of grant.
On May 13, 1998, the Company completed a $200.0 million private placement of
9% senior subordinated notes due 2008 (the "Private Notes"). Interest on the
Private Notes is payable semi-annually on May 15th and November 15th,
commencing on November 15, 1998.
In connection with the completion of the offering of the Private Notes, the
Company amended its Revolver to (i) reduce the interest rate margins by 0.25%,
(ii) increase the allowed levels of capital expenditures and investments to
$220.0 million in 1998, $235.0 million in 1999, $250.0 million in 2000,
$270.0 million in 2001 and $340.0 million in each of 2002, 2003 and 2004 (plus
amounts reinvested from asset sales), (iii) change certain financial and other
covenants and (iv) permit the issuance of the Private Notes.
As of June 5, 1998, the Company was party to non-binding letters of intent
to acquire three equipment rental businesses for a total combined purchase
price of approximately $33.2 million (including the assumption of
approximately $7.4 million of debt). These acquisitions are subject to a
number of closing conditions, including the execution of definitive purchase
agreements, RSC board of directors approval and, in some cases, expiration or
early termination of the waiting period under the Hart-Scott-Rodino Act.
F-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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
F-34
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Notes since December 1, 1994. The failure to make such payments constitutes an
event of default under the terms of the indenture to the Senior Notes (Note
3).
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.
Parts and Supplies Inventories
Parts and supplies inventories consist principally of parts, supplies and
small- to medium-sized equipment for sale. All inventories are valued at the
lower of cost (first-in, first-out) or market.
F-35
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation and Amortization
Rental equipment and operating property and equipment are being depreciated
for financial statement purposes primarily using the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
Rental equipment............................................. 3-7 years
Operating property and equipment............................. 3-7 years
Leasehold improvements....................................... Term of lease
</TABLE>
Rental equipment costing less than $400 is immediately expensed at date of
purchase.
Goodwill
Goodwill represents the excess of purchase price over fair market value of
net assets acquired and is amortized using the straight-line method over the
estimated periods to be benefited, ranging from five to thirty years. Included
in depreciation and amortization expense for the years ended December 31,
1992, 1993 and 1994 and the six months ended June 30, 1994 and 1995 is
$175,000, $167,000, $145,000, $73,000 and $72,000, respectively, of such
amortization expense. It is Holdings' policy to account for goodwill and all
other intangible assets at the lower of amortized cost or fair value. The
carrying value of goodwill is reviewed periodically (at least annually) based
on the undiscounted cash flows of the entity over the remaining amortization
period. Should this review indicate that goodwill will not be recoverable,
Holdings' carrying value of goodwill will be reduced by the estimated short
fall of undiscounted cash flows. In addition, management reviews the valuation
and amortization of other intangible assets, taking into consideration any
events and circumstances which might have diminished fair value.
Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
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 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.
F-36
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Statements of Cash Flows
For purposes of the statements of cash flows, Holdings considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
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-37
<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 default. Moreover, because the covenants are
based on the trailing 12 months' earnings, pursuant to
F-38
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 Public Offering of Holdings' stock, up to 20% of the originally
issued aggregate principal amount of Senior
F-39
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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.
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>
F-52
<PAGE>
INDUSTRIAL AIR TOOL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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
F-53
<PAGE>
INDUSTRIAL AIR TOOL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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>
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.
F-54
<PAGE>
INDUSTRIAL AIR TOOL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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-55
<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, except for the last
paragraph in Note 11 as to which
the date is May 1, 1998
F-56
<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-57
<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-58
<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-59
<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-60
<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-61
<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-62
<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-63
<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. See Note 11 for subsequent settlement.
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-64
<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 EVENTS
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.
On May 1, 1998 the litigation referred to in Note 9 was settled prior to
final appeal. The Company's portion of the settlement was approximately
$250,000.
F-65
<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-66
<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-67
<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-68
<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-69
<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-70
<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-71
<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-72
<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-73
<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>
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.
F-74
<PAGE>
RENT-IT-CENTER, INC. AND AFFILIATES
D/B/A CENTER RENTAL AND SALES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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-75
<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-76
<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-77
<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-78
<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-79
<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 sheets of JDW Enterprises, Inc.
d.b.a. Valley Rentals ("Valley") as of December 31, 1996 and 1997, and the
related statements of income, changes in stockholders' equity, and cash flows
for the years 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 audits.
We conducted our audits 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 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 JDW Enterprises, Inc.
d.b.a. Valley Rentals as of December 31, 1996 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ WEINTRAUB & MORRISON, P.C.
Scottsdale, Arizona
March 3, 1998
F-80
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
----------- -----------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents............................... $ 31,303 $ 73,784
Accounts receivable net of allowance for doubtful
accounts of $67,964 and $664,451 at December 31, 1996
and 1997 respectively (Notes 1 (c) and 3).............. 8,003,236 8,719,938
Other receivables and prepaid expenses (Note 8)......... 605,988 1,556,070
Inventory (Notes 1 (d) and 4)........................... 2,049,601 2,859,017
Rental equipment, principally machinery, at cost net of
accumulated depreciation of $12,066,731 and $17,019,555
at December 31, 1996 and 1997, respectively (Notes 1
(e) and 5)............................................. 29,236,418 33,539,944
Operating property and equipment at cost, net (Notes 1
(e), 5 and 7).......................................... 8,571,946 7,855,684
Intangible assets, net of accumulated amortization of
$23,333 and $43,333 for December 31, 1996 and 1997
respectively (Note 6).................................. 76,667 56,667
Other assets............................................ -- 178,502
----------- -----------
$48,575,159 $54,839,606
=========== ===========
<CAPTION>
LIABILITIES
-----------
<S> <C> <C>
Accounts payable........................................ $ 2,212,778 $ 2,553,213
Payroll and other accrued expenses...................... 960,598 917,539
Bank debt and long-term obligations (Notes 5 and 10).... 32,376,913 37,325,388
Obligations under capital lease (Notes 5 and 10)........ 1,583,097 963,445
Related party obligations (Notes 5, 8 and 10)........... 3,529,778 3,396,027
----------- -----------
Total liabilities....................................... 40,663,164 45,155,612
Commitments and contingencies (Notes 9 and 10)
STOCKHOLDERS' EQUITY
--------------------
Capital stock
Authorized 1,000,000 shares of common stock with no
par value. Issued and outstanding, 600,000 shares.... 600,000 600,000
Retained earnings....................................... 7,311,995 9,083,994
----------- -----------
Total stockholders' equity.............................. 7,911,995 9,683,994
----------- -----------
$48,575,159 $54,839,606
=========== ===========
</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 OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues (Notes 1 (b) and 8):
Rental revenues................................... $27,720,279 $30,830,358
Sales of parts, supplies and new equipment........ 3,068,140 2,709,488
Sales of used equipment........................... 1,979,675 3,190,708
----------- -----------
Total revenues.................................. 32,768,094 36,730,554
Cost of revenues (Note 1 (b)):
Cost of equipment rentals, excluding rental
equipment depreciation........................... 13,778,296 15,851,843
Depreciation, rental equipment.................... 6,104,424 6,830,630
Cost of parts, supplies and new equipment......... 2,193,619 1,754,926
Cost of used equipment............................ 1,309,521 2,093,056
----------- -----------
Total cost of revenues.......................... 23,385,860 26,530,455
----------- -----------
Gross profit........................................ 9,382,234 10,200,099
Selling, general and administrative expenses........ 3,650,849 4,420,942
Depreciation and amortization, excluding rental
equipment depreciation............................. 673,127 864,324
----------- -----------
Income from operations.............................. 5,058,258 4,914,833
Other income (expense):
Net interest expense (Note 8)..................... (3,248,766) (3,396,142)
Gain on sale of property (Note 8)................. -- 480,308
----------- -----------
Income before income taxes.......................... 1,809,492 1,998,999
Provision for income taxes (Note 1 (f))............. -- --
----------- -----------
Net income.......................................... $ 1,809,492 $ 1,998,999
=========== ===========
</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 CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------
NUMBER STATED RETAINED
OF 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
Common stock issued............... -- -- -- --
Dividends paid.................... -- -- (150,000) (150,000)
------- -------- ---------- ----------
Balances at January 1, 1997......... 600,000 600,000 7,311,995 7,911,995
Net income........................ -- -- 1,998,999 1,998,999
Common stock issued............... -- -- -- --
Dividends......................... -- -- (227,000) (227,000)
------- -------- ---------- ----------
Balances at December 31, 1997....... 600,000 $600,000 $9,083,994 $9,683,994
======= ======== ========== ==========
</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
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Cash received from customers...................... $ 30,830,982 $ 36,013,852
Cash paid to suppliers and employees.............. (20,760,732) (23,667,783)
Interest paid..................................... (3,347,614) (3,540,209)
Interest received................................. 98,848 143,514
------------ ------------
Net cash provided by operating activities......... 6,821,484 8,949,374
------------ ------------
INVESTING ACTIVITIES
Capital expenditures.............................. (9,799,349) (14,624,965)
Proceeds from property sale....................... -- 1,750,000
------------ ------------
Net cash used by investing activities............. (9,799,349) (12,874,965)
------------ ------------
FINANCING ACTIVITIES
Proceeds from bank debt and long-term
obligations...................................... 13,247,983 31,816,689
Principal payments on bank debt and long-term
obligations...................................... (10,142,559) (27,621,617)
Dividends paid.................................... (150,000) (227,000)
------------ ------------
Net cash provided by financing activities......... 2,955,424 3,968,072
------------ ------------
Net increase (decrease) in cash and cash
equivalents...................................... ( 22,441) 42,481
Cash and cash equivalents, beginning of year...... 53,744 31,303
------------ ------------
Cash and cash equivalents, end of year............ $ 31,303 $ 73,784
============ ============
</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
STATEMENTS OF CASH FLOWS--(CONTINUED)
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1996 1997
----------- ----------
<S> <C> <C>
Net income........................................... $ 1,809,492 $1,998,999
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 6,777,558 7,694,954
Gain on sale of property........................... -- (480,308)
Cost of equipment sold (net of accumulated
depreciation)..................................... 1,309,521 2,093,056
Changes in assets and liabilities:
(Increase) in accounts receivable................ (1,937,112) (716,702)
(Increase) in inventory.......................... (358,945) (809,416)
(Increase) in prepaid expenses and other
receivables..................................... (169,343) (950,083)
(Increase) in other assets....................... -- (178,502)
Increase (decrease) increase in accounts
payable......................................... (205,152) 340,435
(Decrease) in payroll and other accrued
liabilities..................................... (404,535) (43,059)
----------- ----------
Net cash provided by operating activities............ $ 6,821,484 $8,949,374
=========== ==========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
F-85
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
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. In
June, 1997, Valley acquired substantially all operations of Lucas Equipment
Rental.
The nature of Valley'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.
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, 1997 and 1996, 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, based on a physical count at December 31, 1997 and 1996
respectively.
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>
Rental equipment.................................................... 3-5
Vehicles, machinery and equipment................................... 3-5
Leasehold improvements.............................................. 31.5
Furniture, fixtures and computer equipment.......................... 5-7
Land and building................................................... 0-31.5
</TABLE>
f. Income taxes. No provision for income taxes is reflected in the
accompanying statements because the corporation, 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.
F-86
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
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 1997 and 1996, Valley's matching contributions to the plan
were $78,415 and $71,431 respectively.
h. Cash equivalents. Valley 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 years ended December 31, 1996 and 1997
were advertising costs of $331,374 and $403,392, respectively.
j. Reclassification. Certain items in the financial statements for the year
ended December 31, 1996 have been reclassified to be consistent with the
classifications adopted for the year ended December 31, 1997 with no effect
on net income.
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 AND UNBILLED RENTALS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Accounts receivable.................................. $8,071,200 $9,384,389
Less: Allowance for doubtful accounts................ 67,964 664,451
---------- ----------
$8,003,236 $8,719,938
========== ==========
</TABLE>
Valley has recorded unbilled rental income for rental contracts which, by
their terms, have time remaining under the contract at December 31, 1996 and
1997. Unbilled but earned rental revenues at December 31, 1996 and 1997
amounted to $803,762 and $1,160,929, respectively.
4. INVENTORY
At December 31, 1996 and 1997, inventory categories and amounts were as
follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Shop and yard inventory.............................. $1,158,479 $2,043,335
Merchandise for resale............................... 564,897 770,409
Used equipment for sale.............................. 282,218 --
Fuel and oil......................................... 44,007 45,273
---------- ----------
$2,049,601 $2,859,017
========== ==========
</TABLE>
F-87
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASE
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
NOTES PAYABLE
Notes payable to Wells Fargo Bank, collateralized by
rental equipment and personal guarantees of the
shareholders, 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
accounts receivable, inventory and personal
guarantees of the shareholders, due in monthly
installments of interest only. The notes bear
interest at 8.25% at December 31, 1996............... 3,348,081 --
Notes payable to Imperial Bank, collateralized by
accounts receivable, inventory and personal
guarantees of the shareholders, due in monthly
installments of interest only at 8.45% and 9.0%. The
notes were paid off February 3, 1998................. -- 4,433,235
Notes payable to Imperial Bank, collateralized by land
and buildings, interest due in monthly installments
at 8.45% and 9.0%. The notes were paid off
February 3, 1998..................................... -- 2,768,351
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 --
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. The notes bear
interest from 4.9% to 11.0%. The notes were paid off
February 3, 1998..................................... 12,895,520 30,123,802
----------- -----------
Subtotal notes payable.............................. 32,376,913 37,325,388
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.
The capital leases were paid off February 3, 1998.... 1,583,097 963,445
RELATED PARTY LOANS
Notes payable to Danny L. and Mary J. Evans are
subordinated to bank debt, interest is due quarterly
and the principal is due on demand. The notes and
interest may not be paid without obtaining approval
of the banks. The notes bear interest at 8.75% at
December 31, 1996 and 1997. The notes were paid off
February 6, 1998..................................... 2,090,000 2,090,000
Notes payable to shareholders are subordinated to bank
debt, interest is due quarterly and the principal is
due on demand. The notes and interest may not be paid
without obtaining approval of the banks. The notes
bear interest at 8.75% at December 31, 1997 and 1996.
The notes were paid off February 6, 1998............. 850,000 850,000
Notes payable to shareholders, collateralized by
rental equipment purchased, principal and interest
due in monthly installments of $7,315. The notes bear
interest at 7.9%. The notes were paid off February 3,
1998................................................. 589,778 456,027
----------- -----------
Subtotal, related party loans....................... 3,529,778 3,396,027
----------- -----------
$37,489,788 $41,684,860
=========== ===========
</TABLE>
F-88
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Maturities on long-term debt as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31, 1998................................. $41,684,806
===========
</TABLE>
Interest expense charged to operations for years ended December 31, 1996 and
1997 was $3,347,614 and $3,539,656, respectively.
Minimum future lease payments under capital leases as of December 31, 1997
are as follows:
<TABLE>
<S> <C>
Year ending December 31, 1998................................... $1,148,868
Less: amount representing interest.............................. 174,529
----------
974,339
Less: amount representing sales tax............................. 10,894
----------
Present value of net minimum lease payments................... $ 963,445
==========
</TABLE>
Amortization on the assets collateralizing the capital leases is included in
depreciation and amortization expense.
6. INTANGIBLE ASSETS
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 1996 and 1997 was $20,000 in each year.
7. OPERATING PROPERTY AND EQUIPMENT
Operating property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
----------- ----------
<S> <C> <C>
Vehicles, machinery and equipment.................. $ 3,285,967 $3,407,527
Leasehold improvements............................. 36,321 99,760
Furniture, fixtures and computer equipment......... 1,039,712 1,110,074
Land and building.................................. 6,003,937 5,270,844
----------- ----------
Total............................................ 10,365,937 9,888,205
Less: accumulated depreciation and amortization.... 1,793,991 2,032,521
----------- ----------
$ 8,571,946 $7,855,684
=========== ==========
</TABLE>
8. RELATED PARTY TRANSACTIONS
Accounts receivable
Included in accounts receivable is $86,388 and $0 for 1996 and 1997,
respectively, that is due from J.H. Kelly, Inc., a corporation controlled by a
50% shareholder of Valley.
F-89
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Other receivables
In addition, other receivables include $35,874 and $52,533 for 1996 and
1997, respectively, due from a 25% shareholder of Valley.
Rental equipment
For the year ended December 31, 1997, Valley rented equipment from a related
party (Bald Eagle Equipment Co.) totaling $369,753.
Operating property and equipment
For the year ended December 31, 1997, Valley sold to JDW Real Estate L.L.C.,
I and II the land and buildings located in Phoenix and Tucson. The properties
were sold (based on appraisal) for $1,750,000 and resulted in a gain of
$480,308. The properties had a cost basis of $1,499,242 and accumulated
depreciation of $229,550 at the time of sale.
Notes payable, related party
At December 31, 1996 and 1997, Valley has notes payable to Danny L. and Mary
J. Evans in the amount of $2,090,000. The notes are subordinated to applicable
bank debt and bear interest at 8.75%. During 1996, J.H. Kelly, Inc.
distributed its notes receivable from Valley to its shareholders Danny L. and
Mary J. Evans.
At December 31, 1996 and 1997, Valley has notes payable to its stockholders
in the amount of $850,000. The notes are subordinated to applicable bank debt
and bear interest at 8.75%.
Valley purchased rental equipment in the amount of $600,456 from two Company
shareholders during 1996. The shareholder notes resulting from this
transaction bear interest at 7.9% and total $589,778 and $456,027 at December
31, 1996 and 1997, respectively.
Rental revenue and retail sales
Valley rents and sells equipment to J.H. Kelly, Inc. For the years ended
December 31, 1996 and 1997, Valley recognized revenues of $48,864 and
$147,417, respectively, from J.H. Kelly, Inc.
Interest expense
Interest expense paid on the shareholder notes amounted to $340,563 and
$299,941, respectively, for the years ended December 31, 1996 and 1997.
9. COMMITMENTS AND CONTINGENCIES
Valley is currently leasing various facilities and equipment under operating
leases expiring through the year 2001. All operating leases were paid off
February 3, 1998.
Future minimum lease payments as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ended December 31, 1998.................................... $4,779,265
==========
</TABLE>
F-90
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
10. SUBSEQUENT EVENT
On February 3, 1998, the shareholders of Valley agreed to sell to Rental
Service Corporation substantially all assets of the corporation. The assets
sold included accounts receivable, inventory, rental equipment and other
operating assets and excluded land and buildings. The agreement also required
simultaneous pay-off of all liabilities of Valley including payables, notes,
capital leases and operating leases.
F-91
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CON-
TAINED HEREIN, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANY-
ING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRE-
SENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH THIS
PROSPECTUS RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITA-
TION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAW-
FUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY EXCHANGE OF EXCHANGE NOTES FOR PRIVATE NOTES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 15
The Exchange Offer....................................................... 24
Use of Proceeds.......................................................... 31
Capitalization........................................................... 32
Unaudited Pro Forma Consolidated Financial Data.......................... 33
Selected Consolidated Financial and Operating Data....................... 41
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 44
Business................................................................. 57
Management............................................................... 65
Principal Stockholders................................................... 76
Certain Relationships and Related Transactions........................... 78
Description of the Bank Facility......................................... 81
Description of Exchange Notes............................................ 82
Material Federal Income Tax Considerations............................... 112
Plan of Distribution..................................................... 112
Legal Matters............................................................ 113
Experts.................................................................. 113
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-----------------------
PROSPECTUS
-----------------------
$200,000,000
[LOGO OF RENTAL SERVICE CORPORATION]
9% SENIOR SUBORDINATED NOTES DUE 2008
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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.
Policies of insurance may be obtained and maintained by the Company under
which its directors and officers will be insured, within the limits and
subject to the limitations of the policies, against certain expenses in
connection with the defense of, and certain liabilities which might be imposed
as a result of, actions, suits or proceedings to which they are parties by
reason of being or having been such directors or officers.
ITEM 21. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
*1.1 Purchase Agreement dated as of May 8, 1998 by and among Rental
Service Corporation and the several Initial Purchasers named therein
relating to the 9% Senior Subordinated Notes of Rental Service
Corporation due 2008.
3.1 Amended and Restated Certificate of Incorporation of the Company.(1)
3.2 Certificate of Amendment of Certificate of Incorporation.(2)
3.3 Form of Amended and Restated Bylaws of the Company.(3)
*4.1 Indenture dated as of May 13, 1998 by and between Rental Service
Corporation, the Subsidiary Guarantors and Norwest Bank Minnesota,
National Association, as trustee for the 9% Senior Subordinated
Notes of Rental Service Corporation due 2008.
*5.1 Opinion of Latham & Watkins as to the enforceability of the Exchange
Notes being registered hereby (including consent).
*8.1 Opinion of Latham & Watkins regarding certain federal income tax
matters (including consent).
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)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
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.(4)
10.5 First Amendment to Amended and Restated Credit Agreement, dated as of
January 31, 1997.(5)
10.6 Third Agreement, Consent and Limited Waiver to the Amended and
Restated Credit Agreement, dated as of May 22, 1997.(6)
10.7 Fourth Amendment to the Amended and Restated Credit Agreement, dated
as of August 1, 1997.(7)
10.8 Second Amended and Restated Credit Agreement, dated as of December 2,
1997.(2)
*10.9 First Amendment to Second Amended and Restated Credit Agreement,
dated as of May 13, 1998.
10.10 Stock Purchase Agreement dated as of July 25, 1995, between Acme
Acquisition Holdings Corp. and Martin R. Reid.(1)
10.11 Stock Purchase and Severance Agreement dated as of July 25, 1995,
between Acme Acquisition Holdings Corp. and Douglas A. Waugaman.(1)
10.12 Stock Purchase and Severance Agreement dated as of October 4, 1995
between Rental Service Corporation and Douglas A. Waugaman.(1)
10.13 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)
10.14 Amendment to Corporate Development and Administrative Services
Agreement effective October 31, 1993.(1)
10.15 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)
10.16 Letter Agreement dated June 7, 1996 between Nassau Capital Partners
L.P. and NAS Partners I L.L.C., and Rental Service Corporation.(1)
10.17 Stockholders' Agreement dated as of January 4, 1996 by and among the
parties listed on the signature page thereto and Rental Service
Corporation.(1)
10.18 Stock Option Plan for Key Employees.(1)
10.19 Form of Incentive Stock Option Agreement for Directors.(1)
10.20 Form of Incentive Stock Option Agreement for Region Managers.(1)
10.21 Form of Amended Incentive Stock Option Agreement for Region
Managers.(1)
10.22 Form of Amended Incentive Stock Option Agreement for Corporate Office
Personnel.(1)
10.23 Form of Incentive Stock Option Agreement for Other Corporate and
District Personnel.(1)
10.24 Form of Indemnification Agreement.(1)
10.25 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)
10.26 Letter Agreement dated June 1, 1996 between Rental Service
Corporation and David G. Ledlow.(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
Region Managers.(1)
10.30 Form of Amendment to Amended Incentive Stock Option Agreement for
Corporate Office Personnel.(1)
10.31 1996 Equity Participation Plan of Rental Service Corporation.(9)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
10.32 Form of Incentive Stock Option Agreement for Employees.(6)
10.33 Form of Non-Qualified Stock Option Agreement for Directors.(6)
10.34 Employee Qualified Stock Purchase Plan of Rental Service
Corporation.(10)
10.35 Management Incentive Compensation Plan.(11)
10.36 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.(12)
10.37 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.(12)
10.38 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.(12)
10.39 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.(8)
10.40 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.(8)
10.41 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.(8)
10.42 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.(8)
10.43 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.(8)
10.44 Asset Purchase Agreement by and among JDW Enterprises, Inc. d/b/a
"Valley Rentals" as "Seller," Rental Service Corporation, RSC
Center, Inc. as "Buyer" and the stockholders of Seller, dated
December 30, 1997.(13)
10.45 Employment Agreement dated January 14, 1998 between Rental Service
Corporation and Martin R. Reid.(14)
*10.46 Restricted Stock Agreement dated January 14, 1998 between Rental
Service Corporation and Martin R. Reid.
10.47 Stock Purchase Agreement by and among James S. Peterson as "Seller,"
Walker Jones Equipment, Inc. as "Buyer," Rental Service Corporation
as "Parent" and James S. Peterson Enterprises, Inc. as the
"Company," dated April 1, 1998.(14)
10.48 Stock Purchase Agreement by and among Mark S. Mosak and Thomas A.
Mosak as "Sellers," Walker Jones Equipment, Inc. as "Buyer," Rental
Service Corporation as "Parent" and T&M Rental, Inc. as the
"Company," dated April 2, 1998.(14)
*10.49 Registration Rights Agreement dated as of May 13, 1998 by and among
Rental Service Corporation and the persons named therein relating to
the 9% Senior Subordinated Notes due 2008 of Rental Service
Corporation.
*12.1 Statement re: computation of ratio of earnings to fixed charges.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
*21.1 Subsidiaries of Rental Service Corporation.
*23.1 Consent of Ernst & Young LLP
*23.2 Consent of Ernst & Young LLP
*23.3 Consent of Ernst & Young LLP
*23.4 Consent of McGladrey & Pullen, LLP
*23.5 Consent of Ernst & Young LLP
*23.6 Consent of Weintraub & Morrison, P.C.
23.7 Consent of Latham & Watkins (included in Exhibit 5.1 and Exhibit
8.1).
24.1 Powers of Attorney (included on pages II-7 and II-8).
*25.1 Statement of Eligibility and Qualification on Form T-1 of Norwest
Bank Minnesota, National Association, as trustee, re: 9% Senior
Subordinated Notes of Rental Service Corporation.
*27.1 Financial Data Schedule.
*99.1 Letter of Transmittal with respect to the Exchange Offer.
*99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer.
*99.3 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
</TABLE>
- --------
*Filed herewith.
(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 Registration Statement on Form S-1
(Registration No. 333-40707, effective December 16, 1997), and
incorporated herein by reference.
(3) 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.
(4) 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.
(5) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
January 31, 1997, and incorporated herein by reference.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) Filed with the Company's Proxy Statement on Schedule 14A filed March 26,
1997, and incorporated herein by reference.
(11) Filed with the Company's Proxy Statement on Schedule 14A filed March 30,
1998, and incorporated herein by reference.
(12) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
April 14, 1997, and incorporated herein by reference.
(13) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
February 18, 1998, and incorporated herein by reference.
(14) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the three months ended March 31, 1998, and incorporated herein by
reference.
II-4
<PAGE>
(b) Financial Statement Schedules
Report of Independent Auditors
Schedule I--Condensed Financial Information of Registrant
Condensed Balance Sheets--December 31, 1996 and 1997
Condensed Statements of Operations--for the years ended December 31,
1995, 1996 and 1997
Condensed Statements of Cash Flows--for the years ended December 31,
1995, 1996 and 1997
Notes to Condensed Financial Statements--December 31, 1997
Schedule II--Valuation and Qualifying Accounts--as of and for the years
ended December 31, 1995, 1996 and 1997
Other schedules are not included because the required information is not
present or is included in the Consolidated Financial Statements or notes
thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or the registrant in the successful defense of
any action, suit 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 Act and will be governed by
the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) of the Securities Act of
1933 if, in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
II-5
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Scottsdale, State of Arizona, on June 11, 1998.
RENTAL SERVICE CORPORATION ("RSC")
RSC ACQUISITION CORP.
RSC ALABAMA, INC.
RSC CENTER, INC.
RSC DUVAL, INC.
RSC HOLDINGS, INC.
RSC INDUSTRIAL CORPORATION
RSC RENTS, INC.
WALKER JONES EQUIPMENT, INC.
/s/ Martin R. Reid
By: _________________________________
Martin R. Reid
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Martin R.
Reid and Robert M. Wilson and each or any of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in their
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Martin R. Reid Chairman of the Board and June 11, 1998
____________________________________ Chief Executive Officer of
Martin R. Reid RSC (Principal Executive
Officer); Chief Executive
Officer and Director of
each of the Subsidiary
Guarantors (Principal
Executive Officer)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Wilson Chief Financial Officer, June 11, 1998
____________________________________ Secretary, Treasurer and
Robert M. Wilson Director of RSC (Principal
Financial and Accounting
Officer); Chief Financial
Officer and Director of RSC
Acquisition Corp., RSC
Duval Inc., RSC Industrial
Corporation and RSC Rents,
Inc. (Principal Accounting
and Financial Officer);
Treasurer and Director of
RSC Alabama, Inc., RSC
Center, Inc., RSC Holdings,
Inc. and Walker Jones
Equipment, Inc. (Principal
Accounting and Financial
Officer)
/s/ William M. Barnum, Jr. Director of RSC June 11, 1998
____________________________________
William M. Barnum, Jr.
Director of RSC
____________________________________
James R. Buch
Director of RSC
____________________________________
David P. Lanoha
/s/ Christopher A. Laurence Director of RSC June 11, 1998
____________________________________
Christopher A. Laurence
/s/ Eric L. Mattson Director of RSC June 11, 1998
____________________________________
Eric L. Mattson
/s/ Britton H. Murdoch Director of RSC June 11, 1998
____________________________________
Britton H. Murdoch
Director of RSC
____________________________________
John M. Sullivan
</TABLE>
II-8
<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, 1996 and 1997, and for each of
the three years in the period ended December 31, 1997, and have issued our
report thereon dated February 12, 1998, included elsewhere in this
Registration Statement. Our audits also included the financial statement
schedules listed in Item 21(b). 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 12, 1998
S-1
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENTAL SERVICE CORPORATION (PARENT COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- ------------
<S> <C> <C>
ASSETS
------
Cash................................................. $ 5,000 $ 5,000
Other assets......................................... -- 2,000
Investment in and net amounts due from wholly owned
subsidiaries........................................ 95,075,000 290,782,000
----------- ------------
$95,080,000 $290,789,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable and accrued expenses................ $ 8,000 $ 8,000
Stockholders' equity:
Common stock....................................... 114,000 198,000
Additional paid-in capital......................... 93,917,000 270,927,000
Common stock issuable.............................. -- 6,000,000
Retained earnings.................................. 1,041,000 13,656,000
----------- ------------
Total stockholders' equity........................... 95,072,000 290,781,000
----------- ------------
$95,080,000 $290,789,000
=========== ============
</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,
-----------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Costs and expenses:
Interest expense (income)................ $ (7,000) $ 3,000 $ --
---------- ---------- -----------
Income (loss) before equity in income of
subsidiaries and extraordinary item....... 7,000 (3,000) --
Equity in income of subsidiaries........... 3,230,000 2,503,000 12,615,000
---------- ---------- -----------
Income before extraordinary item........... 3,237,000 2,500,000 12,615,000
Extraordinary item, gain on extinguishment
of debt less applicable income taxes of
$142,000 in 1996.......................... -- 220,000 --
---------- ---------- -----------
Net income................................. $3,237,000 $2,720,000 $12,615,000
========== ========== ===========
</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,
----------------------------------------
1995 1996 1997
----------- ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.......................... $ 3,237,000 $ 2,720,000 $ 12,615,000
Equity in income of subsidiaries.... (3,230,000) (2,503,000) (12,615,000)
Extraordinary item.................. -- (220,000) --
Change in other assets.............. -- -- (2,000)
Change in accounts payable and
accrued expenses................... (109,000) 8,000 --
----------- ------------ -------------
Net cash provided by (used in)
operating activities............... (102,000) 5,000 (2,000)
FINANCING ACTIVITIES
Proceeds from issuance of redeemable
preferred stock.................... -- 7,500,000 --
Redemption of redeemable 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.. -- 95,223,000 153,974,000
Proceeds from exercise of stock
options............................ -- 1,000 85,000
Repurchase of common stock
warrants........................... -- (945,000) --
Loans to subsidiaries............... (9,893,000) (51,855,000) (154,057,000)
----------- ------------ -------------
Net cash provided by (used in)
financing activities............... 107,000 (5,000) 2,000
----------- ------------ -------------
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, 1997
1. BASIS OF PRESENTATION
Rental Service Corporation's (the "Company") investment in subsidiaries is
stated at cost plus equity in undistributed earnings of subsidiaries since the
date of acquisition. The Company's share of net income of its unconsolidated
subsidiaries is included in consolidated income using the equity method. The
parent company-only financial statements should be read in conjunction with
the Company's consolidated financial statements.
2. LONG-TERM DEBT
The Company has guaranteed its subsidiaries' $500.0 million revolving line
of credit with banks, of which $67.9 million and $206.5 million is outstanding
at December 31, 1996 and 1997, respectively. Additionally, the Company has
guaranteed its subsidiaries' $100.0 million term loan with banks.
On September 24, 1996, the Company repaid the note payable to Bank and
repurchased the related warrants for $13.0 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.
S-5
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
RENTAL SERVICE CORPORATION
YEAR ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
ADDITIONS
----------------------- TRANSFERS
BALANCE AT CHARGED TO (TO) FROM
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACQUISITIONS ACCOUNTS DEDUCTIONS END OF YEAR
----------- ----------- ---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
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 inventory
obsolescence......... 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 inventory
obsolescence......... 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
=========== ========== ========== ========== ========== ===========
YEAR ENDED DECEMBER 31, 1997
Deducted from assets
accounts:
Allowance for doubtful
accounts............. $ 2,165,000 $2,596,000 $ 582,000 $ -- $2,418,000(a) $ 2,925,000
Reserve for rental
equipment............ 923,000 511,000 218,000 1,416,000 412,000(b) 2,656,000
Reserve for inventory
obsolescence......... 782,000 534,000 247,000 787,000 169,000(b) 2,181,000
Income tax valuation
allowance............ 4,740,000 -- -- -- 253,000(c) 4,487,000
----------- ---------- ---------- ---------- ---------- -----------
Total................... $ 8,610,000 $3,641,000 $1,047,000 $1,529,000 $2,578,000 $12,249,000
=========== ========== ========== ========== ========== ===========
</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>
EXHIBIT 1.1
RENTAL SERVICE CORPORATION
$200,000,000
9% SENIOR SUBORDINATED NOTES DUE 2008
PURCHASE AGREEMENT
------------------
May 8, 1998
BT Alex. Brown Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
William Blair & Company
c/o BT Alex. Brown Incorporated
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
Rental Service Corporation (the "Company"), a Delaware corporation,
-------
and the Guarantors (as defined) hereby confirm their agreement with you (the
"Initial Purchasers"), as set forth below.
- -------------------
1. The Securities. Subject to the terms and conditions herein
--------------
contained, the Company proposes to issue and sell to the Initial Purchasers
$200,000,000 aggregate principal amount of the Company's 9% Senior Subordinated
Notes due 2008 (the "Notes"). The Notes will be guaranteed (collectively, the
-----
"Guarantees") on a senior subordinated basis by each of RSC Acquisition Corp.,
- -----------
RSC Holdings, Inc., RSC Alabama, Inc., RSC Center, Inc., RSC Rents, Inc., RSC
Duval, Inc., RSC Industrial Corporation and Walker Jones Equipment, Inc. (each,
a "Subsidiary" and collectively, the "Subsidiaries", and together with any
---------- ------------
subsidiary that in the future executes a supplemental indenture pursuant to
which such subsidiary agrees to guarantee the Notes, the "Guarantors"). The
----------
Notes and the Guarantees are collectively referred to herein as the
"Securities". The Securities are to be issued under an indenture (the
----------
"Indenture") dated as of May 8, 1998 by and among the Company, the Guarantors
---------
and Norwest Bank Minnesota, N.A., as trustee (the "Trustee").
-------
The Securities will be offered and sold to you without being
registered under the Securities Act of 1933, as amended (the "Act"), in reliance
---
on exemptions therefrom.
In connection with the issuance and sale of the Securities, the
Company has prepared a preliminary offering memorandum dated April 22, 1998 (the
"Preliminary Memorandum") and a final offering memorandum dated May 8, 1998 (the
----------------------
"Final
-----
<PAGE>
2
Memorandum", and the Preliminary Memorandum and the Final Memorandum each herein
- ----------
being referred to as a "Memorandum"), copies of which have been delivered to
----------
you.
The Company understands that the Initial Purchasers propose to make an
offering of the Notes only on the terms and in the manner set forth in the Final
Memorandum and Section 8 hereof as soon as the Initial Purchasers deem advisable
after this Agreement has been executed and delivered, to persons in the United
States whom the Initial Purchasers reasonably believe to be qualified
institutional buyers ("Qualified Institutional Buyers" or "QIBs") as defined in
------------------------------ ----
Rule 144A under the Act, as such rule may be amended from time to time ("Rule
----
144A") and outside the United States to certain persons in reliance on
- ----
Regulation S under the Act.
The Initial Purchasers and their direct and indirect transferees of
the Securities will be entitled to the benefits of the Registration Rights
Agreement, substantially in the form attached hereto as Exhibit A (the
---------
"Registration Rights Agreement"), pursuant to which the Company and the
- ---------------------------------
Guarantors will agree, among other things, to file a registration statement (the
"Registration Statement") with the Securities and Exchange Commission (the
----------------------
"Commission") registering the Exchange Notes (as defined in the Registration
- -----------
Rights Agreement) under the Act.
2. Representations and Warranties of the Company and the Guarantors.
----------------------------------------------------------------
The Company and each of the Guarantors, subject to the limit on maximum
liability contained in the Guarantees, jointly and severally, represents and
warrants to the Initial Purchasers that:
(a) Neither the Final Memorandum nor any amendment or supplement
thereto as of the date thereof and as of the Closing Date (as defined in
Section 3 below) contained or contains any untrue statement of a material
fact or omitted or omits 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(a) do not apply to statements or omissions made in
reliance upon and in conformity with information relating to the Initial
Purchasers furnished to the Company in writing by the Initial Purchasers
expressly for use in the Preliminary Memorandum, the Final Memorandum or
any amendment or supplement thereto.
(b) As of May 8, 1998, the Company had the authorized, issued and
outstanding consolidated capitalization set forth under the heading
"Capitalization" in the Final Memorandum; all of the outstanding shares of
capital stock of the Company and each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable and were
not issued in violation of any preemptive or similar rights; the Company
owns, directly or indirectly, all of the outstanding shares of capital
stock of each of the Subsidiaries and all such shares are owned free and
clear of all liens, encumbrances, equities and claims or restrictions on
transferability (other than those imposed by the Act and the securities or
"Blue Sky" laws of certain jurisdictions) or voting, except as set forth in
the Final Memorandum; the Subsidiaries constitute all of the subsidiaries
of the Company as of the date hereof; except as set forth in the Final
<PAGE>
3
Memorandum, there are no (i) options, warrants or other rights to purchase
from the Company or any Subsidiary, (ii) agreements or other obligations of
the Company or any of the Subsidiaries to issue or (iii) other rights
obligating the Company or any Subsidiary to convert any obligation into, or
exchange any securities for, shares of capital stock of or ownership
interests in the Company or any of the Subsidiaries outstanding. Except for
the Company's direct and indirect interests in the Subsidiaries and Cash
Equivalents (as such term is defined in the Final Memorandum), the Company
does not own, directly or indirectly, any shares of capital stock or any
other equity or long-term debt securities or have any equity interest in
any firm, partnership, joint venture or other entity, other than as
described in the Final Memorandum.
(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 described in the Final Memorandum 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 management, business, condition
(financial or otherwise), prospects or results of operations of the Company
and the Subsidiaries, taken as a whole (any such event, a "Material Adverse
----------------
Effect"); and the Company has not received any written 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 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 Final Memorandum 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 reasonably be expected to have a Material
Adverse Effect; and the Company has not received any written 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) Each of the Company and the Guarantors has requisite corporate
power and authority to execute, deliver and perform each of its obligations
under the Notes, the Exchange Notes, any Private Exchange Notes (each as
defined in the Registration Rights Agreement and the Indenture) and the
Guarantees. The Notes, the Exchange Notes and the Private Exchange Notes,
when issued, will be substantially in the form contemplated by the
Indenture. The Notes, the Exchange Notes and any Private Exchange Notes
have each been duly and validly authorized by the Company
<PAGE>
4
and, when executed by the Company and authenticated by the Trustee in
accordance with the provisions of the Indenture and, in the case of the
Notes, when delivered to and paid for by the Initial Purchasers in
accordance with the terms of this Agreement, will have been duly executed,
issued and delivered and will constitute valid and legally binding
obligations of the Company (assuming the due authorization, execution and
delivery of the Indenture by the Trustee and the due authorization and
delivery of the Notes by the Trustee in accordance with the Indenture),
entitled to the benefits of the Indenture, and enforceable against the
Company in accordance with their terms, except that the enforcement thereof
may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally, and (ii) general principles of
equity and the discretion of the court before which any proceeding therefor
may be brought (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(f) The Guarantees have been duly and validly authorized by each
Guarantor, and when executed and delivered by such Guarantor, will
constitute the valid and legally binding obligations of such Guarantor,
entitled to the benefits of the Indenture, enforceable against each of them
in accordance with its terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of
equity and the discretion of the court before which any proceeding therefor
may be brought (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(g) Each of the Company and the Guarantors has requisite corporate
power and authority to execute, deliver and perform its obligations under
the Indenture. The Indenture meets the requirements for qualification under
the Trust Indenture Act of 1939, as amended (the "TIA"). The Indenture has
---
been duly and validly authorized by each of the Company and the Guarantors
and, when executed and delivered in accordance with its terms (assuming the
due authorization, execution and delivery by the Trustee), will have been
duly executed and delivered and will constitute a valid and legally binding
agreement of each of the Company and the Guarantors, enforceable against
each of them in accordance with its terms, except that (A) the enforcement
thereof may be subject to (i) bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) general principles
of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law) and the discretion of the court before
which any proceeding therefor may be brought and (B) any rights to
indemnity or contribution thereunder may be limited by federal and state
securities laws and public policy considerations.
(h) Each of the Company and the Guarantors has all requisite
corporate power and authority to execute, deliver and perform its
obligations under the Registration Rights Agreement. The Registration
Rights Agreement has been duly and
<PAGE>
5
validly authorized by each of the Company and the Guarantors and, when
executed and delivered by the Company and each of the Guarantors (assuming
due authorization, execution and delivery by the other parties thereto),
will have been duly executed and delivered and will constitute a valid and
legally binding agreement of each of the Company and the Guarantors,
enforceable against each of them in accordance with its terms, except that
(A) the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law) and the discretion of the
court before which any proceeding therefor may be brought and (B) any
rights to indemnity or contribution thereunder may be limited by federal
and state securities laws and public policy considerations.
(i) Each of the Company and the Guarantors has requisite corporate
power and authority to execute, deliver and perform its obligations under
this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the consummation by the Company and the Guarantors of the
transactions contemplated hereby have been duly and validly authorized by
each of the Company and the Guar antors. This Agreement has been duly
executed and delivered by each of the Company and the Guarantors and
constitutes a valid and legally binding agreement of each of the Company
and the Guarantors, enforceable against each of them in accordance with its
terms, except that (A) the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
or other similar laws now or hereafter in effect relating to creditors'
rights generally and (ii) general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law)
and the discretion of the court before which any proceeding therefor may be
brought and (B) any rights to indemnity or contribution thereunder may be
limited by federal and state securities laws and public policy
considerations.
(j) The execution and delivery by the Company and the Guarantors of,
and the performance by the Company and the Guarantors of their obligations
under, this Agreement, the Indenture, the Notes, the Guarantees, the
Exchange Notes, the Private Exchange Notes and the Registration Rights
Agreement, the consummation of the transactions contemplated hereby and
thereby, and the fulfillment of the terms hereof and thereof, will not
result in the breach or violation of or constitute a default under (i) any
statute, rule or regulation applicable to the Company or the Guarantors,
(ii) the certificate of incorporation or bylaws of the Company or the
Guarantors, (iii) any other agreement or instrument binding upon the
Company or any of the Subsidiaries that is material to the Company and the
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, violation or default which, singly or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect; and no
consent, approval, authorization or order of or qualification with any
<PAGE>
6
governmental body or agency is required for the performance by the Company
and the Guarantors of their obligations under this Agreement, except (i)
have been obtained or made, (ii) such as may be required by the Securities
Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
securities, (iii) Blue Sky laws in connection with the offer and sale of
the Shares and clearance with the National Association of Securities
Dealers, Inc. ("NASD") or (iv) such as may be required under the TIA.
(k) There are no (i) legal or governmental proceedings pending or to
the Company's knowledge threatened to which the Company or any of the
Subsidiaries is a party or to which any of the properties of the Company or
any of the Subsidiaries is subject which would be required to be described
in a prospectus pursuant to the Act that are not described in the Final
Memorandum, other than proceedings that, if decided adversely to the
Company or such Subsidiaries, would not reasonably be expected to have a
Material Adverse Effect, or a material adverse effect on the power or
ability of the Company to perform its obligations under this Agreement or
(ii) material documents relating to the Company or any of the Subsidiaries
which would be required to be described in a prospectus pursuant to the Act
that are not described in the Final Memorandum.
(l) Each of the Company and the 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 Final Memorandum, except to the extent that the failure to
obtain or file would not reasonably be expected to have a Material Adverse
Effect.
(m) The Company is not and, after giving effect to the offering of the
Notes and the application of the proceeds thereof as described in the Final
Memorandum, will not be an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(n) The Company and the 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, reasonably be expected to have a Material Adverse Effect.
<PAGE>
7
(o) Neither the Company nor any of the 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 reasonably be expected to have a Material
Adverse Effect.
(p) The Company and the Subsidiaries have good and valid title to all
real and personal property owned by them which is material to the business
of the Company and the 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 Final Memorandum
(including the financial statements included therein), and such as do not
materially interfere with the use made and proposed to be made for such
property by the Company and the Subsidiaries, and except to the extent the
failure to have such title or the existence of such liens, encumbrances and
defects would not reasonably be expected to have a Material Adverse Effect;
and any material real property held under lease by the Company and the
Subsidiaries are held by them under valid and binding leases.
(q) The Company and the 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 the Subsidiaries, taken as a whole; neither the Company
nor any of the 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 the Company nor any of the 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 reasonably be expected
to have a Material Adverse Effect.
(r) The Company and each of the 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) 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).
(t) Subsequent to the date as of which information is given in the
Final Memorandum, and except as contemplated by the Final Memorandum, the
Company and the 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
<PAGE>
8
their condition (financial or otherwise) or results of operations nor any
material adverse change in their capital stock, short-term or long-term
debt.
(u) No labor dispute with the employees of the Company or any of the
Subsidiaries exists or, to the Company's knowledge, is threatened or
imminent that could reasonably be expected to result in Material Adverse
Effect, except as described in or contemplated by the Final Memorandum.
(v) Each of the Indenture, the Notes, the Guarantees and the
Registration Rights Agreement conforms in all material respects to the
description thereof in the Final Memorandum.
(w) The consolidated financial statements of the Company together
with the related notes and schedules thereto included in the Final
Memorandum present fairly in all material respects the consolidated
financial position, results of operations and cash flows of the Company at
the dates and for the periods to which they relate and have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis, except as otherwise stated in the Final Memorandum. The
summary and selected financial and statistical data included in the Final
Memorandum present fairly in all material respects the information shown
therein and have been prepared and compiled on a basis consistent with the
audited financial statements included therein, except as otherwise stated
therein. Ernst & Young LLP is an independent public accounting firm as
required by the Act and the rules and regulations thereunder.
(x) (i) The pro forma financial statements (including the notes
thereto) included in the Final Memorandum (A) have been prepared in
accordance with the Commission's rules and guidelines with respect to pro
forma financial statements (except with respect to the financial
information for the twelve months ended March 31, 1998 contained under the
heading "Summary Consolidated Financial and Operating Data" in the Offering
Memorandum) and (B) have been properly computed on the bases described
therein, and (ii) the assumptions used in the preparation of the pro forma
financial statements included in the Final Memorandum are reasonable and
the adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein.
(y) The issuance or sale of the Securities in the manner contemplated
by the Final Memorandum will not violate Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System.
(z) No holder of securities of the Company (other than the Registrable
Notes (as defined in the Registration Rights Agreement)) will be entitled
to have such securities registered under the registration statements
required to be filed by the Company pursuant to the Registration Rights
Agreement other than as expressly permitted thereby.
<PAGE>
9
(aa) Neither the Company nor any of the Subsidiaries nor any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the
Act) has directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of any
"security" (as defined in the Act) which is or reasonably could be
integrated with the sale of the Securities in a manner that would require
the registration under the Act of the Securities or (ii) engaged in any
form of general solicitation or general advertising (as those terms are
used in Regulation D under the Act) in connection with the offering of the
Securities or in any manner involving a public offering within the meaning
of Section 4(2) of the Act.
(ab) Assuming (i) the representations and warranties of the Initial
Purchasers in Section 8 hereof are true and correct, (ii) compliance by the
Initial Purchasers with the offering and transfer restrictions described in
the Final Memorandum and (iii) the accuracy of the representations,
warranties and agreements of each of the purchasers to whom the Initial
Purchasers initially resells the Notes in compliance with Section 8 hereof,
it is not necessary in connection with the offer, sale and delivery of the
Securities to the Initial Purchasers in the manner contemplated by this
Agreement to register any of the Securities under the Act or to qualify the
Indenture under the TIA.
(ac) No securities of the Company are of the same class (within the
meaning of Rule 144A under the Act) as the Securities and listed on a
national securities exchange, registered under Section 12 of the Exchange
Act, or quoted in a U.S. automated inter-dealer quotation system.
(ad) Neither the Company nor any of the Subsidiaries has taken, nor
will take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or manipulation of
the price of the Securities.
(ae) Neither the Company nor any of the Subsidiaries, nor any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the
Act) or any person acting on any of its behalf (other than the Initial
Purchasers as to which the Company and the Subsidiaries make no
representation) has engaged in any directed selling efforts (as that term
is defined in Regulation S under the Act ("Regulation S")) with respect to
------------
the Securities; the Company and its respective Affiliates and any person
acting on any of its behalf (other than the Initial Purchasers as to which
the Company and the Subsidiaries make no representation) have complied with
the offering restrictions requirement of Regulation S.
Any certificate signed by any officer of the Company or any of the
Subsidiaries and delivered to any Initial Purchaser or to counsel for the
Initial Purchasers shall be deemed a joint and several representation and
warranty by the Company and each of the Subsidiaries to each Initial Purchaser
as to the matters covered thereby.
<PAGE>
10
3. Purchase, Sale and Delivery of the Securities. On the basis of
---------------------------------------------
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, Company and the Guarantors
agree to issue and sell to the Initial Purchasers, and the Initial Purchasers
agree severally, but not jointly, to purchase, the principal amount of
Securities set forth opposite such Initial Purchaser's name on Schedule I
hereto, at 97.25% of their principal amount.
One or more certificates in definitive form for the Securities that
the Initial Purchasers have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Initial Purchasers request upon notice to the Company at least 48 hours prior to
the Closing Date, shall be delivered by or on behalf of the Company to the
Initial Purchasers, against payment by or on behalf of the Initial Purchasers of
the purchase price therefor by wire transfer of immediately available funds
payable to such account or account as the Company shall specify prior to the
Closing Date, or by such means as the parties hereto shall agree prior to the
Closing Date. Such delivery of and payment for the Securities shall be made at
the offices of Latham & Watkins, 633 W. 5th Street, Los Angeles, California, at
7:00 A.M., Los Angeles time, on May 13, 1998, or at such other place, time or
date as the Initial Purchasers and the Company may agree upon, such time and
date of delivery against payment being herein referred to as the "Closing Date."
The Company will make such certificate or certificates for the Securities
available for checking and packaging by the Initial Purchasers at the offices of
BT Alex. Brown Incorporated in New York, New York or such other place as BT
Alex. Brown Incorporated may designate, at least 24 hours prior to the Closing
Date.
4. Offering by the Initial Purchasers. The Initial Purchasers
----------------------------------
propose to make an offering of the Securities at the price and upon the terms
set forth in the Final Memorandum as soon as practicable after this Agreement is
entered into and as in the sole judgment of the Initial Purchasers is advisable.
5. Covenants of the Company. The Company and the Guarantors covenant
------------------------
and agree with each of the Initial Purchasers that:
(a) The Company will not amend or supplement the Final Memorandum or
any amendment or supplement thereto of which the Initial Purchasers and
counsel to the Initial Purchasers shall not previously have been advised
and furnished a copy for a reasonable period of time prior to the proposed
amendment or supplement and as to which the Initial Purchasers shall not
have given their consent, which consent shall not be unreasonably withheld.
The Company will promptly, upon the reasonable request of the Initial
Purchasers or counsel for the Initial Purchasers, make any amendments or
supplements to the Preliminary Memorandum or the Final Memorandum that may
be necessary or advisable in connection with the resale of the Securities
by the Initial Purchasers.
(b) The Company and the Guarantors will cooperate with the Initial
Purchasers in arranging for the qualification of the Securities for
offering and sale under the securities or "Blue Sky" laws of such
jurisdictions as the Initial Purchasers
<PAGE>
11
may designate and will continue such qualification in effect for as long as
may be necessary to complete the resale of the Securities by the Initial
Purchasers; provided, however, that in connection therewith the Company
-------- -------
shall not be required to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction or subject the
Company to any tax in any such jurisdiction where it is not then so
subject.
(c) If, at any time prior to the completion of the distribution by
the Initial Purchasers of the Notes, any event occurs or information
becomes known as a result of which the Final Memorandum as then amended or
supplemented would include an 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, or
if for any other reason it is necessary at any time to amend or supplement
the Final Memorandum in order to comply with applicable law, the Company
will promptly notify the Initial Purchasers thereof and will prepare, at
the Company's expense, an amendment to the Final Memorandum that corrects
such statement or omission or effects such compliance.
(d) The Company will, without charge, provide to the Initial
Purchasers and to counsel for the Initial Purchasers as many copies of the
Preliminary Memorandum and the Final Memorandum or any amendment or
supplement thereto as the Initial Purchasers may reasonably request.
(e) The Company will apply the net proceeds from the sale of the
Securities substantially as set forth under "Use of Proceeds" in the Final
Memorandum.
(f) For so long as any Securities remain outstanding, the Company
will furnish to the Initial Purchasers copies of all reports and other
communications (financial or otherwise) furnished by the Company to the
Trustee or the holders of the Securities and, as soon as available, upon
request, copies of any reports or financial statements furnished to or
filed by the Company with the Commission or any national securities
exchange on which any class of securities of the Company may be listed.
(g) None of the Company, the Guarantors nor any of its respective
Affiliates will sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any "security" (as defined in the Act) that could
be integrated with the sale of the Securities in a manner that would
require the registration under the Act of the Securities.
(h) Neither the Company nor any Guarantor will, nor will the Company
permit any of the Subsidiaries to, engage in any form of general
solicitation or general advertising (as those terms are used in Regulation
D under the Act) in connection with the offering of the Securities or in
any manner involving a public offering within the meaning of Section 4(2)
of the Act.
<PAGE>
12
(i) For so long as any of the Securities remain outstanding, the
Company will make available, upon request, to any holder of such Securities
and any prospective purchaser thereof the information specified in Rule
144A(d)(4) under the Act, unless the Company is then subject to Section 13
or 15(d) of the Exchange Act.
(j) Each of the Company and the Guarantors will use its best efforts
to (i) permit the Securities to be designated PORTAL securities in
accordance with the rules and regulations adopted by the National
Association of Securities Dealers, Inc. (the "NASD") relating to trading in
the Private Offerings, Resales and Trading through Automated Linkages
market (the "PORTAL Market") and (ii) permit the Securities to be eligible
-------------
for clearance and settlement through The Depository Trust Company.
(k) In connection with any Notes offered and sold in an offshore
transaction (as defined in Regulation S), the Company will not register any
transfer of such Notes not made in accordance with the provisions of
Regulation S and will not, except in accordance with the provisions of
Regulation S, if applicable, issue any such Notes in the form of definitive
securities.
6. Expenses. The Company agrees to pay all costs and expenses
--------
incident to the performance of its obligations under this Agreement, whether or
not the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to: (i) the printing, word processing or other production of documents
with respect to such transactions, including any costs of printing the
Preliminary Memorandum and the Final Memorandum and any amendments or
supplements thereto, and any "Blue Sky" memoranda, (ii) all arrangements
relating to the delivery to the Initial Purchasers of copies of the foregoing
documents, (iii) the fees and disbursements of the counsel, the accountants and
any other experts or advisors retained by the Company (but not of the Initial
Purchasers), (iv) the preparation (including printing), issuance and delivery to
the Initial Purchasers of any certificates evidencing the Securities, (v) the
qualification of the Securities under state securities and "Blue Sky" laws,
including filing fees and reasonable fees and disbursements of counsel for the
Initial Purchasers relating thereto, (vi) the expenses of the Company in
connection with any meetings with prospective investors in the Securities;
provided, that 100% of the costs and expenses relating to the use of a corporate
jet in connection with travel to any such meetings shall be paid by the Initial
Purchasers, (vii) the fees and expenses of the Trustee, including fees and
expenses of its counsel, and (viii) all expenses and listing fees incurred in
connection with the application for quotation of the Securities on the PORTAL
Market and (ix) any fees charged by investment rating agencies for the rating of
the Securities. If the issuance and sale of the Securities provided for herein
is not consummated because any condition to the obligation of the Initial
Purchasers set forth in Section 7 hereof is not satisfied, because this
Agreement is terminated pursuant to Section 11(a)(i) or 11(a)(v) hereof or
because of any failure, refusal or inability on the part of the Company or any
Guarantor to perform all obligations and satisfy all conditions on its part to
be performed or satisfied hereunder (other than solely by reason of a default by
the Initial Purchasers of their obligations hereunder after all conditions
hereunder have been satisfied in accordance herewith), the
<PAGE>
13
Company will promptly reimburse the Initial Purchasers upon demand for all
reasonable out-of-pocket expenses (including reasonable fees, disbursements and
charges of Simpson Thacher & Bartlett, counsel for the Initial Purchasers) that
shall have been incurred by the Initial Purchasers in connection with the
proposed purchase and sale of the Securities.
7. Conditions of the Initial Purchasers' Obligations. The several
-------------------------------------------------
obligations of the Initial Purchasers to purchase and pay for the Securities
shall, in their sole discretion, be subject to the satisfaction or waiver of the
following conditions on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchasers shall have received
the opinion, dated as of the Closing Date and addressed to the Initial
Purchasers, of Latham & Watkins, counsel for the Company, in form and
substance satisfactory to counsel for the Initial Purchasers, to the effect
that:
(i) The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware, with
corporate power and authority to own its properties and to conduct its
business as described in the Final Memorandum. Based solely on
certificates from public officials, such counsel confirms that the
Company is qualified to do business in the State of Arizona.
(ii) RSC Holdings Inc., a Delaware corporation, RSC Acquisition
Corp., a Delaware corporation, RSC Industrial Corporation, a Delaware
corporation, RSC Duval Inc., a Delaware corporation, and RSC Rents,
Inc., a California corporation (collectively, the "Identified
Subsidiaries" and each an "Identified Subsidiary"), have each been
duly incorporated and are validly existing and in good standing under
the laws of the States of Delaware or California, as applicable; and,
based solely on certificates from public officials, such counsel
confirms that each of the Identified Subsidiaries is qualified to do
business in the state or states indicated in Schedule A to such
opinion.
(iii) The Company has the authorized capitalization as set forth in
the Final Memorandum. The issued and outstanding shares of capital
stock of each Identified Subsidiary are as set forth in Schedule B to
such opinion (the "Identified Subsidiary Shares"). The issued and
outstanding shares of capital stock of each of RSC Alabama, Inc., an
Alabama corporation, RSC Center, Inc., a Texas corporation, and Walker
Jones Equipment, Inc., a Mississippi corporation (the "Foreign
Subsidiaries" and collectively with the Identified Subsidiaries, the
"Subsidiaries") are as set forth in Schedule C to such opinion
(collectively with the Identified Subsidiary Shares, the "Subsidiary
Shares"). The Identified Subsidiary Shares have been duly authorized,
validly issued and are fully paid and nonassessable. Except as
disclosed in the Final Memorandum, the Company or a wholly-owned
subsidiary of the Company owns of record all of the Subsidiary Shares,
to our knowledge, free and clear of any adverse claim (as defined in
Section 8-302 of the New York Uniform Commercial Code (the "UCC")).
<PAGE>
14
(iv) The Indenture has been duly authorized, executed and delivered
by each of the Company and the Identified Subsidiaries and (assuming
due authorization, execution and delivery by the Trustee and each of
the Foreign Subsidiaries) is the legally valid and binding agreement
of each of the Company and the Subsidiaries, enforceable against the
Company and the Subsidiaries in accordance with its terms.
(v) The Notes, when executed and authenticated in accordance with
the terms of the Indenture and delivered to and paid for by the
Initial Purchasers in accordance with the terms of the Purchase
Agreement, will be legally valid and binding obligations of the
Company, enforceable against the Company in accordance with their
terms.
(vi) The Guarantees of the Identified Subsidiaries have been duly
authorized by each of the Identified Subsidiaries, and (a) when
executed in accordance with the terms of the Indenture, (b) upon due
execution, authentication and delivery of the Notes and upon payment
therefor and (c) assuming due authorization, execution and delivery by
the Foreign Subsidiaries, will be legally, valid and binding
obligations of the Subsidiaries, enforceable against the Subsidiaries
in accordance with their terms.
(vii) The Exchange Notes and the Private Exchange Notes have been
duly authorized by the Company.
(viii) The Registration Rights Agreement has been duly authorized,
executed and delivered by each of the Company and the Identified
Subsidiaries and (assuming due authorization, execution and delivery
by the Foreign Subsidiaries) is the legally valid and binding
agreement of the each of the Company and the Subsidiaries, enforceable
against the Company and the Subsidiaries, in accordance with its
terms.
(ix) The Purchase Agreement has been duly authorized, executed and
delivered by the Company and the Identified Subsidiaries.
(x) The statements under the headings "Capitalization",
"Description of Notes", and "Exchange Offer; Registration Rights" in
the Offering Memorandum, 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.
(xi) To such counsel's knowledge, no legal or governmental proceedings
have been filed in any Delaware, New York or federal court to which
the Company or any of the Subsidiaries is a party or to which any of
the properties of the Company or any of the Subsidiaries is subject
which would be required under the Act to be described in a
registration statement or in a prospectus and are not so described.
<PAGE>
15
(xii) The execution of the Purchase Agreement, the Indenture, and
the Registration Rights Agreement and the issuance of the Notes by the
Company pursuant to the Purchase Agreement do 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 the Subsidiaries or by which the property of any of them is
bound, which has been identified to such counsel in writing by an
officer of the Company and which would be required to be filed as an
exhibit to a registration statement on Form S-1 under the Act; (ii)
violate the Company's Amended Certificate of Incorporation or Amended
and Restated Bylaws, the Certificate of Incorporation and Bylaws of
any Identified Subsidiary or the DGCL or (iii) violate any federal or
New York statute, rule or regulation known to such counsel to be
applicable to the Company or any Subsidiary (other than federal and
state securities laws, as to which such counsel need express no
opinion except as set forth in (xv) below).
(xiii) 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 Notes by the Company and
the issuance of the Guarantees by the Guarantors pursuant to the
Purchase Agreement, except such as have been obtained under the
federal securities laws and such as may be required under state
securities laws in connection with the purchase and distribution of
such Notes by you.
(xiv) The Company is not, and after giving effect to the offering of
the Notes and the application of the proceeds thereof as described in
the Final Memorandum, will not be an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended.
(xv) No registration of the Notes or the Guarantees under the Act,
and no qualification of the Indenture under the Trust Indenture Act,
is required for the purchase of the Notes by you or the initial resale
of the Notes by you to eligible purchasers, in each case, in the
manner contemplated by the Purchase Agreement. Such counsel need
express no opinion, however, as to when or under what circumstances
any Notes initially sold by you may be reoffered or resold. With your
permission, for purposes of the opinions rendered in this paragraph
(xv), such counsel may assume that the representations and agreements
of each of the Initial Purchasers and the Company contained in the
Purchase Agreement are accurate and have been and will be complied
with.
(xvi) Neither the sale, issuance, execution or delivery of the Notes
will violate Regulation G, T (assuming that you do not sell the Notes
to any person or entity subject to Regulation T for such person's or
entity's own account), U or X of the Board of Governors of the Federal
Reserve System.
<PAGE>
16
At the time the foregoing opinion is delivered, such counsel
shall additionally state that it has participated in conferences with
officers and other representatives of the Company and the
Subsidiaries, representatives of the independent public accountants
for the Company and the Subsidiaries, and your representatives, at
which the contents of the Final Memorandum 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
of the statements contained in the Final Memorandum (except to the
extent set forth in paragraph (x) hereof) and have not made any
independent check or verification thereof, during the course of such
participation, no facts came to such counsel's attention that caused
such counsel to believe that the Final Memorandum, as of its date and
as of the Closing Date, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary
to make the statements therein, in the light of the circumstances
under which they were made, not misleading, it being understood that
such counsel need express no belief with respect to the financial
statements or other financial data included in the Final Memorandum.
(b) On the Closing Date, the Initial Purchasers shall have received
the opinions, dated as of the Closing Date and addressed to the Initial
Purchasers, of Capell, Howard, Knabe & Cobbs, P.A., Watkins Ludlam &
Stennis, P.A., and Andrews & Kurth, L.L.P., local counsel to the Company,
in form and substance satisfactory to counsel for the Initial Purchasers,
to the effect that:
(i) The Foreign Subsidiaries have each been duly incorporated and
are validly existing and in good standing under the laws of the States
of their incorporation and, based solely on certificates from public
officials, such counsel confirms that each of the Foreign Subsidiaries
is qualified to do business in the state or states indicated in
Schedule A to such opinion.
(ii) The issued and outstanding shares of capital stock of each of
the Foreign Subsidiaries has been duly authorized, validly issued and
are fully paid and nonassessable.
(iii) The Indenture has been duly authorized, executed and delivered
by each of the Foreign Subsidiaries.
(iv) The Guarantees of the Foreign Subsidiaries have been duly
authorized by each of the Foreign Subsidiaries.
(v) The Registration Rights Agreement has been duly authorized,
executed and delivered by each of the Foreign Subsidiaries.
(vi) The Purchase Agreement has been duly authorized, executed and
delivered by each of the Foreign Subsidiaries.
<PAGE>
17
(vii) The execution of the Purchase Agreement, the Indenture, and the
Registration Rights Agreement and the issuance of the Guarantees by
the Foreign Subsidiaries do not (i) violate the Certificate of
Incorporation or Bylaws of any Foreign Subsidiary or the laws of its
respective jurisdiction of incorporation or (ii) violate any other
statute, rule or regulation known to such counsel to be applicable to
any Foreign Subsidiary (other than federal and state securities laws,
as to which such counsel need express no opinion).
(c) The Initial Purchasers shall have received an opinion, dated the
Closing Date, of Simpson Thacher & Bartlett, counsel for the Initial
Purchasers, with respect to certain legal matters relating to this
Agreement, and such other related matters as the Initial Purchasers may
reasonably require. In rendering such opinion, Simpson Thacher & Bartlett
shall have received and may rely upon such certificates and other documents
and information as they may reasonably request to pass upon such matters.
(d) The Initial Purchasers shall have received "comfort letters" from
Ernst & Young LLP, independent public accountants for the Company, dated
the date hereof and the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchasers and counsel for the Initial
Purchasers.
(e) The representations and warranties of the Company and the
Guarantors contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as if made on and as of the
Closing Date; each of the Company and the Guarantors shall have performed
in all material respects all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior
to the Closing Date; and, except as set forth in the Final Memorandum
(exclusive of any amendment or supplement thereto after the date hereof)
subsequent to the date of the most recent financial statements in such
Final Memorandum, there shall have been no event or development that,
individually or in the aggregate, has had or would reasonably be expected
to have a Material Adverse Effect.
(f) The issuance and sale of the Securities pursuant to this
Agreement shall not be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued or any
action, suit or proceeding shall have been commenced by any governmental
authority with respect to this Agreement before any court or governmental
authority.
(g) The Initial Purchasers shall have received certificates, dated
the Closing Date, signed on behalf of the Company by a Senior Vice
President and its Secretary to the effect that:
(i) The representations and warranties of the Company and the
Guarantors in this Agreement are true and correct in all material
respects as if made on and as of the Closing Date, and each of the
Company and the
<PAGE>
18
Guarantors has performed in all material respects all covenants and
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date;
(ii) At the Closing Date, since the date hereof or since the
date of the most recent financial statements in the Final Memorandum
(exclusive of any amendment or supplement thereto after the date
hereof), no event or events have occurred, no information has become
known nor does any condition exist that, individually or in the
aggregate, has had or would reasonably be expected to have a Material
Adverse Effect; and
(iii) The sale of the Securities hereunder has not been enjoined
(temporarily or permanently).
(h) On the Closing Date, the Initial Purchasers shall have received
the Registration Rights Agreement executed by the Company and the
Guarantors and such agreement shall be in full force and effect at all
times from and after the Closing Date.
(i) The Indenture shall have been duly executed and delivered by the
Company and the Trustee, and the Notes and the Guarantees shall have been
duly executed by the Company and the Guarantors, respectively, and the
Notes shall have been duly authenticated by the Trustee.
(j) The Company and the Subsidiaries party thereto shall have amended
the existing bank credit facility in the manner described in the Final
Memorandum.
(k) On or before the Closing Date, the Initial Purchasers and counsel
for the Initial Purchasers shall have received such further documents,
certificates and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Company and the Guarantors as
they shall have heretofore reasonably requested from the Company and the
Guarantors.
All such documents, opinions, certificates and schedules or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Initial Purchasers and counsel for the Initial Purchasers. The Company shall
furnish to the Initial Purchasers such conformed copies of such documents,
opinions, certificates and schedules or instruments in such quantities as the
Initial Purchasers shall reasonably request.
8. Offering of Securities; Restrictions on Transfer. Each of the
------------------------------------------------
Initial Purchasers represents and warrants (as to itself only) that it is a QIB.
Each Initial Purchaser agrees with the Company (as to itself only) that (i) it
has not and will not solicit offers for, or offer or sell, the Securities by any
form of general solicitation or general advertising (as those terms are used in
Regulation D under the Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Act; and (ii) it has and will solicit offers
<PAGE>
19
for the Securities only from, and will offer the Securities only to (A) in the
case of offers inside the United States, persons whom the Initial Purchasers
reasonably believe to be QIBs or, if any such person is buying for one or more
institutional accounts for which such person is acting as fiduciary or agent,
only when such person has represented to the Initial Purchasers that each such
account is a QIB, to whom notice has been given that such sale or delivery is
being made in reliance on Rule 144A, and, in each case, in transactions under
Rule 144A and (B) in the case of offers outside the United States to persons
other than U.S. persons ("foreign Purchaser," which term shall include dealers
or other professional fiduciaries in the United States acting on a discretionary
basis for foreign beneficial owners (other than an estate or trust)); provided,
--------
however, that in the case of this clause (B), in purchasing such Securities
- -------
such persons are deemed to have represented and agreed as provided under the
caption "Transfer Restrictions" contained in the Final Memorandum.
9. Indemnification and Contribution. (a) The Company and the
--------------------------------
Guarantors agree, jointly and severally, to indemnify and hold harmless each
Initial Purchaser and the affiliates, directors, officers, agents,
representatives and employees of each Initial Purchaser, and each other person,
if any, who controls any Initial Purchaser within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, against any losses, claims, damages
or liabilities, joint or several to which each Initial Purchaser or any such
affiliate, director, officer, agent, representative, employee or controlling
person may become subject under the Act, the Exchange Act or otherwise insofar
as any such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material
fact contained in (A) any Memorandum or any amendment or supplement thereto
or (B) any application or other document, or any amendment or supplement
thereto, executed by the Company or any Guarantor or based upon written
information furnished by or on behalf of the Company or any Guarantor filed
in any jurisdiction in order to qualify the Securities under the securities
or "Blue Sky" laws thereof or filed with any securities association or
securities exchange (each, an "Application"); or
-----------
(ii) the omission or alleged omission to state, in any Memorandum or
any amendment or supplement thereto, or any Application, a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading,
and will reimburse, as incurred, the Initial Purchasers and each such affiliate,
director, officer, agent and employee and each such controlling person for any
reasonable legal or other expenses reasonably incurred by the Initial
Purchasers, such affiliate, director, officer, agent, representative or employee
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Company and the
-------- -------
Guarantors will not be liable (i) in any such case to the extent that any such
loss, claim, damage, or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
any Memorandum or any amendment or
<PAGE>
20
supplement thereto, or any Application, in reliance upon and in conformity with
written information furnished to the Company by the Initial Purchasers
specifically for use therein or (ii) with respect to the Preliminary Memorandum,
to the extent that any such loss, claim, damage or liability arises solely from
the fact that the Initial Purchasers sold Securities to a person to whom there
was not sent or given a copy of the Final Memorandum (as amended or
supplemented) at or prior to the written confirmation of such sale if the
Company shall have previously furnished copies thereof to the Initial Purchasers
in accordance with Section 5(d) hereof and the Final Memorandum (as amended or
supplemented) would have corrected any such untrue statement or omission. This
indemnity agreement will be in addition to any liability that the Company and
the Guarantors may otherwise have to the indemnified parties. The Company and
the Guarantors shall not be liable under this Section 9 for any settlement of
any claim or action effected without its prior written consent, which consent
shall not be unreasonably withheld or delayed.
The Initial Purchasers shall not, without the prior written consent of
the Company and the Guarantors, effect any settlement or compromise of any
pending or threatened proceeding in respect of which the Company and the
Guarantors are or could have been a party, or indemnity could have been sought
hereunder by the Company and the Guarantors, unless such settlement (A) includes
an unconditional written release of the Company and the Guarantors, in form and
substance reasonably satisfactory to the Company and the Guarantors, from all
liability on claims that are the subject matter of such proceeding and (B) does
not include any statement as to an admission of fault, culpability or failure to
act by or on behalf of the Company or the Guarantors.
(b) The Initial Purchasers, severally and not jointly, agree to
indemnify and hold harmless the Company and each of the Guarantors, their
respective affiliates, directors, officers, agents, representatives and
employees and each other person, if any, who controls the Company and the
Guarantors within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which the
Company or any Guarantor or any such affiliate, director, officer, agent,
representative, employee or controlling person may become subject under the Act,
the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any Memorandum or any amendments or supplement thereto, or any Application or
(ii) the omission or the alleged omission to state therein a material fact
required to be stated in any Memorandum or any amendment or supplement thereto
or any Application, or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information concerning such Initial
Purchasers furnished to the Company by the Initial Purchasers specifically for
use therein; and, subject to the limitation set forth immediately preceding this
clause, will reimburse, as incurred, any reasonable legal or other expenses
reasonably incurred by the Company or any Guarantor or any such affiliate,
director, officer, agent, representative, employee or controlling person in
connection with investigating or defending against or appearing as a third party
witness in connection with any such loss, claim, damage, liability or action in
respect thereof. This indemnity
<PAGE>
21
agreement will be in addition to any liability that the Initial Purchasers may
otherwise have to the indemnified parties. No Initial Purchaser shall be liable
under this Section 9 for any settlement of any claim or action effected without
its consent, which consent shall not be unreasonably withheld or delayed.
The Company and the Guarantors shall not, without the prior written
consent of the Initial Purchasers, effect any settlement or compromise of any
pending or threatened proceeding in respect of which any Initial Purchaser is or
could have been a party, or indemnity could have been sought hereunder by any
Initial Purchaser, unless such settlement (A) includes an unconditional written
release of the Initial Purchasers, in form and substance reasonably satisfactory
to the Initial Purchasers, from all liability on claims that are the subject
matter of such proceeding and (B) does not include any statement as to an
admission of fault, culpability or failure to act by or on behalf of any Initial
Purchaser.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action for which such indemnified party
is entitled to indemnification under this Section 9, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 9, notify the indemnifying party of the commencement thereof
in writing; but the omission to so notify the indemnifying party (i) will not
relieve it from any liability under subsection (a) or (b) above unless and to
the extent such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in subsections (a) and (b) above. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if (i) the use of counsel chosen by the indemnifying
- -------- -------
party to represent the indemnified party would present such counsel with a
conflict of interest and such counsel has stated in writing that such conflict
exists, (ii) the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have been
advised by counsel that there may be one or more legal defenses available to it
and/or other indemnified parties that are different from or additional to those
available to the indemnifying party, or (iii) the indemnifying party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after receipt by the
indemnifying party of notice of the institution of such action, then, in each
such case, the indemnifying party shall not have the right to direct the defense
of such action on behalf of such indemnified party or parties and such
indemnified party or parties shall have the right to select separate counsel to
defend such action on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof and approval by such indemnified party of counsel
appointed to defend such action, the indemnifying party will not be liable to
such indemnified party under this Section 9 for any legal or other expenses,
other than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified
<PAGE>
22
party shall have employed separate counsel in accordance with the proviso to the
immediately preceding sentence (it being understood, however, that in connection
with such action the indemnifying party shall not be liable for the expenses of
more than one separate counsel (in addition to local counsel) in any one action
or separate but substantially similar actions in the same jurisdiction arising
out of the same general allegations or circumstances, designated by the Initial
Purchasers in the case subsection (a) of this Section 9 or the Company in the
case of subsection (b) of this Section 9, representing the indemnified parties
under such subsection (a) or subsection (b), as the case may be, who are parties
to such action or actions) or (ii) the indemnifying party has authorized in
writing the employment of counsel for the indemnified party at the expense of
the indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the prior written consent of the indemnifying party (which consent shall
not be unreasonably withheld), unless such indemnified party waived in writing
its rights under this Section 9, in which case the indemnified party may effect
such a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for in
the preceding subsections of this Section 9 is unavailable to, or insufficient
to hold harmless, an indemnified party in respect of any losses, claims, damages
or liabilities (or actions in respect thereof), each indemnifying party, in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the relative benefits received by
the indemnifying party or parties on the one hand and the indemnified party on
the other from the offering of the Securities or (ii) if the allocation provided
by the foregoing clause (i) is not permitted by applicable law, not only such
relative benefits but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof). The relative benefits received by the Company and the Guarantors on
the one hand and any Initial Purchaser on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (before deducting
expenses) received by the Company bear to the total discounts and commissions
received by the Initial Purchasers. The relative fault of the parties 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 Company and the
Guarantors on the one hand, or any Initial Purchaser on the other, the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission or alleged statement or omission, and any
other equitable considerations appropriate in the circumstances. The Company,
the Guarantors and the Initial Purchasers agree that it would not be just and
equitable if the amount of such contribution were determined by pro rata or per
capita allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the first sentence of this
subsection (d). Notwithstanding any other provision of this subsection (d), no
Initial Purchaser shall be obligated to make contributions hereunder that in the
aggregate exceed the total discounts,
<PAGE>
23
commissions and other compensation received by such Initial Purchaser under this
Agreement, less the aggregate amount of any damages that such Initial Purchaser
has otherwise been required to pay by reason of the untrue or alleged untrue
statements or the omissions or alleged omissions to state a material fact, and
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this subsection
(d), each affiliate, director, officer, agent, representative and employee of
each Initial Purchaser and each person, if any, who controls each Initial
Purchaser within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Initial
Purchaser, and each affiliate, director, officer, agent, representative and
employee of the Company and the Guarantors and each person, if any, who controls
the Company or an Guarantor within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, shall have the same rights to contribution as
the Company and the Guarantors.
10. Survival Clause. The respective representations, warranties,
---------------
agreements, covenants, indemnities and other statements of the Company, the
Guarantors, its officers and the Initial Purchasers set forth in this Agreement
or made by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Company, the Guarantors, any of its officers or directors, any
Initial Purchaser or any controlling person referred to in Section 9 hereof and
(ii) delivery of and payment for the Securities. The respective agreements,
covenants, indemnities and other statements set forth in Sections 6, 9 and 15
hereof shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
11. Termination. a. This Agreement may be terminated in the sole
-----------
discretion of the Initial Purchasers by notice to the Company given prior to the
Closing Date in the event that the Company or any of the Guarantors shall have
failed, refused or been unable to perform, in all material respects, all
obligations and satisfy all conditions on its part to be performed or satisfied
hereunder at or prior thereto or, if at or prior to the Closing Date:
(i) either (x) the Company or any Guarantor shall have sustained any
loss or interference with respect to its businesses or properties from
fire, flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any strike, labor dispute, slow down or work stoppage
or any legal or governmental proceeding, which loss or interference, in the
sole judgment of the Initial Purchasers, has had or has a Material Adverse
Effect or (y) there shall have been, in the sole judgment of the Initial
Purchasers, any event or development that, individually or in the
aggregate, has or would reasonably be expected to have a Material Adverse
Effect (including without limitation a change in control of the Company
that has or would reasonably be expected to have a Material Adverse
Effect), except in each case as described in the Final Memorandum
(exclusive of any amendment or supplement thereto);
<PAGE>
24
(ii) trading in securities generally on the New York Stock Exchange,
the American Stock Exchange or the NASDAQ National Market shall have been
suspended or maximum or minimum prices shall have been established on any
such exchange or market;
(iii) a banking moratorium shall have been declared by New York or
United States authorities;
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, or (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international calamity
or emergency or (C) any material change in the financial markets of the
United States that, in the case of (A), (B) or (C) above and in the sole
judgment of the Initial Purchasers, makes it impracticable or inadvisable
to proceed with the offering or the delivery of the Securities as
contemplated by the Final Memorandum; or
(v) any securities of the Company shall have been downgraded or
placed on any "watch list" for possible downgrading by any nationally
recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Information Supplied by the Initial Purchasers. The statements
----------------------------------------------
set forth in the last paragraph of the cover page, the stabilization legend on
page (i), the first, third and fourth paragraph, the third, fourth and fifth
sentences of the sixth paragraph and the seventh paragraph of the section
entitled "Private Placement" constitute the only information furnished by the
Initial Purchasers to the Company for the purposes of Sections 2(a) and 9
hereof.
13. Notices. All communications hereunder shall be in writing and,
-------
if sent to the Initial Purchasers, shall be mailed or delivered or telecopied
and confirmed in writing to BT Alex. Brown Incorporated, One Bankers Trust
Plaza, 130 Liberty Street, New York, New York 10006, Attention: Corporate
Finance Department, and if sent to the Company or the Guarantors, shall be
mailed, delivered or telecopied and confirmed in writing to the Company at: 6929
E. Greenway Park, Suite 200, Scottsdale, Arizona 85254, Attention: President.
14. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the Initial Purchasers, the Company, the Guarantors and its
respective successors, assigns and legal representatives, and nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
other person any legal or equitable right, remedy or claim under or in respect
of this Agreement, or any provisions herein contained; this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the Initial Purchasers, the Company, the Guarantors and its
<PAGE>
25
respective successors, assigns and legal representatives and for the benefit of
no other person except that (i) the indemnities of the Company and the
Guarantors contained in Section 9 of this Agreement shall also be for the
benefit of the affiliates, directors, officers, agents, representatives and
employees of the Initial Purchasers and any person or persons who control the
Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act and (ii) the indemnities of the Initial Purchasers contained in
Section 9 of this Agreement shall also be for the benefit of the affiliates,
directors, officers, agents, representatives and employees of the Company and
the Guarantors and any person or persons who control the Company or any
Guarantor within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No purchaser of any of the Securities from the Initial Purchasers
will be deemed a successor or assigns because of such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
--------------
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
16. Entire Agreement; Amendments And Waivers. This Agreement
----------------------------------------
constitutes the entire agreement of the parties to this Agreement and supersedes
all prior written or oral and all contemporaneous oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may be amended or modified, and the observance of any term of this
Agreement may be waived, only by a writing signed by the Company and the Initial
Purchasers.
17. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among the Company,
the Guarantors and the Initial Purchasers.
Very truly yours,
RENTAL SERVICE CORPORATION
By: /s/ Robert M. Wilson
-----------------------------------
Name: Robert M. Wilson
Title: Senior Vice President
THE GUARANTORS:
RSC ACQUISITION CORP.,
RSC ALABAMA, INC.,
RSC CENTER, INC.,
RSC DUVAL, INC.,
RSC HOLDINGS, INC.,
RSC INDUSTRIAL CORPORATION,
RSC RENTS, INC. and
WALKER JONES EQUIPMENT, INC.
By: /s/ Robert M. Wilson
---------------------------------
Name: Robert M. Wilson
Title: Senior Vice President
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
BT ALEX. BROWN INCORPORATED
By: /s/ Michael R. Duckworth
-----------------------------
Name: Michael R. Duckworth
Title: Managing Director
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By: /s/ Christopher G. Turner
-----------------------------
Name: Christopher G. Turner
Title: Director
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Glenn R. Robson
-----------------------------
Name: Glenn R. Robson
Title: Principal
WILLIAM BLAIR & COMPANY, L.L.C.
By: /s/ David W. Morrison
-----------------------------
Name: David W. Morrison
Title: Principal
<PAGE>
EXHIBIT A
Form of Registration Rights Agreement
-------------------------------------
<PAGE>
SCHEDULE I
INITIAL PURCHASER..........................PRINCIPAL AMOUNT OF NOTES
<TABLE>
<CAPTION>
<S> <C>
BT Alex. Brown Incorporated.......................... $120,000,000
Morgan Stanley & Co. Incorporated.................... $ 40,000,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated... $ 30,000,000
William Blair & Company, LLC......................... $ 10,000,000
</TABLE>
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
================================================================================
INDENTURE
Dated as of May 13, 1998
________________________
By and Among
RENTAL SERVICE CORPORATION
AND
THE SUBSIDIARY GUARANTORS, NAMED HEREIN,
AND
NORWEST BANK MINNESOTA, N.A.,
as Trustee
_______________________
Up to $300,000,000
9% Senior Subordinated Notes due 2008
================================================================================
<PAGE>
CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
TIA
Indenture
Section
- -------
Section
- -------
<S> <C>
310(a)(1)..................................................... 8.10
310(a)(5)..................................................... 8.10
310(b)........................................................ 8.10
310(b)(1)..................................................... 8.10
311(a)........................................................ 8.11
311(b)........................................................ 8.11
312(b)........................................................ 13.3
312(c)........................................................ 13.3
313(a)........................................................ 8.6
313(b)........................................................ 8.6
313(c)........................................................ 8.6
314(a)........................................................ 5.9
</TABLE>
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of the Indenture.
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE..................... 1
Section 1.1. Definitions.............................................. 1
Section 1.2. Incorporation by Reference of TIA........................ 22
Section 1.3. Rules of Construction.................................... 22
ARTICLE II.
THE SECURITIES................................... 23
Section 2.1. Form and Dating.......................................... 23
Section 2.2. Execution and Authentication............................. 23
Section 2.3. Registrar and Paying Agent............................... 25
Section 2.4. Paying Agent To Hold Assets in Trust..................... 26
Section 2.5. Holder Lists............................................. 26
Section 2.6. Transfer and Exchange.................................... 26
Section 2.7. Replacement Securities................................... 27
Section 2.8. Outstanding Securities................................... 28
Section 2.9. Treasury Securities...................................... 28
Section 2.10. Temporary Securities..................................... 28
Section 2.11. Cancellation............................................. 29
Section 2.12. Defaulted Interest....................................... 29
Section 2.13. CUSIP Number............................................. 29
Section 2.14. Deposit of Monies........................................ 29
Section 2.15. Restrictive Legends...................................... 30
Section 2.16. Book-Entry Provisions for Global Securities.............. 30
Section 2.17. Special Transfer Provisions.............................. 31
Section 2.18. Additional Interest Under Registration Rights Agreement.. 34
ARTICLE III.
REDEMPTION..................................... 34
Section 3.1. Notices to Trustee....................................... 34
Section 3.2. Selection of Securities To Be Redeemed................... 34
Section 3.3. Optional Redemption...................................... 34
Section 3.4. Notice of Redemption..................................... 35
Section 3.5. Effect of Notice of Redemption........................... 36
Section 3.6. Deposit of Redemption Price.............................. 36
Section 3.7. Securities Redeemed in Part.............................. 36
ARTICLE IV.
SUBORDINATION................................... 37
Section 4.1. Securities Subordinated to Senior Indebtedness........... 37
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 4.2. Suspension of Payment When Senior Indebtedness in
Default.................................................. 37
Section 4.3. Securities Subordinated to Prior Payment of All
Senior Indebtedness on Dissolution, Liquidation
or Reorganization of Company............................. 38
Section 4.4. Holders To Be Subrogated to Rights of Holders
of Senior Indebtedness................................... 39
Section 4.5. Obligations of the Company Unconditional................. 40
Section 4.6. Trustee Entitled To Assume Payments Not Prohibited
in Absence of Notice..................................... 41
Section 4.7. Application by Trustee of Assets Deposited with It....... 41
Section 4.8. No Waiver of Subordination Provisions.................... 42
Section 4.9. Holders Authorize Trustee To Effectuate
Subordination of Securities.............................. 42
Section 4.10. Right of Trustee To Hold Senior Indebtedness............. 43
Section 4.11. No Suspension of Remedies................................ 43
Section 4.12. No Fiduciary Duty of Trustee to Holders of Senior
Indebtedness............................................. 43
ARTICLE V.
COVENANTS..................................... 44
Section 5.1. Payment of Securities.................................... 44
Section 5.2. Maintenance of Office or Agency.......................... 44
Section 5.3. Limitation on Restricted Payments........................ 44
Section 5.4. Corporate Existence...................................... 46
Section 5.5. Payment of Taxes and Other Claims........................ 46
Section 5.6. Maintenance of Properties and Insurance.................. 46
Section 5.7. Compliance Certificate; Notice of Default................ 47
Section 5.8. Compliance with Laws..................................... 48
Section 5.9. SEC Reports.............................................. 48
Section 5.10. Waiver of Stay, Extension or Usury Laws.................. 48
Section 5.11. Limitation on Transactions with Affiliates............... 48
Section 5.12. Limitation on Incurrence of Additional Indebtedness...... 49
Section 5.13. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries........................ 50
Section 5.14. Limitation on Liens...................................... 51
Section 5.15. Limitation on Change of Control.......................... 51
Section 5.16. Limitation on Asset Sales................................ 53
Section 5.18. Limitation on Designations of Unrestricted Subsidiaries.. 56
Section 5.19. Conduct of Business...................................... 57
Section 5.20. Additional Subsidiary Guarantees......................... 57
ARTICLE VI.
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SUCCESSOR CORPORATION......................... 58
Section 6.1. Limitations on Mergers and Certain Other Transactions.... 58
Section 6.2. Successor Corporation Substituted........................ 59
ARTICLE VII
DEFAULT AND REMEDIES.......................... 60
Section 7.1. Events of Default........................................ 60
Section 7.2. Acceleration............................................. 61
Section 7.3. Other Remedies........................................... 62
Section 7.4. Waiver of Past Defaults.................................. 62
Section 7.5. Control by Majority...................................... 62
Section 7.6. Limitation on Suits...................................... 63
Section 7.7. Rights of Holders To Receive Payment..................... 63
Section 7.8. Collection Suit by Trustee............................... 63
Section 7.9. Trustee May File Proofs of Claim......................... 64
Section 7.10. Priorities............................................... 64
Section 7.11. Rights and Remedies Cumulative........................... 64
Section 7.12. Delay or Omission Not Waiver............................. 65
Section 7.13. Undertaking for Costs.................................... 65
ARTICLE VIII
TRUSTEE....................................... 65
Section 8.1. Duties of Trustee........................................ 65
Section 8.2. Rights of Trustee........................................ 66
Section 8.3. Individual Rights of Trustee............................. 67
Section 8.4. Trustee's Disclaimer..................................... 67
Section 8.5. Notice of Default........................................ 68
Section 8.6. Reports by Trustee to Holders............................ 68
Section 8.7. Compensation and Indemnity............................... 68
Section 8.8. Replacement of Trustee................................... 69
Section 8.9. Successor Trustee by Merger, Etc......................... 70
Section 8.10. Eligibility; Disqualification............................ 70
Section 8.11. Preferential Collection of Claims Against Company........ 70
ARTICLE IX
SATISFACTION AND DISCHARGE OF INDENTURE........................ 70
Section 9.1. Termination of the Company's Obligations................. 70
Section 9.2. Legal Defeasance and Covenant Defeasance................. 71
Section 9.3. Application of Trust Money............................... 74
Section 9.4. Repayment to the Company or Subsidiary Guarantors........ 74
Section 9.5. Reinstatement............................................ 75
ARTICLE X.
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
AMENDMENTS, SUPPLEMENTS AND WAIVERS............................. 75
Section 10.1. Without Consent of Holders............................... 75
Section 10.2. With Consent of Holders.................................. 75
Section 10.3. Compliance with TIA...................................... 76
Section 10.4. Revocation and Effect of Consents........................ 77
Section 10.5. Notation on or Exchange of Securities.................... 77
Section 10.6. Trustee To Sign Amendments, Etc.......................... 77
ARTICLE XI
GUARANTEE..................................... 78
Section 11.1. Unconditional Guarantee................................. 78
Section 11.2. Subordination of Guarantee.............................. 79
Section 11.3. Severability............................................ 79
Section 11.4. Release of a Subsidiary Guarantor....................... 79
Section 11.5. Limitation of Subsidiary Guarantor's Liability.......... 79
Section 11.6. Subsidiary Guarantors May Consolidate, etc., on
Certain Terms........................................... 80
Section 11.7. Contribution............................................ 80
Section 11.8. Waiver of Subrogation................................... 81
Section 11.9. Waiver of Stay, Extension or Usury Laws................. 81
ARTICLE XII
SUBORDINATION OF GUARANTEE OBLIGATIONS....................... 82
Section 12.1. Guarantee Obligations Subordinated to Guarantor Senior
Indebtedness................................................ 82
Section 12.2. Suspension of Guarantee Obligations When Guarantor Senior
Indebtedness in Default..................................... 82
Section 12.3. Guarantee Obligations Subordinated to Prior Payment of All
Guarantor Senior Indebtedness on Dissolution, Liquidation
or Reorganization of Such Subsidiary Guarantor.............. 83
Section 12.4. Holders of Guarantee Obligations To Be Subrogated to
Rights of Holders of Guarantor Senior Indebtedness.......... 85
Section 12.5. Obligations of the Subsidiary Guarantors Unconditional...... 86
Section 12.6. Trustee Entitled To Assume Payments Not Prohibited in
Absence of Notice........................................... 86
Section 12.7. Application by Trustee of Assets Deposited with It.......... 87
Section 12.8. No Waiver of Subordination Provisions....................... 87
Section 12.9. Holders Authorize Trustee To Effectuate Subordination
of Guarantee Obligations.................................... 88
Section 12.10. Right of Trustee To Hold Guarantor Senior Indebtedness...... 88
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 12.11. No Suspension of Remedies................................... 88
Section 12.12. No Fiduciary Duty of Trustee to Holders of Guarantor Senior
Indebtedness................................................ 89
ARTICLE XIII
MISCELLANEOUS................................... 89
Section 13.1. TIA Controls................................................ 89
Section 13.2. Notices..................................................... 89
Section 13.3. Communications by Holders with Other Holders................ 90
Section 13.4. Certificate and Opinion as to Conditions Precedent.......... 90
Section 13.5. Statements Required in Certificate or Opinion............... 91
Section 13.6. Rules by Trustee, Paying Agent, Registrar................... 91
Section 13.7. Legal Holidays.............................................. 91
Section 13.8. Governing Law............................................... 91
Section 13.9. No Adverse Interpretation of Other Agreements............... 92
Section 13.10. No Recourse Against Others.................................. 92
Section 13.11. Successors.................................................. 92
Section 13.12. Duplicate Originals......................................... 92
Section 13.13. Headings and Table of Contents.............................. 92
Section 13.14. Severability................................................ 92
EXHIBIT A FORM OF SECURITY.................................. A-1
EXHIBIT B FORM OF LEGEND FOR GLOBAL SECURITIES.............. B-1
EXHIBIT C FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS TO NON-QIB ACCREDITED INVESTORS.... C-1
EXHIBIT D FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATION S........... D-1
</TABLE>
vi
<PAGE>
1
EXHIBIT 4.1
INDENTURE, dated as of May 13, 1998, among RENTAL SERVICE CORPORATION
, a Delaware corporation (the "Company"), the SUBSIDIARY GUARANTORS (as defined
-------
herein), and NORWEST BANK MINNESOTA, N.A., as Trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's 9%
Senior Subordinated Notes due 2008 (the "Securities"):
----------
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person or any of
---------------------
its Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of the Company or at the time it merges or consolidates with the
Company or any of its Restricted Subsidiaries or assumed in connection with the
acquisition of assets from such Person and in each case not incurred by such
Person in connection with, or in anticipation or contemplation of, such Person
becoming a Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"Affiliate" means, with respect to any specified Person, any other
---------
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
-------
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
----------- ----------
foregoing.
"Affiliate Transaction" shall have the meaning provided in Section
---------------------
5.11(a).
"Agent" means any Registrar, Paying Agent or co-Registrar.
-----
"Agent Members" has the meaning provided in Section 2.16.
-------------
"Asset Acquisition" means (a) an Investment by the Company or any
-----------------
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or of any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other than
a Restricted Subsidiary of the Company) which constitute all or substantially
all of the assets of such Person or comprises any division or line of business
of such Person or any other properties or assets of such Person other than in
the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance,
----------
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment
<PAGE>
2
or other transfer for value by the Company or any of its Restricted Subsidiaries
(including any Sale and Leaseback Transaction) to any Person other than the
Company or a Wholly Owned Restricted Subsidiary of the Company of (a) any
Capital Stock of any Restricted Subsidiary of the Company; or (b) any other
property or assets of the Company or any Restricted Subsidiary of the Company
other than in the ordinary course of business; provided, however, that Asset
-------- -------
Sales shall not include (i) any transaction or series of related transactions
for which the Company or its Restricted Subsidiaries receive aggregate
consideration of less than $500,000 and (ii) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of the
Company as permitted under Section 6.1.
"Bank Facility" means the Second Amended and Restated Credit Agreement,
-------------
dated as of December 2, 1997, among the Company, the Subsidiaries of the
Company, the lenders party thereto in their capacities as lenders thereunder,
Bankers Trust Company, as issuing bank, and BT Commercial Corporation, as agent,
as amended, together with the related documents thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements may be further amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement or agreements extending the maturity of, refinancing, replacing or
otherwise restructuring (including increasing the amount of available borrowings
thereunder (provided that such increase in borrowings is permitted by Section
--------
5.12) or adding Restricted Subsidiaries of the Company as additional borrowers
or guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Bank Facility Agent" means the then acting Agent under (and as defined in)
-------------------
the Bank Facility or any successor thereto exercising substantially the same
rights and powers; provided, that if, and for so long as, there is no acting
--------
Agent or such successor, then the Bank Facility Agent shall at all times
constitute the holders of a majority in outstanding principal amount of
Indebtedness under or in respect of the Bank Facility.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or
--------------
foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors of
------------------
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
----------------
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Borrowing Base" means, with respect to any Foreign Subsidiary as of any
--------------
date, an amount equal to the sum of (a) 85% of the net book value of accounts
receivable (other than intercompany receivables) owned by such Foreign
Subsidiary as of such date that are not more than 90 days past due and (b) 85%
of the value (the lower of net book value or orderly liquidation value) of all
rental equipment owned by such Foreign Subsidiary as of such date,
<PAGE>
3
all calculated on a consolidated basis for such Foreign Subsidiary and its
Restricted Subsidiaries in accordance with the method of accounting used for
financial calculations under the applicable credit facility for such Foreign
Subsidiary. To the extent that information is not available as to the amount of
accounts receivable or rental equipment as of a specific date, a Foreign
Subsidiary may utilize the most recent available information provided to the
lenders under the applicable credit facility for the purpose of calculating the
Borrowing Base.
"Business Day" means a day that is not a Legal Holiday.
------------
"Capitalized Lease Obligation" means, as to any Person, the obligations of
----------------------------
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
-------------
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
----------------
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
---
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
-------
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250.0 million; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
-----------------
events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets of
the Company to any Person or group of related Persons for purposes of Section
13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof
-----
(whether or not otherwise in compliance with the provisions of this
<PAGE>
4
Indenture) other than to the Principals and their Related Parties; (ii) any
Person or Group (other than the Principals and their Related Parties) shall
become the owner, directly or indirectly, beneficially or of record, of shares
representing more than 35% of the aggregate ordinary voting power represented by
the issued and outstanding Capital Stock of the Company and the Principals and
their Related Parties beneficially own, directly or indirectly, shares
representing a lesser percentage of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of the Company and do
not have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors; or (iii) the
replacement of a majority of the Board of Directors of the Company over a two-
year period from the directors who constituted the Board of Directors of the
Company at the beginning of such period, and such replacement shall not have
been approved by a vote of at least a majority of the Board of Directors of the
Company then still in office who either were members of such Board of Directors
at the beginning of such period or whose election as a member of such Board of
Directors was previously so approved.
"Change of Control Offer" shall have the meaning provided in Section
-----------------------
5.15(a).
"Change of Control Payment Date" shall have the meaning provided in Section
------------------------------
5.15(b).
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" of any Person means any and all shares, interests or other
------------
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means Rental Service Corporation, a Delaware corporation, until a
-------
successor replaces it pursuant to this Indenture and thereafter means such
successor.
"Consolidated EBITDA" means, with respect to any Person, for any period,
-------------------
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
such Person and its Restricted Subsidiaries paid or accrued in accordance with
GAAP for such period (other than income taxes attributable to extraordinary,
unusual or nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business), (B) Consolidated Interest
Expense and (C) Consolidated Non-cash Charges less any non-cash items increasing
----
Consolidated Net Income for such period, all as determined on a consolidated
basis for such Person and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
----------------------------------------
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters for which internal financials are available (the "Four Quarter
------------
Period") ending on or prior to the date of the transaction giving rise to the
- ------
need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction
-----------
Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period.
- ----
In addition to and without limitation of the foregoing, for purposes of this
<PAGE>
5
definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
--- -----
calculation to (i) the incurrence or repayment of any Indebtedness of such
Person or any of its Restricted Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes, occurring during the
Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such incurrence or
repayment, as the case may be (and the application of the proceeds thereof),
occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or
Asset Acquisitions (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of such Person or one of
its Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost reductions as
determined in accordance with Regulation S-X under the Exchange Act)
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the Four Quarter Period) occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period and
on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Four Quarter Period. If such
Person or any of its Restricted Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or any Restricted
Subsidiary of such Person had directly incurred or otherwise assumed such
guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed
Charges" for purposes of determining the denominator (but not the numerator) of
this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
--------------------------
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.
<PAGE>
6
"Consolidated Interest Expense" means, with respect to any Person for any
-----------------------------
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-off
of deferred financing costs (but excluding any write-offs of deferred financing
fees in connection with any refinancing or retirement of the Bank Facility
undertaken in conjunction with the offering of the Securities on the Issue
Date), (b) the net costs under Interest Swap Obligations, (c) all capitalized
interest and (d) the interest portion of any deferred payment obligation; and
(ii) the interest component of Capitalized Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by such Person and its Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
-----------------------
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, that there shall be excluded therefrom (a) after-tax gains
--------
from Asset Sales or abandonments or reserves relating thereto, (b) after-tax
items classified as extraordinary or nonrecurring gains, (c) the net income of
any Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Restricted Subsidiary of the
referent Person, (d) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise, (e) the net income of any Person,
other than a Restricted Subsidiary of the referent Person, except to the extent
of cash dividends or distributions paid to the referent Person or to a Wholly
Owned Restricted Subsidiary of the referent Person by such Person, (f) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of Consolidated Net Income accrued at
any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
----------------------
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
-----------------------------
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
<PAGE>
7
"Currency Swap Obligations" means any foreign exchange contract, currency
-------------------------
swap agreement or other similar agreement or arrangement designed to protect the
Company or any of its Restricted Subsidiaries against fluctuations in currency
values.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
---------
or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or with
-------
the lapse of time or the giving of notice or both would be, an Event of Default.
"Depository" shall mean The Depository Trust Company, New York, New York,
----------
or a successor thereto registered under the Exchange Act or other applicable
statute or regulation.
"Designated Senior Indebtedness" means (i) Indebtedness under or in respect
------------------------------
of the Bank Facility and (ii) any other Indebtedness constituting Senior
Indebtedness or Guarantor Senior Indebtedness which, at the time of
determination, has an aggregate principal amount of at least $25.0 million and
is specifically designated in the instrument evidencing such Senior Indebtedness
as "Designated Senior Indebtedness" by the Company.
"Designation" has the meaning set forth under Section 5.18.
-----------
"Designation Amount" has the meaning set forth under Section 5.18.
------------------
"Disqualified Capital Stock" means that portion of any Capital Stock which,
--------------------------
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Securities.
"Equity Offering" means a public or private issuance of Qualified Capital
---------------
Stock of the Company for cash.
"Event of Default" shall have the meaning provided in Section 7.1.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
------------
any successor statute or statutes thereto.
"Exchange Notes" means the 9% Senior Subordinated Notes due 2008, Series B,
--------------
to be issued in exchange for the Initial Securities pursuant to the Registration
Rights Agreement or, with respect to the Initial Securities issued under this
Indenture subsequent to the Issue Date pursuant to Section 2.2, a registration
rights agreement substantially identical to the Registration Rights Agreement.
"Exchange Offer" has the meaning provided in the Registration Rights
--------------
Agreement.
<PAGE>
8
"fair market value" means, with respect to any asset or property, the price
-----------------
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting in good
faith and shall be evidenced by a Board Resolution of the Board of Directors of
the Company delivered to the Trustee.
"Foreign Subsidiary" means any Restricted Subsidiary that is not organized
------------------
under the laws of the United States of America or any state thereof or the
District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Global Security" shall mean a Security which is executed by the Company
---------------
and authenticated and delivered by the Trustee to the Depository or pursuant to
the Depository's instruction, all in accordance with this Indenture and pursuant
to a written order, which shall be registered in the name of the Depository or
its nominee and which, together with any other Global Security representing
Securities hereunder, shall represent, and shall be denominated in an amount
equal to the aggregate principal amount of, all of the outstanding Securities.
"Guarantee" means the guarantee of each Subsidiary Guarantor set forth in
---------
Article Eleven and any additional guarantee of the Securities executed by any
Restricted Subsidiary of the Company.
"Guarantee Obligations" shall have the meaning provided in Section 12.1.
---------------------
"Guarantor Payment Blockage Period" shall have the meaning provided in
---------------------------------
Section 12.2(b).
"Guarantor Senior Indebtedness" means with respect to any Subsidiary
-----------------------------
Guarantor, (i) the principal of, premium, if any, and interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of a
Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Guarantee of such Subsidiary Guarantor.
Without limiting the generality of the foregoing, "Guarantor Senior
Indebtedness" shall also include the principal of, premium, if any, interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all other amounts owing in respect of, (x)
<PAGE>
9
all monetary obligations of every nature of the Company under the Bank Facility,
including, without limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations and (z) all Currency Swap
Obligations, in each case whether outstanding on the Issue Date or thereafter
incurred. Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall
not include (i) any Indebtedness of such Subsidiary Guarantor to a Restricted
Subsidiary of such Subsidiary Guarantor, (ii) Indebtedness to, or guaranteed on
behalf of, any shareholder, director, officer or employee of such Subsidiary
Guarantor or any Restricted Subsidiary of such Subsidiary Guarantor (including,
without limitation, amounts owed for compensation), (iii) Indebtedness to trade
creditors and other amounts incurred in connection with obtaining goods,
materials or services, (iv) Indebtedness represented by Disqualified Capital
Stock, (v) any liability for federal, state, local or other taxes owed or owing
by such Subsidiary Guarantor, (vi) Indebtedness incurred in violation of Section
5.12, (vii) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of such
Subsidiary Guarantor. Notwithstanding anything to the contrary contained herein,
no Indebtedness incurred at any time under the Bank Facility (as such facility
is in existence on the Issue Date) shall be considered subordinate in right of
payment to any other Indebtedness incurred under the Bank Facility (as such
facility is in existence on the Issue Date).
"Holder" means the Person in whose name a Security is registered on the
------
Registrar's books.
"IAI Global Security" means, a permanent global security in registered form
-------------------
representing the aggregate principal amount of the Securities sold to
Institutional Accredited Investors.
"Indebtedness" means with respect to any Person, without duplication, (i)
------------
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business and payable in accordance with
customary terms or that are not overdue by 90 days or more or are being
contested in good faith), (v) all Obligations for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or asset
of such Person, the amount of such Obligation being deemed to be the lesser of
the fair market value of such property or asset or the amount of the Obligation
so secured, (viii) all Obligations under currency agreements and interest swap
agreements of such Person, and (ix) all Disqualified Capital Stock issued by
such Person with the amount of Indebtedness represented by such Disqualified
Capital Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but excluding
<PAGE>
10
accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase
price" of any Disqualified Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Disqualified
Capital Stock as if such Disqualified Capital Stock were purchased on any date
on which Indebtedness shall be required to be determined pursuant to this
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the issuer
of such Disqualified Capital Stock.
"Indenture" means this Indenture, as amended or supplemented from time to
---------
time in accordance with the terms hereof.
"Independent Financial Advisor" means a firm (i) which does not, and whose
-----------------------------
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company (other than an interest in less than
1% of the Company's Common Stock or any other publicly traded securities of the
Company) and (ii) which, in the judgment of the Board of Directors of the
Company, is otherwise independent and qualified to perform the task for which it
is to be engaged.
"Initial Purchasers" means, collectively, BT Alex. Brown Incorporated,
------------------
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.
Incorporated and William Blair & Company.
"Initial Securities" means, collectively, (i) the % Senior Subordinated
------------------
Notes due 2008 of the Company issued on the Issue Date and (ii) one or more
series of additional % Senior Subordinated Notes due 2008 that are issued
under this Indenture subsequent to the Issue Date pursuant to Section 2.2, in
each case for so long as such securities constitute Restricted Securities.
"Institutional Accredited Investor" means an institution that is an
---------------------------------
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means the stated maturity of an installment of
---------------------
interest on the Securities.
"Interest Swap Obligations" means the obligations of any Person pursuant to
-------------------------
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
----------
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any
<PAGE>
11
Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by, any Person. "Investment" shall exclude extensions of
trade credit by the Company and its Restricted Subsidiaries on commercially
reasonable terms in accordance with normal trade practices of the Company or
such Restricted Subsidiary, as the case may be. For the purposes of Section 5.3,
(i) "Investment" shall include a portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of any
Restricted Subsidiary at the time that such Restricted Subsidiary is designated
an Unrestricted Subsidiary and shall exclude a portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investment by the Company or any of its Restricted Subsidiaries,
without any adjustments for increases or decreases in value, or write-ups,
write-downs, or write-offs with respect to such Investment, reduced by the
payment of dividends or distributions in connection with such Investment or any
other amounts received in respect of such Investment; provided that no such
--------
payment of dividends or distributions or receipt of any such other amounts shall
reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in Consolidated
Net Income. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, at least 51% of
the outstanding Common Stock of such Restricted Subsidiary, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.
"Investment Grade Rating" means a rating of BBB- or higher by S&P and Baa3
-----------------------
or higher by Moody's or the equivalent of such rating by such rating agencies.
"Issue Date" means May 13, 1998, the date of original issuance of the
----------
Securities under this Indenture.
"Legal Holiday" shall have the meaning provided in Section 13.7.
-------------
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
----
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Maturity Date" means May 15, 2008.
-------------
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
-----------------
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
<PAGE>
12
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale and (d) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Net Proceeds Offer" shall have the meaning provided in Section 5.16(a).
------------------
"Net Proceeds Offer Amount" shall have the meaning provided in Section
-------------------------
5.16(a).
"Net Proceeds Offer Payment Date" shall have the meaning provided in
-------------------------------
Section 5.16(a).
"Net Proceeds Trigger Date" shall have the meaning provided in Section
-------------------------
5.16(a).
"Non-U.S. Person" means a person who is not a U.S. person, as defined in
---------------
Regulation S.
"Obligations" means all obligations for principal, premium, interest,
-----------
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Offering Memorandum" means the offering memorandum of the Company dated
-------------------
May 8, 1998 relating to the Securities.
"Officer" means, with respect to any Person, the Chief Executive Officer,
-------
the Chief Financial Officer, Treasurer or the Chief Accounting Officer of such
Person.
"Officers' Certificate" means a certificate signed in the name of and on
---------------------
behalf of the Company by the Chairman, a Vice Chairman, the President or a Vice
President, and by the Treasurer, an Assistant Treasurer, the Controller or an
Assistant Controller, the Secretary or an Assistant Secretary of the Company,
and delivered to the Trustee and otherwise complying with the requirements of
Section 13.5.
"operating lease" means any lease the obligations under which do not
---------------
constitute Capitalized Lease Obligations.
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
reasonably acceptable to the Trustee complying with the requirements of Section
13.5. Unless otherwise required by the Trustee, the legal counsel may be an
employee of or counsel to the Company or the Trustee.
<PAGE>
13
"Paying Agent" shall have the meaning provided in Section 2.3, except that
------------
for the purposes of Articles Three and Nine and Sections 5.15 and 5.16, the
Paying Agent shall not be the Company or an Affiliate of the Company.
"Permitted Indebtedness" means, without duplication, each of the following:
----------------------
(i) Indebtedness represented by the Securities in an aggregate
principal amount not to exceed $200.0 million, and the Guarantees thereof,
issued on the date hereof;
(ii) Indebtedness of the Company and the Subsidiary Guarantors
(A) incurred pursuant to the revolving credit provisions of the Bank
Facility or one or more other credit facilities in an aggregate principal
amount at any time outstanding not to exceed $500.0 million; provided that
--------
such amount shall be reduced by any amounts applied to the permanent
reduction of such Indebtedness pursuant to Section 5.16 and (B) incurred
pursuant to the term loan provisions of the Bank Facility or one or more
other credit facilities in an aggregate principal amount at any time
outstanding not to exceed $100.0 million, less any amounts applied to the
permanent reduction of such Indebtedness pursuant to Section 5.16 and less
the amount of any scheduled amortization payments or mandatory prepayments
when actually paid or permanent reductions thereof (excluding any such
payments to the extent refinanced at the time of payment under any
Refinancing of the Bank Facility);
(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date;
(iv) Interest Swap Obligations or Currency Swap Obligations of
the Company covering Indebtedness of the Company or any of the Subsidiary
Guarantors and Interest Swap Obligations or Currency Swap Obligations of
any Subsidiary Guarantor covering Indebtedness of such Subsidiary
Guarantor; provided, however, that (a) such Interest Swap Obligations are
-------- -------
entered into to protect the Company and the Subsidiary Guarantors from
fluctuations in interest rates on Indebtedness incurred in accordance with
this Indenture and (b) such Currency Swap Obligations are entered into to
protect the Company and the Subsidiary Guarantors from fluctuations in
currency values;
(v) Indebtedness of a Wholly Owned Restricted Subsidiary of
the Company to the Company or to a Wholly Owned Restricted Subsidiary of
the Company for so long as such Indebtedness is held by the Company or a
Wholly Owned Restricted Subsidiary of the Company, in each case subject to
no Lien held by a Person other than the Company or a Wholly Owned
Restricted Subsidiary of the Company, or other than a Lien on the related
intercompany note securing Indebtedness under the Bank Facility; provided
that if as of any date any Person other than the Company or a Wholly Owned
Restricted Subsidiary of the Company owns or holds any such Indebtedness or
holds a Lien in respect of such Indebtedness, other than a lien on the
related intercompany note securing Indebtedness under the Bank Facility,
such date shall be deemed the
<PAGE>
14
incurrence of Indebtedness not constituting Permitted Indebtedness by the
issuer of such Indebtedness;
(vi) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Restricted Subsidiary of the Company, in each case subject to
no Lien, other than a Lien on the related intercompany note securing
Indebtedness under the Bank Facility; provided that (a) any Indebtedness of
--------
the Company to any Wholly Owned Restricted Subsidiary of the Company is
unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under this Indenture and the Securities and (b) if as
of the date any Person other than a Wholly Owned Restricted Subsidiary of
the Company owns or holds any such Indebtedness or any Person holds a Lien
in respect of such Indebtedness, other than a lien on the related
intercompany note securing Indebtedness under the Bank Facility, such date
shall be deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the Company;
(vii) Indebtedness of the Company and the Subsidiary Guarantors
arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts) drawn against insufficient funds in the ordinary
course of business; provided, however, that such Indebtedness is
-------- -------
extinguished within two business days of incurrence;
(viii) Indebtedness of the Company and the Subsidiary Guarantors
represented by letters of credit for the account of the Company or such
Subsidiary Guarantors, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;
(ix) Indebtedness of the Company or a Subsidiary Guarantor in
connection with one or more standby letters of credit, guarantees,
performance bonds or other reimbursement obligations, in each case, issued
in the ordinary course of business and not in connection with the borrowing
of money;
(x) Indebtedness of the Company or a Subsidiary Guarantor
arising from agreements of the Company or a Subsidiary Guarantor providing
for indemnification, adjustment of purchase price or similar obligations,
in each case, incurred or assumed in connection with the acquisition or
disposition of any business, assets or a Subsidiary;
(xi) Indebtedness of the Company and the Subsidiary Guarantors
represented by Capitalized Lease Obligations and Purchase Money
Indebtedness incurred in the ordinary course of business in an amount not
to exceed $20.0 million at any one time outstanding;
(xii) Refinancing Indebtedness;
<PAGE>
15
(xiii) guarantees by the Company of Indebtedness of a Restricted
Subsidiary permitted to be incurred under this Indenture and guarantees by
a Subsidiary Guarantor of Indebtedness of the Company or any Restricted
Subsidiary permitted to be incurred under this Indenture;
(xiv) additional Indebtedness of the Company and any Subsidiary
Guarantor in an aggregate principal amount not to exceed $15.0 million at
any one time outstanding; and
(xv) Indebtedness of a Foreign Subsidiary other than a Foreign
Subsidiary which is a Subsidiary Guarantor which, when aggregated with the
principal amount of all other Indebtedness of such Foreign Subsidiary then
outstanding and incurred pursuant to this clause (xv), does not exceed the
amount of the Borrowing Base of such Foreign Subsidiary.
For purposes of determining whether any Indebtedness is Permitted
Indebtedness, (i) in the event that an item of Indebtedness meets the criteria
of more than one of the types of Indebtedness described above, the Company, in
its sole discretion, will classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of the above
clauses and (ii) an item of Indebtedness may be divided and classified in more
than one of the types of Indebtedness described above.
"Permitted Investments" means (i) Investments by the Company or any
---------------------
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company, (ii) Investments in the Company by any
Restricted Subsidiary of the Company; provided that any Indebtedness evidencing
--------
such Investment is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Securities and this Indenture; (iii)
investments in cash and Cash Equivalents; (iv) loans and advances to employees
and officers of the Company and its Restricted Subsidiaries in the ordinary
course of business for bona fide business purposes not in excess of $1,000,000
at any one time outstanding; (v) Interest Swap Obligations or Currency Swap
Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with this
Indenture; (vi) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (vii) promissory
notes or other securities accepted from trade creditors or customers in the
ordinary course of business; (viii) guarantees by the Company or any Subsidiary
Guarantor of Indebtedness otherwise permitted to be incurred under this
Indenture; (ix) Investments made by the Company or its Restricted Subsidiaries
as a result of consideration received in connection with an Asset Sale made in
compliance with Section 5.16; and (x) Investments in joint ventures and
Unrestricted Subsidiaries in an aggregate amount at any one time not to exceed
$15.0 million.
"Permitted Liens" means the following types of Liens:
---------------
<PAGE>
16
(i) Liens for taxes, assessments or governmental charges or
claims either (a) not delinquent or (b) contested in good faith by
appropriate proceedings and as to which the Company or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provisions, if any, as shall be required by GAAP shall have
been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business in connection therewith,
or to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so
long as such Lien is adequately bonded and any appropriate legal
proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within which
such proceedings may be initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other
similar charges or encumbrances in respect of real property not interfering
in any material respect with the ordinary conduct of the business of the
Company or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized
Lease Obligation; provided that such Liens do not extend to any property or
--------
assets which is not leased property subject to such Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary of the Company acquired in the
ordinary course of business; provided, however, that (A) the related
-------- -------
Purchase Money Indebtedness shall not exceed the cost of such property or
assets and shall not be secured by any property or assets of the Company or
any Restricted Subsidiary of the Company other than the property and assets
so acquired and proceeds thereof and (B) the Lien securing such
Indebtedness shall be created within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
<PAGE>
17
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual, or warranty requirements
of the Company or any of its Restricted Subsidiaries, including rights of
offset and set-off;
(xi) Liens securing Interest Swap Obligations or Currency Swap
Obligations which Interest Swap Obligations or Currency Swap Obligations,
as the case may be, relate to Indebtedness that is otherwise permitted
under this Indenture;
(xii) Liens securing Acquired Indebtedness incurred in
accordance with Section 5.12; provided that (A) such Liens secured such
--------
Acquired Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company and were not granted in connection with, or in anticipation of, the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of the Company and (B) such Liens do not extend to or cover any
property or assets of the Company or of any of its Restricted Subsidiaries
other than the property or assets that secured the Acquired Indebtedness
prior to the time such Indebtedness became Acquired Indebtedness of the
Company or a Restricted Subsidiary of the Company and are no more favorable
to the lienholders than those securing the Acquired Indebtedness prior to
the incurrence of such Acquired Indebtedness of the Company or a Restricted
Subsidiary of the Company; and
(xiii) Liens not permitted by clauses (i) through (xii) that are
incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do
not exceed $5,000,000 at any one time outstanding.
"Person" means an individual, partnership, corporation, unincorporated
------
organization, trust or joint venture or a governmental agency or political
subdivision thereof.
"Physical Securities" has the meaning provided in Section 2.1.
-------------------
"Preferred Stock" of any Person means any Capital Stock of such Person
---------------
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Principals" means each officer or employee of the Company and any
----------
spouse, sibling, child or grandchild of the foregoing (in each case, whether
such relationship arises from birth, adoption or through marriage).
"Private Exchange Notes" shall have the meaning provided in the
----------------------
Registration Rights Agreement.
<PAGE>
18
"Private Placement Legend" means the legend initially set forth on the
------------------------
Securities in the form set forth in Exhibit A.
---------
"Purchase Money Indebtedness" means Indebtedness of the Company and
---------------------------
its Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"Qualified Capital Stock" means any Capital Stock that is not
-----------------------
Disqualified Capital Stock.
"Qualified Equity Interest" means any Qualified Capital Stock and all
-------------------------
warrants, options or other rights to acquire Qualified Capital Stock (but
excluding any debt security or Disqualified Capital Stock that is convertible
into or exchangeable for Qualified Capital Stock).
"Qualified Institutional Buyer" or "QIB" shall have the meaning
----------------------------- ---
specified in Rule 144A.
"Record Date" means the record dates specified in the Securities;
-----------
provided, however, that if any such date is a Legal Holiday, the Record Date
- -------- -------
shall be the first day immediately preceding such specified day that is not a
Legal Holiday.
"Redemption Date," when used with respect to any Security to be
---------------
redeemed, means the date fixed for such redemption pursuant to this Indenture
and Paragraph 5 of the Securities.
"Redemption Price," when used with respect to any Security to be
----------------
redeemed, means the price fixed for such redemption pursuant to this Indenture
and Paragraph 5 of the Securities.
"Refinance" means, in respect of any security or Indebtedness, to
---------
refinance, extend, renew, refund, repay, pre-pay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
---------- -----------
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
------------------------
Subsidiary Guarantor of Indebtedness incurred in accordance with Section 5.12
(other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), or (ix) of
the definition of Permitted Indebtedness), in each case that does not (1) result
in an increase in the aggregate principal amount of Indebtedness of such Person
as of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Company
in connection with such Refinancing) or (2) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; provided that (x)
--------
if such Indebtedness being Refinanced is Indebtedness of
<PAGE>
19
the Company or a Subsidiary Guarantor, then such Refinancing Indebtedness shall
be Indebtedness solely of the Company or a Subsidiary Guarantor and (y) if such
Indebtedness being Refinanced is subordinate or junior to the Securities, then
such Refinancing Indebtedness shall be subordinate to the Securities at least to
the same extent and in the same manner as the Indebtedness being Refinanced.
"Registrar" shall have the meaning provided in Section 2.3.
---------
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement dated as of the Issue Date among the Company, the Subsidiary
Guarantors and the Initial Purchasers.
"Regulation S" means Regulation S under the Securities Act.
------------
"Regulation S Global Security" means a permanent global security in
----------------------------
registered form representing the aggregate principal amount of Securities sold
in reliance on Regulation S under the Securities Act.
"Related Party" with respect to any Principal means (A) any
-------------
controlling stockholder or 80% (or more) owned Subsidiary of such Principal or
(B) trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (A).
"Replacement Assets" shall have the meaning provided in Section
------------------
5.16(a).
"Representative" means the indenture trustee or other trustee, agent
--------------
or representative in respect of any Designated Senior Indebtedness; provided,
--------
that if, and for so long as, any Designated Senior Indebtedness lacks such a
representative, then the Representative for such Designated Senior Indebtedness
shall at all times constitute the holders of a majority in outstanding principal
amount of such Designated Senior Indebtedness in respect of any Designated
Senior Indebtedness.
"Restricted Security" has the meaning assigned to such term in Rule
-------------------
144(a)(3) under the Securities Act; provided, however, that the Trustee shall be
-------- -------
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether any Security constitutes a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company that has
---------------------
not been designated by the Board of Directors of the Company, by a Board
Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to
and in compliance with Section 5.18. Any such Designation may be revoked by a
Board Resolution of the Company delivered to the Trustee subject to the
provisions of such Section 5.18.
"Revocation" has the meaning set forth under Section 5.18.
----------
"Rule 144A" means Rule 144A under the Securities Act.
---------
<PAGE>
20
"Sale and Leaseback Transaction" means any direct or indirect
------------------------------
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"Securities" means, collectively, (i) the Initial Securities, (ii) the
----------
Private Exchange Notes, if any, and (iii) the Unrestricted Securities, treated
as a single class of securities, as amended or supplemented from time to time in
accordance with the terms hereof, that are issued pursuant to this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Senior Indebtedness" means the principal of, premium, if any, and
-------------------
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Securities. Without limiting the
generality of the foregoing, "Senior Indebtedness" shall also include the
principal of, premium, if any, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other amounts owing in respect
of, (x) all monetary obligations of every nature of the Company under the Bank
Facility, including, without limitation, obligations to pay principal and
interest, reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations and (z) all Currency Swap
Obligations, in each case whether outstanding on the Issue Date or thereafter
incurred. Notwithstanding the foregoing, "Senior Indebtedness" shall not include
(i) any Indebtedness of the Company to a Restricted Subsidiary of the Company,
(ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director,
officer or employee of the Company or any Restricted Subsidiary of the Company
(including, without limitation, amounts owed for compensation), (iii)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, (iv) Indebtedness represented by
Disqualified Capital Stock, (v) any liability for federal, state, local or other
taxes owed or owing by the Company, (vi) Indebtedness incurred in violation of
Section 5.12, (vii) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of the
Company. Notwithstanding anything to the contrary contained herein, no
Indebtedness incurred at any time under the Bank Facility (as such facility is
in existence on the Issue Date) shall be considered subordinate in right of
payment to any other Indebtedness incurred under the Bank Facility (as such
facility is in existence on the Issue Date).
<PAGE>
21
"Significant Subsidiary," with respect to any Person, means any
-----------------------
Restricted Subsidiary of such Person that satisfies the criteria for a
"significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the
Exchange Act.
"Subsidiary" with respect to any Person, means (i) any corporation of
----------
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantor" means (i) each of the Company's Restricted
--------------------
Subsidiaries existing on the Issue Date and (ii) each of the Company's
Restricted Subsidiaries (other than any Foreign Subsidiary, unless the Company
elects to have a Foreign Subsidiary execute a Guarantee) that executes a
supplemental indenture pursuant to Section 5.20.
"Surviving Entity" shall have the meaning provided in Section
----------------
6.1(a)(i).
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
---
77aaa-77bbbb), as amended, as in effect on the date this Indenture is qualified
under the TIA, except as otherwise provided in Section 10.3.
"Trust Officer" means any officer of the Trustee assigned by the
-------------
Trustee to administer its corporate trust matters.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Unrestricted Security(ies)" means one or more Securities that do not
--------------------------
and are not required to bear the Private Placement Legend in the form set forth
in Exhibit A, including, without limitation, the Exchange Notes (as defined in
---------
the Registration Rights Agreement).
"Unrestricted Subsidiary" means any Subsidiary of the Company
-----------------------
designated as such pursuant to and in compliance with Section 5.18 Any such
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such Section 5.18.
"U.S. Government Obligations" means direct non-callable obligations
---------------------------
of, or non-callable obligations guaranteed by, the United States of America for
the payment of which guarantee or obligation the full faith and credit of the
United States is pledged.
"U.S. Legal Tender" means such coin or currency of the United States
-----------------
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
<PAGE>
22
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any
----------------------------------
Restricted Subsidiary of such Person of which all the outstanding voting
securities (other than in the case of a Foreign Subsidiary, directors'
qualifying shares or an immaterial amount of shares required to be owned by
other Persons pursuant to applicable law) are owned by such Person or any Wholly
Owned Restricted Subsidiary of such Person.
Section 1.2. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities.
--------------------
"indenture security holder" means a Holder.
-------------------------
"indenture to be qualified" means this Indenture.
-------------------------
"indenture trustee" or "institutional trustee" means the Trustee.
----------------- ---------------------
"obligor" on the indenture securities means the Company, any
-------
Subsidiary Guarantor or any other obligor on the Securities or the Guarantees.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings assigned to them therein.
Section 1.3. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
<PAGE>
23
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision.
ARTICLE II.
THE SECURITIES
Section 2.1. Form and Dating.
The Securities and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A. The Securities may have
---------
notations, legends or endorsements required by law, stock exchange rule or
usage. The Company and the Trustee shall approve the form of the Securities and
any notation, legend or endorsement on them. Each Security shall be dated the
date of its authentication.
The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
Securities offered and sold in reliance on Rule 144A, Securities
transferred after the initial resale thereof to institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act) and Securities offered and sold in reliance on Regulation S shall be issued
initially in the form of one or more permanent Global Securities in registered
form, substantially in the form set forth in Exhibit A, deposited with the
---------
Trustee, as custodian for the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided and shall bear the legend
set forth in Exhibit B. The aggregate principal amount of the Global Securities
---------
may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depository, as hereinafter
provided.
Securities issued in exchange for interests in a Global Security
pursuant to Section 2.16 may be issued and Securities offered and sold in
reliance on any other exemption from registration under the Securities Act other
than as described in the preceding paragraph shall be issued in the form of
permanent certificated Securities in registered form in substantially the form
set forth in Exhibit A (the "Physical Securities").
--------- -------------------
All Securities offered and sold in reliance on Regulation S shall
remain in the form of a Global Security until the consummation of the Exchange
Offer pursuant to the Registration Rights Agreement; provided, however, that all
-------- -------
of the time periods specified in the
<PAGE>
24
Registration Rights Agreement to be complied with by the Company and the
Subsidiary Guarantors have been so complied with.
Section 2.2. Execution and Authentication.
One Officer of the Company, whom shall have been duly authorized
by all requisite corporate actions, shall sign the Securities for the Company by
manual or facsimile signature.
If an Officer whose signature is on a Security was an Officer at
the time of such execution but no longer holds that office or position at the
time the Trustee authenticates the Security, the Security shall be valid
nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate (i) the Initial Securities for
original issue in the aggregate principal amount not to exceed $300.0 million,
including $200.0 million in aggregate principal amount of Securities being
issued on the Issue Date, (ii) the Private Exchange Notes from time to time for
issue only in exchange for a like principal amount of the Initial Securities and
(iii) Unrestricted Securities from time to time only (A) in exchange for a like
principal amount of the Initial Securities or (B) in an aggregate principal
amount of not more than the excess of $300.0 million over the sum of the
aggregate principal amount of (x) the Initial Securities than outstanding, (y)
the Private Exchange Notes then outstanding and (z) the Unrestricted Securities
issued in accordance with (iii)(A) above, in each case upon a written order of
the Company in the form of an Officers' Certificate. The Officers' Certificate
shall specify the amount of Securities to be authenticated and the date on which
the Securities are to be authenticated, whether the Securities are to be the
Initial Securities, Private Exchange Notes or Unrestricted Securities and
whether the Securities are to be issued as Physical Securities or Global
Securities or such other information as the Trustee may reasonably request. The
aggregate principal amount of Securities outstanding at any time may not exceed
$300.0 million (or such lesser amount as is requested authenticated by the
Trustee and issued by the Company on the Issue Date), except as provided in
Section 2.7. Such Securities shall be in the form of one or more Global
Securities, which (i) shall represent, and shall be denominated in an amount
equal to the aggregate principal amount of, the outstanding Securities, (ii)
shall be registered in the name of the Depository for such Global Security or
Securities or its nominee, (iii) shall be delivered by the Trustee to the
Depository or pursuant to the Depository's instruction and (iv) shall bear a
legend substantially to the following effect:
"Unless and until this Global Security is exchanged in whole or in
part for the individual Securities represented hereby, this Global
Security may not be transferred except as a whole by the Depository to
a nominee of the Depository or by a nominee of the Depository to the
Depository or by a Depository or any such nominee to a successor
Depository or a nominee of a successor Depository."
<PAGE>
25
In the event that the Company shall issue and the Trustee shall
authenticate any Securities issued under this Indenture subsequent to the Issue
Date pursuant to clauses (i) and (iii) of the first sentence of the immediately
preceding paragraph, the Company shall use its reasonable efforts to obtain the
same "CUSIP" number for such Securities as is printed on the Securities
outstanding at such time; provided, however, that if any series of Securities
-------- -------
issued under this Indenture subsequent to the Issue Date is determined, pursuant
to an Opinion of Counsel of the Company in a form reasonably satisfactory to the
Trustee to be a different class of security than the Securities outstanding at
such time for federal income tax purposes, the Company may obtain a "CUSIP"
number for such Securities that is different than the "CUSIP" number printed on
the Securities then outstanding. Notwithstanding the foregoing, all Securities
issued under this Indenture shall vote and consent together on all matters as
one class and no series of Securities will have the right to vote or consent as
a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise provided
in the appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and integral multiples thereof.
Section 2.3. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
---------
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
------------
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The office or agency in respect of clauses (a) and (b)
shall be the Trustee, c/o The Depository Trust Company, 55 Water Street, New
York, New York 10041, Attn: Corporate Trust Services), and the office or agency
in respect of clause (c) shall be the Trustee, c/o The Depository Trust Company,
55 Water Street, New York, New York 10041, Attn: Corporate Trust
Administration), unless in either case the Company shall designate and maintain
some other office or agency for one or more of such purposes. The Company may
also from time to time designate one or more other offices or agencies where the
Securities may be presented or surrendered for any or all such purposes and may
from time to time rescind such designations; provided, however, that no such
-------- -------
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The City
of New York, for such purposes. The Company may act as its own Registrar or
Paying Agent except that for the purposes of Articles Three and Nine and
Sections 5.15 and 5.16, neither the Company nor any Affiliate of the Company
shall act as Paying Agent. The Registrar shall keep a register of the
Securities and of their transfer and exchange. The Company, upon notice to the
Trustee, may have one or more co-Registrars and one or more additional paying
agents reasonably acceptable to the
<PAGE>
26
Trustee. The term "Paying Agent" includes any additional paying agent. The
Company initially appoints the Trustee as Registrar and Paying Agent until such
time as the Trustee has resigned or a successor has been appointed.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee, in advance, of the name and address of any such Agent. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such.
Section 2.4. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that, subject to Article Four and Article Twelve, each
Paying Agent shall hold in trust for the benefit of Holders or the Trustee all
assets held by the Paying Agent for the payment of principal of, or interest on,
the Securities (whether such assets have been distributed to it by the Company
or any other obligor on the Securities), and shall notify the Trustee of any
Default by the Company (or any other obligor on the Securities) in making any
such payment. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate such assets and hold them as a separate trust fund, subject to Article
Four and Article Twelve. The Company at any time may require a Paying Agent to
distribute all assets held by it to the Trustee and account for any assets
disbursed and the Trustee may at any time during the continuance of any payment
Default, upon written request to a Paying Agent, require such Paying Agent to
distribute all assets held by it to the Trustee and to account for any assets
distributed. Upon distribution to the Trustee of all assets that shall have been
delivered by the Company to the Paying Agent, the Paying Agent shall have no
further liability for such assets.
Section 2.5. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee on or before each Interest Payment Date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, which list
may be conclusively relied upon by the Trustee.
Section 2.6. Transfer and Exchange.
(a) Subject to Sections 2.16 and 2.17, when Securities are
presented to the Registrar or a co-Registrar with a request to register the
transfer of such Securities or to exchange such Securities for an equal
principal amount of Securities of other authorized denominations, the Registrar
or co-Registrar shall register the transfer or make the exchange as requested if
its requirements for such transaction are met; provided, however, that the
-------- -------
Securities surrendered for transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar or co-Registrar, duly executed by the Holder thereof
or his or her attorney duly authorized in writing.
<PAGE>
27
To permit registrations of transfers and exchanges, the Company shall execute
and the Trustee shall authenticate Securities at the Registrar's or co-
Registrar's request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar governmental charge
payable upon exchanges or transfers pursuant to Sections 2.2, 2.7, 2.10, 3.7,
5.15, 5.16 or 10.5). The Registrar or co-Registrar shall not be required to
register the transfer of or exchange of any Security (i) during a period
beginning at the opening of business 15 days before the mailing of a notice of
redemption of Securities and ending at the close of business on the day of such
mailing and (ii) selected for redemption in whole or in part pursuant to Article
Three, except the unredeemed portion of any Security being redeemed in part. A
Global Security may be transferred, in whole but not in part, in the manner
provided in this Section 2.6(a), only to a nominee of the Depository for such
Global Security, or to the Depository, or a successor Depository for such Global
Security selected or approved by the Company, or to a nominee of such successor
Depository.
(b) If at any time the Depository for the Global Security or
Securities notifies the Company that it is unwilling or unable to continue as
Depository for such Global Security or Securities or the Company becomes aware
that the Depository has ceased to be a clearing agency registered under the
Exchange Act, the Company shall appoint a successor Depository with respect to
such Global Security or Securities. If a successor Depository for such Global
Security or Securities has not been appointed within 90 days after the Company
receives such notice or becomes aware of such ineligibility, the Company shall
execute, and the Trustee, upon receipt of an Officers' Certificate for the
authentication and delivery of Securities, shall authenticate and deliver,
Securities in definitive form, in an aggregate principal amount at maturity
equal to the principal amount at maturity of the Global Security representing
such Securities, in exchange for such Global Security. The Company shall
reimburse the Registrar, the Depository and the Trustee for expenses they incur
in documenting such exchanges and issuances of Securities in definitive form.
The Company may at any time and in its sole discretion determine that
the Securities shall no longer be represented by such Global Security or
Securities. In such event the Company will execute, and the Trustee, upon
receipt of a written order for the authentication and delivery of individual
Securities in exchange in whole or in part for such Global Security or
Securities, will authenticate and deliver individual Securities in definitive
form in an aggregate principal amount equal to the principal amount of such
Global Security or Securities in exchange for such Global Security or
Securities.
In any exchange provided for in any of the preceding two paragraphs,
the Company will execute and the Trustee will authenticate and deliver
individual Securities in definitive registered form in authorized denominations.
Upon the exchange of a Global Security for individual Securities, such Global
Security shall be canceled by the Trustee. Securities issued in exchange for a
Global Security pursuant to this Section 2.6(b) shall be registered in such
names and in such authorized denominations as the Depository for such Global
Security, pursuant to instructions from its direct or indirect participants or
otherwise,
<PAGE>
28
shall instruct the Trustee. The Trustee shall deliver such Securities to the
persons in whose names such Securities are so registered.
None of the Company, the Trustee, any Paying Agent or the
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Section 2.7. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements are met. If required by the
Trustee or the Company, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Security is replaced. The Company may charge such Holder for its
reasonable out-of-pocket expenses in replacing a Security pursuant to this
Section 2.7, including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the
Company.
Section 2.8. Outstanding Securities.
Securities outstanding at any time are all the Securities that
have been authenticated by the Trustee except those canceled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding. A Security does not cease to be outstanding because the Company or
any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.7 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section 2.7.
If on a Redemption Date or the Maturity Date the Paying Agent
(other than the Company or a Subsidiary) holds U.S. Legal Tender or U.S.
Government Obligations sufficient to pay all of the principal and interest due
on the Securities payable on that date, then on and after that date such
Securities cease to be outstanding and interest on them ceases to accrue unless,
pursuant to the provisions of Article Four and Article Twelve, the Paying Agent
is unable to make payments on the Securities to the Holders thereof.
Section 2.9. Treasury Securities.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the
<PAGE>
29
Company or any of its Affiliates shall be disregarded, except that, for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Securities that the Trustee knows or has
reason to know are so owned shall be disregarded.
Section 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities. Until
such exchange, temporary Securities shall be entitled to the same rights,
benefits and privileges as definitive Securities. Notwithstanding the foregoing,
so long as the Securities are represented by a Global Security, such Global
Security may be in typewritten form.
Section 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than the Company or a Subsidiary), and no one else, shall cancel and, at
the written direction of the Company, shall dispose of all Securities
surrendered for transfer, exchange, payment or cancellation. Subject to Section
2.7, the Company may not issue new Securities to replace Securities that it has
paid or delivered to the Trustee for cancellation. If the Company shall acquire
any of the Securities, such acquisition shall not operate as a redemption or
satisfaction of the Indebtedness represented by such Securities unless and until
the same are surrendered to the Trustee for cancellation pursuant to this
Section 2.11.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the
Securities, it shall, unless the Trustee fixes another record date pursuant to
Section 7.10, pay the defaulted interest, plus (to the extent lawful) any
interest payable on the defaulted interest, to the persons who are Holders on a
subsequent special record date, which date shall be the fifteenth day next
preceding the date fixed by the Company for the payment of defaulted interest or
the next succeeding Business Day if such date is not a Business Day. At least 15
days before the subsequent special record date, the Company shall mail to each
Holder, with a copy to the Trustee, a notice that states the subsequent special
record date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid.
Section 2.13. CUSIP Number.
The Company in issuing the Securities may use a "CUSIP" number,
and if so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience
<PAGE>
30
to Holders; provided, however, that any such notice may state that no
-------- -------
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities, and that reliance may be placed only
on the other identification numbers printed on the Securities.
Section 2.14. Deposit of Monies.
Prior to 11:00 a.m. New York City time on each Interest Payment
Date, Maturity Date, Redemption Date, Change of Control Payment Date and Net
Proceeds Offer Payment Date, the Company shall have deposited with the Paying
Agent in immediately available funds money sufficient to make cash payments, if
any, due on such Interest Payment Date, Maturity Date, Redemption Date, Change
of Control Payment Date and Net Proceeds Offer Payment Date, as the case may be,
in a timely manner which permits the Paying Agent to remit payment to the
Holders on such Interest Payment Date, Maturity Date, Redemption Date, Change of
Control Payment Date and Net Proceeds Offer Payment Date, as the case may be.
Section 2.15. Restrictive Legends.
Each Global Security and Physical Security that constitutes a
Restricted Security shall bear the legend (the "Private Placement Legend") as
------------------------
set forth in Exhibit A until after the second anniversary of the later of the
---------
Issue Date and the last date on which the Company or any Affiliate of the
Company was the owner of such Security (or any predecessor security) (or such
shorter period of time as permitted by Rule 144(k) under the Securities Act or
any successor provision thereunder) (or such longer period of time as may be
required under the Securities Act or applicable state securities laws in the
opinion of counsel for the Company, unless otherwise agreed by the Company and
the Holder thereof).
Each Global Security shall also bear the legend as set forth in
Exhibit B.
- ---------
Section 2.16. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in
the name of the Depository or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear the legend as set
forth in Exhibit B.
---------
Members of, or participants in, the Depository ("Agent Members")
-------------
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depository, or the Trustee as its custodian, or
under the Global Securities, and the Depository may be treated by the Company,
the Trustee and any Agent of the Company or the Trustee as the absolute owner of
such Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any Agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Security.
(b) Transfers of a Global Security shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of
<PAGE>
31
beneficial owners in a Global Security may be transferred or exchanged for
Physical Securities in accordance with the rules and procedures of the
Depository and the provisions of Section 2.17. In addition, Physical Securities
shall be transferred to all beneficial owners in exchange for their beneficial
interests in a Global Security if (i) the Depository notifies the Company that
it is unwilling or unable to continue as the Depository for the Global
Securities and a successor depository is not appointed by the Company within 90
days of such notice or (ii) an Event of Default has occurred and is continuing
and the Registrar has received a written request from the Depository to issue
Physical Securities.
(c) In connection with any transfer or exchange of a portion of
the beneficial interest in a Global Security to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Securities are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of such Global Security in an amount equal to the principal
amount of the beneficial interest in the Global Security to be transferred, and
the Company shall execute and the Trustee shall authenticate and deliver, one or
more Physical Securities of like tenor and amount.
(d) In connection with the transfer of an entire Global Security
to beneficial owners pursuant to paragraph (b) of this Section 2.16, such Global
Security shall be deemed to be surrendered to the Trustee for cancellation, and
the Company shall execute and the Trustee shall authenticate and deliver, to
each beneficial owner identified by the Depository in exchange for its
beneficial interest in the Global Security, an equal aggregate principal amount
of Physical Securities of authorized denominations.
(e) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(b) or (c) of this Section 2.16 shall, except as otherwise provided by
paragraphs (a)(i)(x) and (c) of Section 2.17, bear the Private Placement Legend.
(f) The Holder of a Global Security may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
Section 2.17. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors and
-----------------------------------------------------------
Non-U.S. Persons. The following provisions shall apply with respect to the
- ----------------
registration of any proposed transfer of a Security constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Security
constituting a Restricted Security, whether or not such Security bears the
Private Placement Legend, if (x) the requested transfer is after the second
anniversary of the Issue Date (provided, however, that neither the Company
-------- -------
nor any Affiliate of the Company has held any beneficial interest in such
Security, or portion thereof, at any time on or prior to the second
anniversary of the Issue Date) or (y) (1) in the case of a transfer to an
<PAGE>
32
Institutional Accredited Investor which is not a QIB (excluding Non-U.S.
Persons), the proposed transferee has delivered to the Registrar a
certificate substantially in the form of Exhibit C hereto or (2) in the
---------
case of a transfer to a Non-U.S. Person, the proposed transferor has
delivered to the Registrar a certificate substantially in the form of
Exhibit D hereto;
---------
(ii) if the proposed transferee is an Agent Member and the
Securities to be transferred consist of Physical Securities which after
transfer are to be evidenced by an interest in the IAI Global Security or
Regulation S Global Security, as the case may be, upon receipt by the
Registrar of (x) written instructions given in accordance with the
Depository's and the Registrar's procedures and (y) the appropriate
certificate, if any, required by clause (y) of paragraph (i) above, the
Registrar shall register the transfer and reflect on its books and records
the date and an increase in the principal amount of the IAI Global Security
or Regulation S Global Security, as the case may be, in an amount equal to
the principal amount of Physical Securities to be transferred, and the
Trustee shall cancel the Physical Securities so transferred; and
(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Security, upon receipt by the Registrar of
(x) written instructions given in accordance with the Depository's and the
Registrar's procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, the Registrar shall register
the transfer and reflect on its books and records the date and (A) a
decrease in the principal amount of the Global Security from which such
interests are to be transferred in an amount equal to the principal amount
of the Securities to be transferred and (B) an increase in the principal
amount of the IAI Global Security or the Regulation S Global Security, as
the case may be, in an amount equal to the principal amount of the
Securities to be transferred.
(b) Transfers to QIBs. The following provisions shall apply with
-----------------
respect to the registration of any proposed transfer of a Security constituting
a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer of any Restricted
Security if such transfer is being made by a proposed transferor who has
checked the box provided for on the form of the Security stating, or has
otherwise advised the Company and the Registrar in writing, that the sale
has been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form of the
Security stating, or has otherwise advised the Company and the Registrar in
writing, that it is purchasing the Security for its own account or an
account with respect to which it exercises sole investment discretion and
that it and any such account is a QIB within the meaning of Rule 144A, and
is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as
it has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A;
<PAGE>
33
(ii) if the proposed transferee is an Agent Member, and the
Securities to be transferred consist of Physical Securities which after
transfer are to be evidenced by an interest in a Global Security, upon
receipt by the Registrar of written instructions given in accordance with
the Depository's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the principal
amount of such Global Security in an amount equal to the principal amount
of the Physical Securities to be transferred, and the Trustee shall cancel
the Physical Securities so transferred; and
(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in the IAI Global Security or the Regulation S Global
Security, upon receipt by the Registrar of written instructions given in
accordance with the Depository's and the Registrar's procedures, the
Registrar shall register the transfer and reflect on its books and records
the date and (A) a decrease in the principal amount of the IAI Global
Security or the Regulation S Global Security, as the case may be, in an
amount equal to the principal amount of the Securities to be transferred
and (B) an increase in the principal amount of the Global Security in an
amount equal to the principal amount of the Securities to be transferred.
(c) Restrictions on Transfer and Exchange of Global Securities.
----------------------------------------------------------
Notwithstanding any other provisions of this Indenture, a Global Security may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or any such
nominee to a successor Depository or a nominee of such successor Depository.
(d) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of the Securities not bearing the Private Placement Legend, the
Registrar shall deliver the Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of the Securities bearing
the Private Placement Legend, the Registrar shall deliver only the Securities
that bear the Private Placement Legend unless (i) the requested transfer is
after the second anniversary of the Issue Date (provided, however, that neither
-------- -------
the Company nor any Affiliate of the Company has held any beneficial interest in
such Security, or portion thereof, at any time prior to or on the second
anniversary of the Issue Date), or (ii) there is delivered to the Registrar an
Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the
effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act.
(e) General. By its acceptance of any Security bearing the Private
-------
Placement Legend, each Holder of such Security acknowledges the restrictions on
transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.16 or this Section 2.17.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written
<PAGE>
34
communications at any reasonable time during the Registrar's normal business
hours upon the giving of reasonable written notice to the Registrar.
(f) Transfers of Securities Held by Affiliates. Any certificate (i)
------------------------------------------
evidencing a Security that has been transferred to an Affiliate of the Company
within two years after the Issue Date, as evidenced by a notation on the
Assignment Form for such transfer or in the representation letter delivered in
respect thereof or (ii) evidencing a Security that has been acquired from an
Affiliate of the Company (other than by an Affiliate of the Company) in a
transaction or a chain of transactions not involving any public offering, shall,
until two years after the last date on which the Company or any Affiliate of the
Company was an owner of such Security, in each case, bear the Private Placement
Legend, unless otherwise agreed by the Company (with written notice thereof to
the Trustee).
Section 2.18. Additional Interest Under Registration Rights Agreement.
Under certain circumstances, the Company shall be obligated to
pay, as liquidated damages, additional interest to the Holders, all as set forth
in Section 4 of the Registration Rights Agreement. The terms thereof are hereby
incorporated herein by reference.
ARTICLE III.
REDEMPTION
Section 3.1. Notices to Trustee.
If the Company elects to redeem Securities pursuant to Paragraph
5 of the Securities, it shall notify the Trustee, with a copy to the Bank
Facility Agent, of the Redemption Date and the principal amount of Securities to
be redeemed and whether it wants the Trustee to give notice of redemption to the
Holders at least 45 days (unless a shorter notice shall be satisfactory to the
Trustee) but not more than 60 days before the Redemption Date. Any such notice
may be canceled at any time prior to notice of such redemption being mailed to
any Holder and shall thereby be void and of no effect.
Section 3.2. Selection of Securities To Be Redeemed.
If fewer than all of the Securities are to be redeemed at any
time, the Trustee shall select the Securities to be redeemed in compliance with
the requirements of the principal national securities exchange, if any, on which
such Securities are listed or, if such Securities are not then listed on a
national securities exchange, on a pro rata basis, by lot or by such method as
--- ----
the Trustee shall deem fair and appropriate; provided, however, that no
-------- -------
Securities of a principal amount of $1,000 or less shall be redeemed in part;
provided, further; that any partial redemption pursuant to Paragraph 5 of the
- -------- -------
Securities with the proceeds of a Public Equity Offering shall be made on a pro
rata basis or on as nearly a pro rata basis as is practicable (subject to the
Depository's procedures), unless such method is otherwise prohibited.
<PAGE>
35
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denominations of $1,000 may be redeemed only in whole.
The Trustee may select for redemption portions (equal to $1,000 or integral
multiples thereof) of the principal amount of Securities that have denominations
larger than $1,000. Provisions of this Indenture that apply to Securities
called for redemption also apply to portions of Securities called for
redemption.
Section 3.3. Optional Redemption.
(a) On or after May 15, 2003, the Securities may be redeemed in
whole at any time or in part from time to time, at the option of the Company,
upon not less than 30 nor more than 60 days notice, at a redemption price equal
to the applicable percentage of the principal amount thereof set forth below,
together with accrued and unpaid interest (if any) to the Redemption Date, if
redeemed during the twelve-month period commencing on May 15 of the year set
forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
<S> <C>
2003.................. 104.500%
2004.................. 103.000%
2005.................. 101.500%
2006 and thereafter... 100.000%
</TABLE>
(b) Optional Redemption upon Equity Offerings. At any time, or
from time to time, on or prior to May 15, 2001, the Company may, at its option,
use the net cash proceeds of one or more Equity Offerings (as defined below) to
redeem the Securities at a Redemption Price equal to 109% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the
Redemption Date; provided, that at least 65% of the principal amount of the
--------
Securities originally issued remains outstanding immediately after any such
redemption. In order to effect the foregoing redemption with the proceeds of
any Equity Offering, the Company shall make such redemption not more than 120
days after the consummation of any such Equity Offering.
Section 3.4. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail a notice of redemption by first class mail to each
Holder whose Securities are to be redeemed at such Holder's registered address,
with a copy to the Trustee and the Bank Facility Agent. In order to effect a
redemption pursuant to Paragraph 5 of the Securities with the proceeds of an
Equity Offering, the Company shall send the redemption notice not later than 120
days after the consummation of such Equity Offering. At the Company's request,
the Trustee shall give the notice of redemption in the Company's name and at the
Company's expense. Each notice for redemption shall identify the Securities to
be redeemed and shall state:
<PAGE>
36
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price;
(5) that, unless (a) the Company defaults in making the redemption
payment on the Redemption Date or (b) such redemption payment is prohibited
pursuant to Article Four or Article Twelve hereof or otherwise, interest on
Securities called for redemption ceases to accrue on and after the Redemption
Date, and the only remaining right of the Holders of such Securities is to
receive payment of the Redemption Price upon surrender to the Paying Agent of
the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the Redemption
Date, and upon surrender of such Security, a new Security or Securities in
aggregate principal amount equal to the unredeemed portion thereof will be
issued; and
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be redeemed,
as well as the aggregate principal amount of Securities to be redeemed and the
aggregate principal amount of Securities to be outstanding after such partial
redemption.
Section 3.5. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section
3.4, Securities called for redemption become due and payable on the Redemption
Date and at the Redemption Price. Upon surrender to the Trustee or Paying Agent,
such Securities called for redemption shall be paid at the Redemption Price
unless prohibited pursuant to Article Four or Article Twelve or otherwise
pursuant to this Indenture. Securities that are redeemed by the Company or that
are purchased by the Company pursuant to a Net Proceeds Offer as described in
Section 5.16 or pursuant to a Change of Control Offer as described in Section
5.15 or that are otherwise acquired by the Company will be surrendered to the
Trustee for cancellation.
Section 3.6. Deposit of Redemption Price.
On or before 11:00 a.m. New York City time on the Redemption Date,
the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to
pay the Redemption Price of all Securities to be redeemed on that date (other
than Securities or portions thereof called for redemption on that date which
have been delivered by the Company to the Trustee for cancellation). The Paying
Agent shall promptly return to the Company any U.S. Legal Tender so deposited
which is not required for that purpose upon the written request
<PAGE>
37
of the Company, except with respect to monies owed as obligations to the Trustee
pursuant to Article Eight and Article Twelve hereof.
If the Company complies with the preceding paragraph and payment
of the Securities called for redemption is not prohibited under Article Four or
Article Twelve or otherwise, then, unless the Company defaults in the payment of
such Redemption Price, interest on the Securities or portions thereof to be
redeemed will cease to accrue on and after the applicable Redemption Date,
whether or not such Securities are presented for payment.
Section 3.7. Securities Redeemed in Part.
Upon surrender and cancellation of a Security that is to be
redeemed in part, the Trustee shall authenticate for the Holder a new Security
or Securities equal in principal amount to the unredeemed portion of the
Security surrendered and canceled.
ARTICLE IV.
SUBORDINATION
Section 4.1. Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and each Holder of the
Securities, by its acceptance thereof, likewise covenants and agrees, that all
Securities shall be issued subject to the provisions of this Article Four; and
each Person holding any Security, whether upon original issue or upon transfer,
assignment or exchange thereof, accepts and agrees that the payment of all
Obligations on the Securities by the Company shall, to the extent and in the
manner herein set forth, be subordinated and junior in right of payment to the
prior payment in full in cash or Cash Equivalents of all Obligations on Senior
Indebtedness, including, without limitation, the Company's obligations under the
Bank Facility; that the subordination is for the benefit of, and shall be
enforceable directly by, the holders of Senior Indebtedness, and that each
holder of Senior Indebtedness whether now outstanding or hereafter created,
incurred, assumed or guaranteed shall be deemed to have acquired Senior
Indebtedness in reliance upon the covenants and provisions contained in this
Indenture and the Securities.
Section 4.2. Suspension of Payment When Senior Indebtedness in Default.
(a) If any default occurs and is continuing in the payment when
due, whether at maturity, upon any redemption, by declaration or otherwise, of
any principal or, interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, any Senior Indebtedness,
no payment of any kind or character shall be made by or on behalf of the Company
or any other Person on its or their behalf with respect to any Obligations on
the Securities or to acquire any of the Securities for cash or property or
otherwise. In addition, if any other event of default occurs and is continuing
with respect to any Designated Senior Indebtedness, as such event of default is
defined in the instrument creating or evidencing such Designated Senior
Indebtedness, permitting the holders of such Designated Senior Indebtedness then
outstanding to accelerate the maturity thereof and if the
<PAGE>
38
Representative for the respective issue of Designated Senior Indebtedness gives
notice of the event of default to the Trustee (a "Default Notice") then, unless
--------------
and until all events of default with respect to such Designated Senior
Indebtedness have been cured (if capable of being cured) or waived in writing or
have ceased to exist or the Trustee receives notice thereof from the
Representative for the respective issue of Designated Senior Indebtedness
terminating the Blockage Period (as defined below), during the 179 days after
the delivery of such Default Notice (the "Blockage Period"), neither the Company
---------------
nor any other Person on its behalf shall (x) make any payment of any kind or
character with respect to any Obligations on the Securities or (y) acquire any
of the Securities for cash or property or otherwise. Notwithstanding anything
herein to the contrary, in no event will a Blockage Period extend beyond 179
days from the date the payment on the Securities was due and only one such
Blockage Period may be commenced within any 360 consecutive days. No event of
default which existed or was continuing on the date of the commencement of any
Blockage Period with respect to the Designated Senior Indebtedness shall be, or
be made, the basis for commencement of a second Blockage Period by the
Representative of such Designated Senior Indebtedness whether or not within a
period of 360 consecutive days, unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of commencement of such
Blockage Period that, in either case, would give rise to an event of default
pursuant to any provisions under which an event of default previously existed or
was continuing shall constitute a new event of default for this purpose).
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by this Section 4.2, such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Senior Indebtedness (pro rata
to such holders on the basis of the respective amount of Senior Indebtedness
held by such holders) or their respective Representatives, as their respective
interests may appear. The Trustee shall be entitled to rely on information
regarding amounts then due and owing on the Senior Indebtedness, if any,
received from the holders of Senior Indebtedness (or their Representatives) or,
if such information is not received from such holders or their Representatives,
from the Company and only amounts included in the information provided to the
Trustee shall be paid to the holders of Senior Indebtedness.
Nothing contained in this Article Four shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Section 7.2 or to pursue any rights or
remedies hereunder; provided , however, that so long as any Indebtedness
-------- -------
permitted to be incurred under this Indenture pursuant to the Bank Facility
shall be outstanding, no such acceleration shall be effective until the earlier
of (i) acceleration of any such Indebtedness under the Bank Facility or (ii)
five business days after giving notice to the Representative under the Bank
Facility of such acceleration, and all Senior Indebtedness thereafter due or
declared to be due shall first be paid in full in cash or Cash Equivalents
before the Holders are entitled to receive any payment of any kind or character
with respect to Obligations on the Securities.
<PAGE>
39
Section 4.3. Securities Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or Reorganization of
Company.
(a) Upon any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, to creditors
upon any liquidation, dissolution, winding-up, reorganization, assignment for
the benefit of creditors or marshaling of assets of the Company or in a
bankruptcy, reorganization, insolvency, receivership or other similar proceeding
relating to the Company or its property, whether voluntary or involuntary, all
Obligations due or to become due upon all Senior Indebtedness shall first be
paid in full in cash or Cash Equivalents, or such payment duly provided for to
the satisfaction of the holders of Senior Indebtedness, before any payment or
distribution of any kind or character is made on account of any Obligations on
the Securities, or for the acquisition of any of the Securities for cash or
property or otherwise. Upon any such dissolution, winding-up, liquidation,
reorganization, receivership or similar proceeding, any payment or distribution
of assets of the Company of any kind or character, whether in cash, property or
securities, to which the Holders of the Securities or the Trustee under this
Indenture would be entitled, except for the provisions hereof, shall be paid by
the Company or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person making such payment or distribution, or by the Holders or
by the Trustee under this Indenture if received by them, directly to the holders
of Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their respective
Representatives, or to the trustee or trustee under any indenture pursuant to
which any of such Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of Senior Indebtedness
remaining unpaid until all such Senior Indebtedness has been paid in full in
cash or Cash Equivalents after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of Senior Indebtedness.
(b) To the extent any payment of Senior Indebtedness (whether by
or on behalf of the Company, as proceeds of security or enforcement of any right
of setoff or otherwise) is declared to be fraudulent or preferential, set aside
or required to be paid to any receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person under any bankruptcy, insolvency,
receivership, fraudulent conveyance or similar law, then, if such payment is
recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person, the Senior Indebtedness or part thereof
originally intended to be satisfied shall be deemed to be reinstated and
outstanding as if such payment had not occurred.
(c) In the event that, notwithstanding the foregoing, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, shall be received by any Holder when such payment
or distribution is prohibited by this Section 4.3, such payment or distribution
shall be held in trust for the benefit of, and shall be paid over or delivered
to, the holders of Senior Indebtedness (pro rata to such holders on the basis of
the respective amount of Senior Indebtedness held by such holders) or their
respective Representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of Senior
Indebtedness remaining unpaid until all such
<PAGE>
40
Senior Indebtedness has been paid in full in cash or Cash Equivalents, after
giving effect to any concurrent payment, distribution or provision therefor to
or for the holders of such Senior Indebtedness.
(d) The consolidation of the Company with, or the merger of the
Company with or into, another corporation or the liquidation or dissolution of
the Company following the conveyance or transfer of all or substantially all of
its assets, to another corporation upon the terms and conditions provided in
Article Six hereof and as long as permitted under the terms of the Senior
Indebtedness shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section 4.3 if such other corporation
shall, as a part of such consolidation, merger, conveyance or transfer, assume
the Company's obligations hereunder in accordance with Article Six hereof.
Section 4.4. Holders To Be Subrogated to Rights of Holders of Senior
Indebtedness.
(a) Subject to the payment in full in cash or Cash Equivalents of
all Senior Indebtedness, the Holders of the Securities shall be subrogated to
the rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company applicable to the
Senior Indebtedness until the Securities shall be paid in full; and, for the
purposes of such subrogation, no such payments or distributions to the holders
of the Senior Indebtedness by or on behalf of the Company or by or on behalf of
the Holders by virtue of this Article Four which otherwise would have been made
to the Holders shall, as between the Company and the Holders of the Securities,
be deemed to be a payment by the Company to or on account of the Senior
Indebtedness, it being understood that the provisions of this Article Four are
and are intended solely for the purpose of defining the relative rights of the
Holders of the Securities, on the one hand, and the holders of the Senior
Indebtedness, on the other hand.
(b) Each Holder by purchasing or accepting a Security waives any
and all notice of the creation, modification, renewal, extension or accrual of
any Senior Indebtedness and notice of or proof of reliance by any holder or
owner of Senior Indebtedness upon this Article Four and Senior Indebtedness
shall conclusively be deemed to have been created, contracted or incurred in
reliance upon this Article Four, and all dealings between the Company and the
holders and owners of Senior Indebtedness shall be deemed to have been
consummated in reliance upon this Article Four.
Section 4.5. Obligations of the Company Unconditional.
(a) Nothing contained in this Article Four or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as between the
Company and the Holders, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders the principal of and interest on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the Trustee or any
Holder from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights,
<PAGE>
41
if any, under this Article Four of the holders of Senior Indebtedness in respect
of cash, property or Securities of the Company received upon the exercise of any
such remedy. Upon any payment or distribution of assets or securities of the
Company referred to in this Article Four, the Trustee, subject to the provisions
of Sections 8.1 and 8.2, and the Holders shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which any
liquidation, dissolution, winding-up or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidating trustee or
agent or other Person making any payment or distribution to the Trustee or to
the Holders for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article Four. Nothing in this Article Four shall apply to the claims of,
or payments to, the Trustee under or pursuant to Section 8.7. The Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Indebtedness (or a
trustee on behalf of, or other representative of, such holder) to establish that
such notice has been given by a holder of such Senior Indebtedness or a trustee
or Representative on behalf of any such holder.
(b) In the event that the Trustee determines in good faith that
any evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Four, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such Person, the extent to which such person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Four, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
Section 4.6. Trustee Entitled To Assume Payments Not Prohibited in Absence of
Notice.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities pursuant to the provisions of this
Article Four, but failure to give such notice shall not affect the subordination
of the Securities to all Senior Indebtedness provided in this Article Four and
shall not result in any Default or Event of Default under this Indenture or the
Securities. Regardless of anything to the contrary contained in this Article
Four or elsewhere in this Indenture, the Trustee shall not be charged with
knowledge of the existence of any default or event of default with respect to
any Senior Indebtedness or of any other facts which would prohibit the making of
any payment to or by the Trustee unless and until the Trustee shall have
received notice in writing from the Company, or from a holder of Senior
Indebtedness or a Representative therefor, together, in the case of any holder
of Senior Indebtedness or any Representative therefor other than the Bank
Facility Agent, with proof satisfactory to the Trustee of such holding of Senior
Indebtedness or of the authority of such Representative, and, prior to the
receipt of any such written notice, the Trustee shall be entitled to assume (in
the absence of actual knowledge to the contrary) that no, such fact exist.
Section 4.7. Application by Trustee of Assets Deposited with It.
<PAGE>
42
U.S. Legal Tender or U.S. Government Obligations deposited in trust
with the Trustee pursuant to and in accordance with Sections 9.1 and 9.2 shall
be for the sole benefit of the Holders of the Securities and, to the extent
allocated for the payment of Securities, shall not be subject to the
subordination provisions of this Article Four or Article Twelve. Otherwise, any
deposit of assets or securities by or on behalf of the Company with the Trustee
or any Paying Agent (whether or not in trust) for the payment of principal of or
interest on any Securities shall be subject to the provision of this Article
Four; provided, however, that if prior to the second Business Day preceding the
-------- -------
date on which by the terms of this Indenture any such assets may become
distributable for any purpose (including, without limitation, the payment of
either principal of or interest on any Security) the Trustee or such Paying
Agent shall not have received with respect to such asset the notice provided for
in Section 4.6, then the Trustee or such Paying Agent shall have full power and
authority to receive such assets and to apply the same to the purpose for which
they were received, and shall not be affected by any notice to the contrary
received by it on or after such date. The foregoing shall not apply to the
Paying Agent if the Company or any Subsidiary or Affiliate of the Company is
acting as Paying Agent. Nothing contained in this Section 4.7 shall limit the
right of the holders of Senior Indebtedness to recover payments as contemplated
by this Article Four.
Section 4.8. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act by any such holder, or by any non-
compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section 4.8, the holders of Senior Indebtedness may, at any time and from time
to time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
Four or the obligations hereunder of the Holders of the Securities to the
holders of Senior Indebtedness, do any one or more of the following: (1) change
the manner, place, terms or time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding or otherwise amend, renew, exchange, restate,
modify or supplement in any manner Senior Indebtedness or any instrument
evidencing or guaranteeing Senior Indebtedness or securing the same or any
agreement under which Senior Indebtedness is outstanding; (2) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Indebtedness; (3) settle or compromise any Senior Indebtedness
or release any Person liable in any manner for the collection or payment of
Senior Indebtedness; and (4) exercise or delay or refrain from exercising any
rights against the Company and any other Person, fail to take or to record or
otherwise perfect, for any reason or for no reason, any lien or security
interest securing Senior Indebtedness, elect any remedy or otherwise deal freely
with the Company.
Section 4.9. Holders Authorize Trustee To Effectuate Subordination of
Securities.
<PAGE>
43
Each Holder of the Securities by such Holder's acceptance thereof
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effect the subordination provisions
contained in this Article Four, and appoints the Trustee such Holder's attorney-
in-fact for such purpose, including, in the event of any liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of creditors
or marshaling of assets of the Company tending towards liquidation or
reorganization of the business and assets of the Company, the immediate filing
of a claim for the unpaid balance of such Holder's Securities in the form
required in said proceedings and cause said claim to be approved. If the
Trustee does not file a proper claim or proof of debt in the form required in
such proceeding prior to 30 days before the expiration of the time to file such
claim or claims, then any of the holders of the Senior Indebtedness or their
Representative is hereby authorized to file an appropriate claim for and on
behalf of the Holders of said Securities. Nothing herein contained shall be
deemed to authorize the Trustee or the holders of Senior Indebtedness or their
Representative to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee or the holders of Senior Indebtedness or their Representative to
vote in respect of the claim of any Holder in any such proceeding.
Section 4.10. Right of Trustee To Hold Senior Indebtedness.
(a) The Trustee and any agent of the Company or the Trustee shall
be entitled to all the rights set forth in this Article Four with respect to any
Senior Indebtedness which may at any time be held by it in its individual or any
other capacity to the same extent as any other holder of Senior Indebtedness and
nothing in this Indenture shall deprive the Trustee or any such agent of any of
its rights as such holder.
(b) With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Four, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness.
(c) Whenever a distribution is to be made or a notice given to
holders or owners of Senior Indebtedness, the distribution may be made and the
notice may be given to their Representative, if any.
Section 4.11. No Suspension of Remedies.
The failure to make a payment on account of principal of or
interest on the Securities by reason of any provision of this Article Four will
not be construed as preventing the occurrence of an Event of Default.
Except as the effectiveness of acceleration is limited by Section
4.2(b), nothing contained in this Article Four shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Article Seven or to
<PAGE>
44
pursue any rights or remedies hereunder or under applicable law, subject to the
rights, if any, under this Article Four of the holders, from time to time, of
Senior Indebtedness.
Section 4.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness, and it undertakes to perform or observe such of
its covenants and obligations as are specifically set forth in this Article
Four, and no implied covenants or obligations with respect to the Senior
Indebtedness shall be read into this Indenture against the Trustee. The Trustee
shall not be liable to any such holders (other than or its willful misconduct or
gross negligence) if it shall pay over or deliver to the Holders of Securities
or the Company or any other Person money or assets in compliance with the terms
of this Indenture. Nothing in this Section 4.12 shall affect the obligation of
any Person other than the Trustee to hold such payment for the benefit of, and
to pay such payment over to, the holders of Senior Indebtedness or their
Representative.
ARTICLE V.
COVENANTS
Section 5.1. Payment of Securities.
The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities and this
Indenture. An installment of principal of or interest on the Securities shall be
considered paid on the date it is due if the Trustee or Paying Agent (other than
the Company or a Subsidiary) holds on that date U.S. Legal Tender designated for
and sufficient to pay the installment; provided, however, that U.S. Legal Tender
-------- -------
held by the Trustee for the benefit of holders of Senior Indebtedness or the
payment of which to the Holders is prohibited pursuant to the provisions of
Article Four or Article Twelve or otherwise shall not be considered to be
designated for the payment of any installment of principal or interest on the
Securities within the meaning of this Section 5.1.
The Company shall pay interest on overdue principal at the rate
borne by the Securities and it shall pay interest on overdue installments of
interest at the same rate, to the extent lawful.
Section 5.2. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City
of New York, the office or agency required under Section 2.3. The Company shall
give prior notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 13.2.
Section 5.3. Limitation on Restricted Payments.
<PAGE>
45
(a) The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, (i) declare or pay any
dividend or make any distribution (other than dividends or distributions payable
in Qualified Equity Interests of the Company) on or in respect of shares of the
Company's Capital Stock to holders of such Capital Stock, (ii) purchase, redeem
or otherwise acquire or retire for value any Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of any class of such
Capital Stock, (iii) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Indebtedness of the Company that is subordinate or junior in right of
payment of the Securities or (iv) make any Investment (other than Permitted
Investments) (each of the foregoing actions set forth in clauses (i), (ii),
(iii) and (iv) being referred to as a "Restricted Payment"), if at the time of
such Restricted Payment or immediately after giving effect thereto, (A) a
Default or an Event of Default shall have occurred and be continuing or (B) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with Section 5.12 or (C) the
aggregate amount of Restricted Payments (including such proposed Restricted
Payment) made subsequent to the Issue Date (the amount expended for such
purposes, if other than in cash, being the fair market value of such property as
determined in good faith by the Board of Directors of the Company) shall exceed
the sum of: (w) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company
earned during the period beginning on the first day of the fiscal quarter
including the Issue Date (the "Reference Date") (treating such period as a
single accounting period), provided, however, that if the Securities achieve an
-------- -------
Investment Grade Rating as of the end of any fiscal quarter, the percentage for
the fiscal quarter after such fiscal quarter (and for any other fiscal quarter
where, on the first day of such fiscal quarter, the Securities shall have an
Investment Grade Rating) will be 100% of Consolidated Net Income during each
fiscal quarter after such fiscal quarter; provided further, however, that if
-------- ------- -------
such Restricted Payment is to be made in reliance upon an additional amount
permitted pursuant to the immediately preceding proviso, the Securities must
have an Investment Grade Rating at the time such Restricted Payment is declared
or, if not declared, made, plus (x) 100% of the aggregate net cash proceeds
received by the Company from any Person (other than a Subsidiary of the Company)
from (i) the issuance and sale subsequent to the Issue Date and on or prior to
the Reference Date of Qualified Equity Interests of the Company (other than
Qualified Equity Interests applied pursuant to clauses (ii)(B) and (iii)(B) of
the next succeeding paragraph) and (ii) Indebtedness or Disqualified Capital
Stock that has been converted into or exchanged for Qualified Equity Interests
together with the aggregate net cash proceeds received by the Company at the
time of such conversion or exchange, plus (y) without duplication of any amounts
included in clause (iii)(x) above, 100% of the aggregate net cash proceeds of
any equity contribution received by the Company from a holder of the Company's
Capital Stock and plus (z) an amount equal to the sum of (1) any net reduction
in Investments made pursuant to this paragraph (a) in any Person resulting from
payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or any
Restricted Subsidiary (except to the extent any such payment is included in the
calculation of Consolidated Net Income) and (2) the consolidated net
Investments, as of the date of Revocation, made by the Company or any of its
Restricted Subsidiaries in any
<PAGE>
46
Subsidiary of the Company that had been designated as an Unrestricted Subsidiary
after the Issue Date, upon its redesignation as a Restricted Subsidiary in
accordance with Section 5.18.
(b) Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (i) the payment of any dividend
within 60 days after the date of declaration of such dividend if the dividend
would have been permitted on the date of declaration; (ii) if no Default or
Event of Default shall have occurred and be continuing, the acquisition of any
shares of Capital Stock of the Company, either (A) solely in exchange for
Qualified Equity Interests of the Company or (B) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Subsidiary
of the Company) of Qualified Equity Interests of the Company; (iii) if no
Default or Event of Default shall have occurred and be continuing, the purchase,
redemption, defeasance or other acquisition or retirement for value of any
Indebtedness of the Company that is subordinate or junior in right of payment to
the Securities either (A) solely in exchange for Qualified Equity Interests of
the Company or (B) through the application of net proceeds of (x) a
substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of Qualified Equity Interests of the Company or (y) Refinancing
Indebtedness; (iv) so long as no Default or Event of Default shall have occurred
and be continuing, repurchases by the Company of Common Stock of the Company
from employees of the Company or any of its Subsidiaries or their authorized
representatives upon the death, disability or termination of employment of such
employees, in an aggregate amount not to exceed $2.0 million in any calendar
year; and (v) other Restricted Payments in an aggregate amount not to exceed
$15.0 million. In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (C) of the first sentence
of the immediately preceding paragraph, amounts expended pursuant to clauses
(i), (iv) and (v) shall be included in such calculation.
Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an officers' certificate stating that such
Restricted Payment complies with this Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available internal quarterly
financial statements.
Section 5.4. Corporate Existence.
Except as otherwise permitted by Article Six, the Company shall do
or cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the rights (charter and statutory) and
franchises of the Company; provided, however, that the Company shall not be
-------- -------
required to preserve, with respect to itself, any right or franchise, if the
Board of Directors of the Company, as the case may be, shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company.
Section 5.5. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges (including withholding taxes and any penalties,
interest and additions to taxes) levied or
<PAGE>
47
imposed upon it or any of the Restricted Subsidiaries or properties of it or any
of the Restricted Subsidiaries and (ii) all lawful claims for labor, materials
and supplies that, if unpaid, might by law become a Lien (other than a Permitted
Lien) upon the property of it or any of the Restricted Subsidiaries; provided,
--------
however, that the Company shall not be required to pay or discharge or cause to
- -------
be paid or discharged any such tax, assessment, charge or claim if either (a)
the amount, applicability or validity thereof is being contested in good faith
by appropriate proceedings and an adequate reserve has been established therefor
to the extent required by GAAP or (b) the failure to make such payment or effect
such discharge (together with all other such failures) would not have a material
adverse effect on the financial condition or results or operations of the
Company and the Restricted Subsidiaries taken as a whole.
Section 5.6. Maintenance of Properties and Insurance.
(a) The Company shall cause all properties used or useful to the
conduct of its business or the business of any of the Restricted Subsidiaries to
be maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in its
judgment may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times unless the
failure to so maintain such properties (together with all other such failures)
would not have a material adverse effect on the financial condition or results
of operations of the Company and the Restricted Subsidiaries taken as a whole;
provided, however, that nothing in this Section 5.6 shall prevent the Company or
- -------- -------
any Restricted Subsidiary from discontinuing the operation or maintenance of any
of such properties, or disposing of any of them, if such discontinuance or
disposal is either (i) in the ordinary course of business, (ii) in the good
faith judgment of the Board of Directors of the Company or the Restricted
Subsidiary concerned, or of the senior officers of the Company or such
Restricted Subsidiary, as the case may be, desirable in the conduct of the
business of the Company or such Restricted Subsidiary, as the case may be, or
(iii) is otherwise permitted by this Indenture.
(b) The Company shall provide or cause to be provided, for itself
and each of the Restricted Subsidiaries, insurance (including appropriate self-
insurance) against loss or damage of the kinds that, in the reasonable, good
faith opinion of the Company are adequate and appropriate for the conduct of the
business of the Company and the Restricted Subsidiaries in a prudent manner,
with reputable insurers or with the government of the United States of America
or an agency or instrumentality thereof, in such amounts, with such deductibles,
and by such methods as shall be either (i) consistent with past practices of the
Company or the applicable Restricted Subsidiary or (ii) customary, in the
reasonable, good faith opinion of the Company, for corporations similarly
situated in the industry, unless the failure to provide such insurance (together
with all other such failures) would not have a material adverse effect on the
financial condition or results of operations of the Company and the Restricted
Subsidiaries, taken as a whole.
Section 5.7. Compliance Certificate; Notice of Default.
<PAGE>
48
(a) The Company shall deliver to the Trustee within 120 days
after the end of the Company's fiscal year an Officers' Certificate stating that
a review of its activities and the activities of its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether it has kept, observed, performed and
fulfilled its obligations under this Indenture and further stating, as to each
such Officer signing such certificate, to the best of his or her knowledge the
Company's compliance with all conditions and covenants under this Indenture
without regard to any period of grace or requirement of notice provided under
this Indenture and, if such signers do know of any such non-compliance with any
conditions or covenants, the certificate shall describe such non-compliance and
its status with particularity. The Officers' Certificate shall also notify the
Trustee should the Company elect to change the manner in which it fixes its
fiscal year end.
(b) The Company shall deliver to the Trustee, forthwith upon
becoming aware, and in any event within 5 Business Days after the occurrence, of
(i) any Default or Event of Default or (ii) any event of default in respect of
any Designated Senior Indebtedness, an Officers' Certificate specifying with
particularity such event.
Section 5.8. Compliance with Laws.
The Company shall comply, and shall cause each of the Restricted
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except such as are being contested in good faith and by appropriate
proceedings and except for such noncompliances as would not in the aggregate
have a material adverse effect on the financial condition or results of
operations of the Company and the Restricted Subsidiaries taken as a whole.
Section 5.9. SEC Reports.
The Company will deliver to the Trustee within 15 days after the
filing of the same with the Commission, copies of the quarterly and annual
reports and of the information, documents and other reports, if any, which the
Company is required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company
will also comply with the other provisions of TIA (S) 314(a).
Section 5.10. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or
<PAGE>
49
forgive the Company from paying all or any portion of the principal of or
interest on the Securities as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that it may lawfully do so)
the Company hereby expressly waives all benefit or advantage of any such law,
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
Section 5.11. Limitation on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into or permit to
exist any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates
(each an "Affiliate Transaction"), other than (x) Affiliate Transactions
permitted under paragraph (b) below and (y) Affiliate Transactions on terms that
are no less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person that
is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate
Transactions (and each series of related Affiliate Transactions which are
similar or part of a common plan) involving aggregate payments or other property
with a fair market value in excess of $5.0 million shall be approved by the
Board of Directors of the Company or such Restricted Subsidiary, as the case may
be, such approval to be evidenced by a Board Resolution stating that such Board
of Directors has determined that such transaction complies with the foregoing
provisions. If the Company or any Restricted Subsidiary of the Company enters
into an Affiliate Transaction (or a series of related Affiliate Transactions
related to a common plan) that involves an aggregate fair market value of more
than $10.0 million, the Company or such Restricted Subsidiary, as the case may
be, shall, prior to the consummation thereof, obtain a favorable opinion as to
the fairness of such transaction or series of related transactions to the
Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to
(i) fees and compensation and benefits paid to and indemnity provided on behalf
of officers, directors, employees or consultants of the Company or any
Restricted Subsidiary of the Company as determined in good faith by the
Company's Board of Directors (including, without limitation, any issuance of
securities, grants of cash, securities, stock options or otherwise, pursuant to,
or the funding of, employment arrangements, stock options and stock ownership
plans approved by the Board of Directors of the Company or the Board of
Directors of the relevant Restricted Subsidiary); (ii) transactions exclusively
between or among the Company and any of its Wholly Owned Restricted Subsidiaries
or exclusively between or among such Wholly Owned Restricted Subsidiaries,
provided such transactions are not otherwise prohibited by this Indenture; (iii)
- --------
any agreement as in effect as of the Issue Date or any amendment thereto or any
transaction contemplated thereby (including pursuant to any amendment thereto)
in any replacement agreement thereto so long as such amendment or replacement
agreement is not more disadvantageous to the Holders in any material respect
than the original agreement as in
<PAGE>
50
effect on the Issue Date; (iv) loans and advances to officers and employees or
consultants of the Company or any of its Restricted Subsidiaries in the ordinary
course of business not to exceed $1,000,000 at any time outstanding; and (v)
Restricted Payments permitted by this Indenture.
Section 5.12. Limitation on Incurrence of Additional Indebtedness.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise, with respect to, or otherwise
become responsible for payment of (collectively, "incur) any Indebtedness (other
than Permitted Indebtedness); provided, however, that if no Default or Event of
-----------------
Default shall have occurred and be continuing at the time of or as a consequence
of the incurrence of any such Indebtedness, the Company or any Subsidiary
Guarantor may incur Indebtedness (including, without limitation, Acquired
Indebtedness), if on the date of the incurrence of such Indebtedness, after
giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage
Ratio of the Company is greater than (i) 2.25 to 1.0 if the date of such
incurrence is on or prior to May 15, 2001 or (ii) 2.50 to 1.0 if the date of
such incurrence is after May 15, 2001.
Section 5.13. Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) this Indenture; (3) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (5) agreements (other than the
Bank Facility) existing on the Issue Date to the extent and in the manner such
agreements are in effect on the Issue Date or as amended in a manner that is not
more disadvantageous to the Holders in any material respect than the agreement
existing on the Issue Date; (6) the Bank Facility; provided, however, that,
-------- -------
except during a period when an event of default under the Bank Facility shall
have occurred and be continuing, no such encumbrances or restrictions shall
limit the ability of such Subsidiary to dividend, loan, advance or otherwise
transfer funds to the Company in an amount required to pay when due the
scheduled interest (including Additional Interest) and principal at maturity of
the Securities; (7) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (c) above; (8) contracts for the sale of assets, including, without
limitation, customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of
<PAGE>
51
all or substantially all of the Capital Stock or assets of such Subsidiary; (9)
secured Indebtedness otherwise permitted to be incurred pursuant to Section 5.12
and Section 5.14 that limit the right of the debtor to dispose of the assets
securing such Indebtedness; (10) restrictions on cash or other deposits or net
worth imposed by customers under contracts entered into in the ordinary course
of business; (11) any credit facility or similar agreement entered into in
accordance with clause (xv) of the definition of "Permitted Indebtedness";
provided, however, that, except during a period when an event of default under
- -------- -------
such credit facility shall have occurred and be continuing, no such encumbrances
or restrictions shall limit the ability of any Foreign Subsidiary to dividend,
loan, advance or otherwise transfer funds to the Company in an amount required
to pay when due the scheduled interest (including Additional Interest) and
principal at maturity of the Securities; (12) customary provisions in joint
venture agreements; or (13) an agreement governing Indebtedness incurred to
Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clause (2), (4), (5), (6), (7), (8), (9), (10), (11) or (12)
above; provided, however, that the provisions relating to such encumbrance or
-------- -------
restriction contained in any such Refinancing Indebtedness are no less favorable
to the Company in any material respect as determined by the Board of Directors
of the Company in their reasonable and good faith judgment than the provisions
relating to such encumbrance or restriction contained in agreements referred to
in such clause (2), (4), (5), (6), (7), (8), (9), (10), (11) or (12).
Section 5.14. Limitation on Liens.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any of its Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Securities or any Guarantee,
the Securities and the Guarantees are secured by a Lien on such property, assets
or proceeds that is senior in priority to such Liens and (ii) in all other
cases, the Securities and the Guarantees are equally and ratably secured, except
for (A) Liens existing as of the Issue Date to the extent and in the manner such
Liens are in effect on the Issue Date; (B) Liens securing Senior Indebtedness
and Liens securing Guarantor Senior Indebtedness; (C) Liens of the Company or a
Wholly Owned Restricted Subsidiary of the Company on assets of any Restricted
Subsidiary of the Company; (D) Liens securing Refinancing Indebtedness incurred
in accordance with the provisions of this Indenture which is incurred to
Refinance any Indebtedness which has been secured by a Lien permitted under this
Indenture; provided, however, that such Liens (i) are no less favorable to the
-------- -------
Holders and are no more favorable to the lienholders with respect to such Liens
than the Liens in respect of the Indebtedness being Refinanced and (ii) do not
extend to or cover any property or assets of the Company or any of its
Restricted Subsidiaries not securing the Indebtedness so Refinanced; (E) Liens
securing Indebtedness incurred in accordance with clause (xv) of the definition
of "Permitted Indebtedness" and (F) Permitted Liens.
Section 5.15. Limitation on Change of Control.
<PAGE>
52
(a) Upon the occurrence of a Change of Control, each Holder will have
the right to require that the Company purchase all or a portion of such Holder's
Securities pursuant to the offer described below (the "Change of Control
-----------------
Offer"), at a purchase price equal to 101% of the principal amount thereof plus
accrued interest to the date of purchase (the "Change of Control Offer Price").
(b) No later than 30 days following the date upon which the Change of
Control occurred, the Company must send, by first class mail, a notice to each
Holder, with a copy to the Trustee, which notice shall govern the terms of the
Change of Control Offer. Notice of an event giving rise to a Change of Control
shall be given on the same date and in the same manner to all Holders. Such
notice shall state:
(1) that the Change of Control Offer is being made pursuant to
this Section 5.15 and that all Securities tendered will be accepted for payment;
(2) the purchase price (including the amount of accrued interest)
and the purchase date (which shall be no earlier than 30 days nor later than 60
days from the date such notice is mailed, other than as may be required by law)
(the "Change of Control Payment Date");
------------------------------
(3) that any Security not tendered will continue to accrue
interest if interest is then accruing;
(4) that, unless (i) the Company defaults in making payment
therefor or (ii) such payment is prohibited pursuant to Article Four, any
Security accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant to
a Change of Control Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day prior to the Change of
Control Payment Date;
(6) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than two Business Days prior to the Change
of Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Securities the
Holder delivered for purchase and a statement that such Holder is withdrawing
his or her election to have such Security purchased;
(7) that Holders whose Securities are purchased only in part will
be issued new Securities equal in principal amount to the unpurchased portions
of the Securities surrendered; provided, that each Security purchased and each
--------
Security issued shall be in an original principal amount of $1,000 or integral
multiples thereof;
<PAGE>
53
(8) that each Change of Control Offer is required to remain
open for at least 20 Business Days or such longer period as may be required by
law and until 5:00 p.m. New York City time on the applicable Change of Control
Payment Date; and
(9) the circumstances and relevant facts regarding such
Change of Control.
(c) On or before the Change of Control Payment Date, the Company
shall (i) accept for payment Securities or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal
Tender sufficient to pay the purchase price of all Securities so tendered and
(iii) deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to the Holders of Securities so
accepted payment in an amount equal to the purchase price (and the Trustee shall
promptly authenticate and mail to such Holders new Securities equal in principal
amount to any unpurchased portion of the Securities surrendered; provided, that
--------
each such new Security shall be in the principal amount of $1,000 or integral
multiples thereof) unless such payment is prohibited pursuant to Article Four or
otherwise. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date. For purposes of this Section 5.15, the Trustee shall act as the Paying
Agent.
(d) Notwithstanding the foregoing, the Company shall not be
required to make a Change of Control Offer, as provided above, if, in connection
with any Change of Control, it had made an offer to purchase (an "Alternate
Offer") any and all Securities validly tendered at a cash price equal to or
higher than the Change of Control Offer Price and has purchased all Securities
properly tendered in accordance with the terms of such Alternate Offer.
(e) The Company must comply with Rule 14e-1 under the Exchange
Act and other provisions of state and federal securities laws or regulations
thereunder to the extent applicable in connection with the repurchase of
Securities pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Section 5.15, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
the provisions of this Section 5.15 by virtue thereof.
Section 5.16. Limitation on Asset Sales.
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or
the applicable Restricted Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors), (ii) at least 75% of the consideration received
by the Company or the Restricted Subsidiary (excluding liabilities that are not
subordinated to the Securities that have been assumed by a transferee of such
assets to the extent that the applicable agreement releases or indemnifies the
Company or such Restricted
<PAGE>
54
Subsidiary from such liabilities), as the case may be, from such Asset Sale
shall be in the form of cash or Cash Equivalents and is received at the time of
such disposition or securities which are converted into cash or Cash Equivalents
within 60 days; and (iii) upon the consummation of an Asset Sale, the Company
shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 365 days of receipt thereof either (A) to
prepay any Senior Indebtedness and, in the case of any Senior Indebtedness under
any revolving credit facility, including the Bank Facility, effect a permanent
reduction in the availability under such revolving credit facility, (B) to make
an investment in or acquire properties and assets that replace the properties
and assets that were the subject of such Asset Sale or in properties and assets
that will be used (including acquisitions of other businesses) in the business
of the Company and its Restricted Subsidiaries as existing on the Issue Date or
in businesses reasonably related thereto ("Replacement Assets"), or (C) a
combination of prepayment and investment permitted by the foregoing clauses
(iii)(A) and (iii)(B). On the 366th day after an Asset Sale or such earlier
date, if any, as the Board of Directors of the Company or of such Restricted
Subsidiary, as the case may be, determines not to apply the Net Cash Proceeds
relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and
(iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before such Net Proceeds Offer Trigger Date as permitted in clauses
(iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net
Proceeds Offer Amount"), shall be applied by the Company or such Restricted
Subsidiary, as the case may be, to make an offer to purchase (the "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor
more than 45 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a pro rata basis, that amount of Securities issued under this
--- ----
Indenture equal to the Net Proceeds Offer Amount at a price equal to 100% of the
principal amount of the Securities to be purchased, plus accrued and unpaid
interest thereon, if any, to the date of purchase; provided, however, that if at
-------- -------
any time any non-cash consideration received by the Company or any Restricted
Subsidiary of the Company, as the case may be, in connection with any Asset Sale
is converted into or sold or otherwise disposed of for cash (other than interest
received with respect to any such non-cash consideration), then such conversion
or disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this Section 5.16. The
Company may defer the Net Proceeds Offer until there is an aggregate unutilized
Net Proceeds Offer Amount equal to or in excess of $10.0 million resulting from
one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer
Amount, and not just the amount in excess of $10.0 million, shall be applied as
required pursuant to this paragraph); provided, that in no event will the net
--------
cash proceeds from an Asset Sale be subject to more than one Net Proceeds Offer.
(b) In the event of the transfer of substantially all (but not all) of
the property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under Section 6.1, the successor
corporation shall be deemed to have sold the properties and assets of the
Company and its Restricted Subsidiaries not so transferred for purposes of this
Section 5.16, and shall comply with the provisions of this Section 5.16 with
respect to such deemed sale as if it were an Asset Sale. In addition, the fair
market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this Section 5.16.
<PAGE>
55
(c) Notwithstanding Sections 5.16(a) and (b), the Company and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; provided, that any consideration not
--------
constituting Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
Sections 5.16(a) and (b).
(d) Each Net Proceeds Offer will be mailed to the record Holders as
shown on the register of Holders of such Securities within 25 days following the
Net Proceeds Offer Trigger Date, with a copy to the Trustee. The notice shall
contain all instructions and materials necessary to enable such Holders to
tender Securities pursuant to the Net Proceeds Offer and shall state the
following terms:
(1) that the Net Proceeds Offer is being made pursuant to Section
5.16 of this Indenture and that all Securities tendered will be accepted for
payment; provided, however, that if the aggregate principal amount of Securities
-------- -------
tendered in a Net Proceeds Offer plus accrued interest at the expiration of such
offer exceeds the aggregate amount of the Net Proceeds Offer, the Company shall
select the Securities to be purchased on a pro rata basis (with such adjustments
as may be deemed appropriate by the Company so that only Securities in
denominations of $1,000 or multiples thereof shall be purchased);
(2) the purchase price (including the amount of accrued interest)
and the Net Proceeds Offer Payment Date;
(3) that any Security not tendered will continue to accrue
interest if interest is then accruing;
(4) that, unless (i) the Company defaults in making payment
therefor or (ii) such payment is prohibited pursuant to Article Four or
otherwise, any Security accepted for payment pursuant to the Net Proceeds Offer
shall cease to accrue interest after the Net Proceeds Offer Payment Date;
(5) that Holders electing to have a Security purchased pursuant to
a Net Proceeds Offer will be required to surrender the Security, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Security
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day prior to the Net Proceeds Offer
Payment Date;
(6) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than two Business Days prior to the Net
Proceeds Offer Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Securities the
Holder delivered for purchase and a statement that such Holder is withdrawing
his or her election to have such Security purchased;
<PAGE>
56
(7) that Holders whose Securities were purchased only in part
will be issued new securities equal in principal amount to the unpurchased
portion of the Securities surrendered; provided, however, that each Security
-------- -------
purchased and each new Security issued shall be in an original principal amount
of $1,000 or integral multiples thereof; and
(8) that the Net Proceeds Offer shall remain open for a
period of 20 Business Days or such longer period as may be required by law.
(e) On or before the Net Proceeds Offer Payment Date, the Company
shall (i) accept for payment Securities or portions thereof tendered pursuant to
the Net Proceeds Offer which are to be purchased in accordance with item (d)(1)
above, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay
the purchase price of all Securities to be purchased and (iii) deliver to the
Trustee Securities so accepted together with an Officers' Certificate stating
the Securities or portions thereof being purchased by the Company. The Paying
Agent shall promptly mail to the Holders of Securities so accepted payment in an
amount equal to the purchase price (and the Trustee shall promptly authenticate
and mail or deliver to such Holders a new Security equal in principal amount to
any unpurchased portion of the Security surrendered; provided, that each such
--------
new Security shall be in the principal amount of $1,000 or integral multiples
thereof) unless such payment is prohibited pursuant to Article Four or
otherwise. The Company will publicly announce the results of the Net Proceeds
Offer on or as soon as practicable after the Net Proceeds Offer Payment Date.
For purposes of this Section 5.16, the Trustee shall act as the Paying Agent.
(f) Any amounts remaining after the purchase of Securities
pursuant to a Net Proceeds Offer shall be returned by the Trustee to the
Company.
(g) The Company must comply with Rule 14e-1 under the Exchange
Act and other provisions of state and federal securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of Securities pursuant to a Net Proceeds Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of this Section 5.16, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the provisions of this Section 5.16 by virtue
thereof.
Section 5.17. Prohibition on Incurrence of Senior Subordinated Debt.
The Company will not incur or suffer to exist Indebtedness that
is senior in right of payment to the Securities and subordinate in right of
payment to any other Indebtedness of the Company. No Subsidiary Guarantor will
incur or suffer to exist Indebtedness that is senior in right of payment to such
Subsidiary Guarantor's Guarantee and subordinate in right of payment to any
other Indebtedness of such Subsidiary Guarantor. Notwithstanding anything to the
contrary contained herein, no Indebtedness incurred at any time under the Bank
Facility (as such facility is in existence on the Issue Date) shall be
considered subordinate in right of payment to any other Indebtedness incurred
under the Bank Facility (as such facility is in existence on the Issue Date).
<PAGE>
57
Section 5.18. Limitation on Designations of Unrestricted Subsidiaries.
(a) The Company may designate any Subsidiary of the Company
(other than a Subsidiary of the Company which owns any Capital Stock of, or owns
or holds any Lien on any property of, the Company or any Restricted Subsidiary)
as an "Unrestricted Subsidiary" under this Indenture (a "Designation") only if:
(i) no Default or Event of Default shall have occurred and
be continuing at the time of or after giving effect to such Designation;
(ii) the Company would be permitted under this Indenture to
make an Investment at the time of Designation (assuming the effectiveness
of such Designation) in an amount (the "Designation Amount") equal to the
sum of (i) fair market value of the Capital Stock of such Subsidiary owned
by the Company and the Restricted Subsidiaries on such date and (ii) the
aggregate amount of other Investments of the Company and the Restricted
Subsidiaries in such Subsidiary on such date; and
(iii) the Company would be permitted to incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to
Section 5.12 at the time of Designation (assuming the effectiveness of such
Designation).
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section
5.3 for all purposes of this Indenture in the Designation Amount. The Company
shall not, and shall not permit any Restricted Subsidiary to, at any time (x)
provide direct or indirect credit support for or a guarantee of any Indebtedness
of any Unrestricted Subsidiary (including a guarantee of any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable with respect to any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable with respect to any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the occurrence
of a default with respect to any Indebtedness of any Unrestricted Subsidiary
(including any right to take enforcement action against such Unrestricted
Subsidiary), except, in the case of clause (x) or (y), to the extent permitted
under Section 5.3.
(b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then
constitute a Restricted Subsidiary, if:
(i) no Default or Event of Default shall have occurred and
be continuing at the time of and after giving effect to such Revocation;
and
(ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such Revocation would, if
incurred at such time, have been permitted to be incurred for all purposes
of this Indenture.
<PAGE>
58
All Designations and Revocations must be evidenced by Board
Resolution of the Company certifying compliance with the foregoing provisions
which shall be filed with the Trustee.
Section 5.19. Conduct of Business.
The Company and its Restricted Subsidiaries will not engage in
any businesses which are not the same, similar or related or incidental to the
businesses in which the Company and its Restricted Subsidiaries are engaged on
the Issue Date.
Section 5.20. Additional Subsidiary Guarantees.
If the Company or any of its Restricted Subsidiaries transfers or
causes to be transferred, in one transaction or a series of related
transactions, any property to any Restricted Subsidiary (other than a Foreign
Subsidiary, unless the Company elects to have a Foreign Subsidiary issue a
Guarantee) that is not a Subsidiary Guarantor, or if the Company or any of its
Restricted Subsidiaries shall organize, acquire or otherwise invest in a
Restricted Subsidiary (other than a Foreign Subsidiary, unless the Company
elects to have a Foreign Subsidiary issue a Guarantee) having total assets with
a book value in excess of $500,000, then such transferee or acquired or other
Restricted Subsidiary shall (i) promptly execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee all of the
Company's obligations under the Securities and this Indenture on the terms set
forth in this Indenture and (ii) deliver to the Trustee an Opinion of Counsel
that such supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Subsidiary Guarantor for all purposes of this
Indenture.
ARTICLE VI.
SUCCESSOR CORPORATION
Section 6.1. Limitations on Mergers and Certain Other Transactions.
(a) The Company will not, in a single transaction or series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Company's Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless:
(i) either (1) the Company shall be the surviving or
continuing corporation or (2) the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or the Person
which acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the
<PAGE>
59
Company and of the Company's Restricted Subsidiaries substantially as an
entirety (the "Surviving Entity") (x) shall be a corporation organized and
----------------
validly existing under the laws of the United States or any State thereof
or the District of Columbia and (y) shall expressly assume, by supplemental
indenture (in form and substance satisfactory to the Trustee), executed and
delivered to the Trustee, the due and punctual payment of the principal of,
and premium, if any, and interest on all of the Securities and the
performance of every covenant of the Securities, this Indenture and the
Registration Rights Agreement on the part of the Company to be performed or
observed;
(ii) immediately after giving effect to such transaction and
the assumption contemplated by clause (i)(2)(y) above (including giving
effect to any Indebtedness and Acquired Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be,
shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to Section 5.12;
(iii) immediately before and immediately after giving effect to
such transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred or be continuing; and
(iv) the Company or the Surviving Entity shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture
comply with the applicable provisions of this Indenture and that all
conditions precedent in this Indenture relating to such transaction have
been satisfied.
(b) For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries of the Company (other than to the Company or
another Restricted Subsidiary) the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
(c) Each Subsidiary Guarantor (other than any Subsidiary Guarantor
whose Guarantee is to be released in accordance with the terms of the Guarantee
and this Indenture in connection with any transaction complying with the
provisions of Section 5.16) will not, and the Company will not cause or permit
any Subsidiary Guarantor to, consolidate with or merge with or into any Person
other than the Company or any other Subsidiary Guarantor unless the Company
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Subsidiary Guarantor) or to which
such sale, lease, conveyance or
<PAGE>
60
other disposition shall have been made is a corporation organized and existing
under the laws of the United States or any State thereof or the District of
Columbia; (ii) such entity, if not already a Subsidiary Guarantor, assumes by
supplemental indenture all of the obligations of the Subsidiary Guarantor under
this Indenture; (iii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; and (iv)
immediately after giving effect to such transaction and the use of any net
proceeds therefrom on a pro forma basis, the Company could satisfy the
--- -----
provisions of clause (a)(ii) of this Section 6.1. Any merger or consolidation of
a Subsidiary Guarantor with and into the Company (with the Company being the
Surviving Entity) or another Subsidiary Guarantor that is a Wholly Owned
Restricted Subsidiary of the Company need only comply with clause (a)(iv).
Section 6.2. Successor Corporation Substituted.
Upon any consolidation, combination or merger or any transfer of
all or substantially all of the assets of the Company in accordance with Section
6.1, in which the Company is not the continuing corporation, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture and the Securities with the same effect as if such surviving
entity had been named as such.
ARTICLE VII.
DEFAULT AND REMEDIES
Section 7.1. Events of Default.
Each of the following events constitutes an "Event of Default":
(i) the failure to pay interest on any Securities when the
same becomes due and payable and the default continues for a period of 30
days (whether or not such payment shall be prohibited by Article Four or
Article Twelve);
(ii) the failure to pay the principal on any Securities,
when such principal becomes due and payable, at maturity, upon redemption
or otherwise (including the failure to make a payment to purchase
Securities tendered pursuant to a Change of Control Offer or a Net Proceeds
Offer) (whether or not such payment shall be prohibited by Article Four or
Article Twelve);
(iii) a default in the observance or performance of any other
covenant or agreement contained in this Indenture which default continues
for a period of 30 days after the Company receives written notice
specifying the default (and demanding that such default be remedied) from
the Trustee or the Holders of at least 25% of the outstanding principal
amount of the Securities (except in the case of a failure to comply with
Section 6.1, which will constitute an Event of Default with such notice
requirement but without such passage of time requirement);
<PAGE>
61
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary of the
Company, or the acceleration of the final stated maturity of any such
Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has been
accelerated, aggregates $10.0 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of
$10.0 million shall have been rendered against the Company or any of its
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(vi) the Company or any of its Significant Subsidiaries pursuant
to or within the meaning of any Bankruptcy Law: (a) commences a voluntary
case or proceeding; (b) consents to the entry of an order for relief
against it in an involuntary case or proceeding; (c) consents to the
appointment of a Custodian of it or for all or substantially all of its
property; (d) makes a general assignment for the benefit of its creditors;
or (e) generally is not paying its debts as they become due;
(vii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (a) is for relief against the Company
or any of its Significant Subsidiaries in an involuntary case or
proceeding; (b) appoints a Custodian of the Company or any of its
Significant Subsidiaries, or for all or any substantial part of their
respective properties; or (c) orders the liquidation of the Company or any
of its Significant Subsidiaries, and in each case the order or decree
remains unstayed and in effect for 60 days;
(viii) any of the Guarantees ceases to be in full force and
effect or any of the Guarantees is declared to be null and void and
unenforceable or any of the Guarantees is found to be invalid or any of the
Subsidiary Guarantors denies in writing its liability under its Guarantee
(other than by reason of release of a Subsidiary Guarantor in accordance
with the terms of this Indenture).
Section 7.2. Acceleration.
(a) Subject to Sections 4.2(b) and 12.2(c), if an Event of Default
(other than an Event of Default specified in clauses (vi) or (vii) of Section
7.1 with respect to the Company) shall occur and be continuing, the Trustee or
the Holders of at least 25% in principal amount of outstanding Securities may
declare the principal of and accrued interest on all the Securities to be due
and payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same shall become immediately due and payable.
- --------------------
If an Event of Default specified in clauses (vi) or (vii) of Section 7.1 with
respect to the Company occurs and is continuing, then all unpaid principal of,
and premium, if any, and accrued and unpaid
<PAGE>
62
interest on all of the outstanding Securities shall ipso facto become and be
---- -----
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
(b) At any time after a declaration of acceleration with respect
to the Securities as described in Section 7.2(a), the Holders of a majority in
principal amount of the Securities may rescind and cancel such declaration and
its consequences (i) if the rescission would not conflict with any judgment or
decree, (ii) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration, (iii) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been paid,
(iv) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances and (v) in
the event of the cure or waiver of an Event of Default of the type described in
clauses (vi) or (vii) of Section 7.1, the Trustee shall have received an
Officers' Certificate and an Opinion of Counsel that such Event of Default has
been cured or waived. No such rescission shall affect any subsequent Default or
impair any right consequent thereto.
(c) The Holders of a majority in principal amount of the
Securities may waive any existing Default or Event of Default under this
Indenture, and its consequences, except a default in the payment of the
principal of or interest on any Securities.
(d) Holders of the Securities may not enforce this Indenture or
the Securities except as provided in this Indenture and under the TIA. Subject
to the provisions of Article Eight, the Trustee is under no obligation to
exercise any of its rights or powers under this Indenture at the request, order
or direction of any of the Holders, unless such Holders have offered to the
Trustee reasonable indemnity. Subject to all provisions of Section 7.5 and
applicable law, the Holders of a majority in aggregate principal amount of the
then outstanding Securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee.
(e) The Company is required to provide an Officers' Certificate to
the Trustee promptly upon any such officer obtaining knowledge of any Default or
Event of Default (provided, that such officers shall provide such certification
--------
at least annually whether or not they know of any Default or Event of Default)
that has occurred and, if applicable, describe such Default or Event of Default
and the status thereof.
Section 7.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default
<PAGE>
63
shall not impair the right or remedy or constitute a waiver of or acquiescence
in the Event of Default. No remedy is exclusive of any other remedy. All
available remedies are cumulative to the extent permitted by law.
Section 7.4. Waiver of Past Defaults.
Subject to Sections 7.7 and 10.2, the Holders of a majority in
principal amount of the outstanding Securities by notice to the Trustee may
waive an existing Default or Event of Default and its consequences, except a
Default in the payment of principal of or interest on any Security as specified
in clauses (i) and (ii) of Section 7.1 (other than any such Default arising
solely by reason of acceleration of the Securities). When a Default or Event of
Default is waived, it is cured and ceases.
Section 7.5. Control by Majority.
Subject to Section 2.9, the Holders of a majority in principal
amount of the outstanding Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on it, including, without limitation, any remedies
provided for in Section 7.3. Subject to Section 8.1, however, the Trustee may
refuse to follow any direction that conflicts with any law or this Indenture,
that the Trustee determines may be unduly prejudicial to the rights of another
Holder, or that may involve the Trustee in personal liability; provided,
--------
however, that the Trustee may take any other action deemed proper by the Trustee
- -------
which is not inconsistent with such direction.
Section 7.6. Limitation on Suits.
A Holder may not pursue any remedy with respect to this Indenture
or the Securities unless:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holder or Holders of at least 25% in principal amount of
the outstanding Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense to be
incurred in compliance with such request;
(4) the Trustee does not comply with the request within 25 days
after receipt of the request and the offer of indemnity; and
(5) during such 25-day period the Holder or Holders of a majority
in principal amount of the outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
<PAGE>
64
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
Section 7.7. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right
of any Holder to receive payment of principal of and interest on a Security, on
or after the respective due dates expressed in such Security, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of the Holder.
Section 7.8. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest
specified in clause (i) or (ii) of Section 7.1 occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company or any other obligor on the Securities for the whole amount
of principal and accrued interest remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per annum
borne by the Securities and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 7.9. Trustee May File Proofs of Claim.
Subject to Sections 4.9 and 12.9, the Trustee 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 Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and the Holders allowed in any judicial proceedings relating to the
Company or any other obligor upon the Securities, any of their respective
creditors or any of their respective property and shall be entitled and
empowered to participate as a member, voting or otherwise, of any official
committee of creditors appointed in such matter and to collect and receive any
monies or other property payable or deliverable on any such claims and to
distribute the same, and any Custodian in any such judicial proceedings is
hereby authorized by each Holder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 8.7. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder,
or to authorize the Trustee to vote in respect of the claim of any Holder in any
such proceeding. The Trustee may enforce claims on behalf of Holders without
possession of such Holders' Securities.
Section 7.10. Priorities.
<PAGE>
65
If the Trustee collects any money pursuant to this Article Seven,
it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 8.7;
Second: subject to Article Four and Article Twelve, to Holders
for interest accrued on the Securities, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Securities for
interest;
Third: subject to Article Four and Article Twelve, to Holders
for principal amounts due and unpaid on the Securities, ratably, without
preference or priority of any kind, according to the amounts due and payable on
the Securities for principal; and
Fourth: subject to Article Four and Article Twelve, to the
Company or the Subsidiary Guarantors, as their respective interests may appear.
The Trustee, upon prior notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 7.10.
Section 7.11. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 7.12. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article Seven or by
law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
Section 7.13. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 7.13 does not
<PAGE>
66
apply to a suit by the Trustee, a suit by a Holder pursuant to Section 7.7, or a
suit by a Holder or Holders of more than 10% in principal amount of the
outstanding Securities.
ARTICLE VIII.
TRUSTEE
The Company hereby appoints and employs the Trustee and the
Trustee hereby accepts the express trust imposed upon it by this Indenture and
covenants and agrees to perform the same, subject to the conditions and terms
hereof.
Section 8.1. Duties of Trustee.
(a) If an Event of Default of which a Trust Officer of the Trustee
is actually aware has occurred and is continuing, the Trustee shall exercise
such of the rights and powers vested in it by this Indenture and use the same
degree of care and skill in its exercise thereof as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) Except during the continuance of an Event of Default of which
the Trust Officer of the Trustee is actually aware:
(1) The Trustee need undertake to perform only those duties as
are expressly and specifically set forth in this Indenture and no covenants or
obligations whatsoever shall be implied in this Indenture against the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture, but shall not be obligated
to verify the contents thereof.
(c) The Trustee shall have no liability except for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 8.1.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction received
by it pursuant to Section 7.5.
<PAGE>
67
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 8.1.
(f) The Trustee shall not be liable for interest on any assets
received by it. Assets held in trust by the Trustee need not be segregated from
other assets except to the extent required by law.
Section 8.2. Rights of Trustee.
Subject to Section 8.1:
(a) The Trustee may rely on and shall be protected in acting or
refraining from acting upon any document believed by it to be genuine and to
have been signed or presented by the proper Person, including, without
limitation, any Person purporting to be a holder of Senior Indebtedness or a
Representative. The Trustee need not investigate any fact or matter stated in
the document or the status of any such Person delivering such document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require in addition to the receipt of written
direction(s) from the Company accompanied by an Officers' Certificate or an
Opinion of Counsel, which opinion or certificate shall conform to Sections 13.4
and 13.5 of this Indenture. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any attorney or agent
appointed with due care.
(d) The Trustee shall not be liable for any action that it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers.
(e) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit; provided, however, that in so doing the Trustee shall not be deemed to
-------- -------
undertake any liability or additional duty hereunder.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the
<PAGE>
68
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
Section 8.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However,
the Trustee must comply with Sections 8.10 and 8.11.
Section 8.4. Trustee's Disclaimer.
The Trustee makes no representation or warranty and shall have no
liability whatsoever as to and for the validity or adequacy of this Indenture or
the Securities, it shall not be accountable for the Company's use of the
proceeds from the Securities, and it shall not be responsible for any statement
in the Securities or in any other document used in connection with the sale of
the Securities other than the Trustee's certificate of authentication.
Section 8.5. Notice of Default.
If a Default or an Event of Default occurs and is continuing and
if it is actually known to a Trust Officer of the Trustee, the Trustee shall
mail to each Holder notice of the Default or Event of Default within 90 days
after such Default or Event of Default occurs; provided, however, that, except
-------- -------
in the case of a Default or Event of Default in the payment of the principal of
or interest on any Security, including the failure to make payment on a Change
of Control Payment Date pursuant to a Change of Control Offer or payment when
due pursuant to a Net Proceeds Offer, the Trustee may withhold such notice if it
in good faith determines that withholding such notice is in the interest of the
Holders.
Section 8.6. Reports by Trustee to Holders.
Within 60 days after each April 30 beginning with the first April
30 following the date of this Indenture, the Trustee shall, to the extent that
any of the events described in TIA (S) 313(a) occurred within the previous
twelve months, but not otherwise, mail to each Holder a brief report dated as of
such April 30 that complies with TIA (S) 313(a). The Trustee also shall comply
with TIA Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to Holders shall
be mailed to the Company and filed with the Commission and each stock exchange,
if any, on which the Securities are listed.
The Company shall notify the Trustee in writing if the Securities
become listed on any stock exchange.
Section 8.7. Compensation and Indemnity.
<PAGE>
69
The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss or liability incurred by it except for such actions to the
extent caused by any negligence or willful misconduct on its part, arising out
of or in connection with the administration of this trust, including the costs
and expenses of enforcing this Indenture against the Company (including Section
8.7) and its rights or duties hereunder. The Trustee shall notify the Company
promptly of any claim asserted against the Trustee for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall cooperate
in the defense. The Trustee may have separate counsel and the Company shall pay
the reasonable fees and expenses of such counsel; provided, however, that the
-------- -------
Company will not be required to pay such fees and expenses if it assumes the
Trustee's defense and there is no conflict of interest between the Company and
the Trustee in connection with such defense as reasonably determined by the
Trustee. The Company need not pay for any settlement made without its written
consent, which consent shall not be unreasonably withheld or delayed. The
Company need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence, bad
faith or willful misconduct.
To secure the Company's payment obligations in this Section 8.7,
the Trustee shall have a lien prior to the Securities on all assets held or
collected by the Trustee, in its capacity as Trustee, except assets held in
trust to pay principal of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 7.1(vi) or (vii) occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 8.8. Replacement of Trustee.
The Trustee may resign by so notifying the Company. The Holders of
a majority in principal amount of the outstanding Securities may remove the
Trustee and appoint a successor trustee with the Company's consent, by so
notifying the Company and the Trustee. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 8.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
<PAGE>
70
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Securities may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 8.7, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Holder.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 8.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 8.8, the Company's obligations under Section 8.7 shall continue for the
benefit of the retiring Trustee.
Section 8.9. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
Section 8.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA (S)(S) 310(a)(1) and 310(a)(5). The Trustee shall have (or
in the case of a corporation trust company included in a bank holding company
system, the related bank holding company shall have) a combined capital and
surplus of at least $100.0 million as set forth in its most recent published
annual report of condition. The Trustee shall comply with TIA (S) 310(b);
provided, however, that there shall be excluded from the operation of TIA (S)
- -------- -------
310(b)(1) any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the Company
are outstanding, if the requirements for such exclusion set forth in TIA Section
310(b)(1) are met.
<PAGE>
71
Section 8.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE IX.
SATISFACTION AND DISCHARGE OF INDENTURE
Section 9.1. Termination of the Company's Obligations.
The Company may terminate its obligations under the Securities and
this Indenture, and the obligations of any Subsidiary Guarantor shall terminate,
except those obligations referred to in the penultimate paragraph of this
Section 9.1, if
(1) either (a) all Securities theretofore authenticated and
delivered (except lost, stolen or destroyed Securities which have been replaced
or paid or Securities for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in Section 9.4) have been
delivered to the Trustee for cancellation, or (b) all Securities not theretofore
delivered to the Trustee for cancellation have become due and payable and the
Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire Indebtedness on
the Securities not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Securities to the date of
deposit together with irrevocable instructions from the Company directing the
Trustee to apply such funds to the payment thereof at maturity or redemption, as
the case may be;
(2) the Company has paid all other sums payable by it hereunder;
and
(3) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for the termination of the Company's and any Subsidiary
Guarantor's obligations under the Securities and this Indenture have been
complied with.
Notwithstanding the foregoing paragraph, the Company's obligations
in Sections 2.5, 2.6, 2.7, 2.8, 5.1, 5.2 and 8.7 and any Subsidiary Guarantor's
obligations in respect thereof shall survive until the Securities are no longer
outstanding pursuant to the last paragraph of Section 2.8. After the Securities
are no longer outstanding, the Company's obligations in Sections 8.7, 9.4 and
9.5 any Subsidiary Guarantor's obligations in respect thereof shall survive.
After such delivery or irrevocable deposit the Trustee upon
request shall acknowledge in writing the discharge of the Company's and any
Subsidiary Guarantor's obligations under the Securities and this Indenture
except for those surviving obligations specified above.
<PAGE>
72
Section 9.2. Legal Defeasance and Covenant Defeasance.
(a) The Company may, at its option, and at any time, with respect
to the Securities, elect to have either paragraph (b) or paragraph (c) below be
applied to the outstanding Securities upon compliance with the conditions set
forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company and any Subsidiary Guarantor shall
be deemed to have been released and discharged from its obligations with respect
to the outstanding Securities on the date the conditions set forth below are
satisfied (hereinafter, "legal defeasance"). For this purpose, legal defeasance
----------------
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purposes of paragraph (e) below and
the other Sections of and matters under this Indenture referred to in (i) and
(ii) below, and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), and Holders of the Securities and the Guarantees and
any amounts deposited under paragraph (d) below shall cease to be subject to any
obligations to, or the rights of, any holder of Senior Indebtedness under
Article Four or Article Twelve or otherwise, except for the following which
shall survive until otherwise terminated or discharged hereunder: (i) the rights
of Holders to receive payments in respect of the principal of, premium, if any,
and interest on the Securities when such payments are due, (ii) the Company's
obligations with respect to such Securities under Sections 2.6, 2.7, 2.10 and
5.2, (iii) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and the Company's obligations in connection therewith and (iv) this
Section 9.2 and Section 9.5. Subject to compliance with this Section 9.2, the
Company may exercise its option under this paragraph (b) notwithstanding the
prior exercise of its option under paragraph (c) below with respect to the
Securities.
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be released and discharged
from its obligations under any covenant contained in Article Four and Article
Six and in Sections 5.3, 5.5 through 5.9 and 5.11 through 5.20 with respect to
the outstanding Securities on and after the date the conditions set forth below
are satisfied (hereinafter, "covenant defeasance"), and the Securities shall
-------------------
thereafter be deemed to be not "outstanding" for the purpose of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder and Holders of the Securities and
the Guarantees and any amounts deposited under paragraph (d) below shall cease
to be subject to any obligations to, or the rights of, any holder of Senior
Indebtedness under Article Four or Article Twelve or otherwise. For this
purpose, covenant defeasance means that, with respect to the outstanding
Securities, the Company and any Subsidiary Guarantor may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant listed above, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under
<PAGE>
73
Section 7.1(iii), but, except as specified above, the remainder of this
Indenture and such Securities shall be unaffected thereby.
(d) The following shall be the conditions to application of either
paragraph (b) or paragraph (c) above to the outstanding Securities:
(i) the Company must have irrevocably deposited with the Trustee
(or another trustee satisfying the requirements of Section 8.10 who shall
agree to comply with the provisions of this Section 9.2 applicable to it)
in trust, for the benefit of the Holders, cash in U.S. dollars, U.S.
Government Obligations, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
and interest on the Securities on the Maturity Date or Redemption Date, as
the case may be;
(ii) in the case of legal defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service
a ruling or (B) since the date of this Indenture, there has been a change
in the applicable federal income tax law, in either case to the effect
that, and based thereon such Opinion of Counsel shall confirm that, the
Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such legal defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such legal defeasance had not
occurred;
(iii) in the case of covenant defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result
of such covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such covenant defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as clauses (vi) or (vii)
of Section 7.1 are concerned, at any time in the period ending on the 91st
day after the date of deposit;
(v) such legal defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default under this
Indenture or any other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or
any of its Subsidiaries is bound;
(vi) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of
<PAGE>
74
defeating, hindering, delaying or defrauding any other creditors of the
Company or others;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the legal defeasance or the covenant
defeasance have been complied with; and
(viii) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that, after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally.
Notwithstanding the foregoing, the Opinion of Counsel required by
clause (ii) above with respect to a legal defeasance need not be delivered if
all Securities not theretofore delivered to the Trustee for cancellation (x)
have become due and payable, (y) will become due and payable on the maturity
date within one year or (z) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of a notice of
redemption by the Trustee in the name, and at the expense, of the Company.
(e) All money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee, collectively
for purposes of this paragraph (e), the "Trustee") pursuant to paragraph (d)
-------
above in respect of the outstanding Securities shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(other than the Company or any Affiliate of the Company), to the Holders of such
Securities of all sums due and to become due thereon in respect of principal,
premium and interest, but such money need not be segregated from other funds
except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to paragraph (d) above or the principal, premium, if any, and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding
Securities. The Company's obligations to pay and indemnify the Trustee as set
forth in this paragraph shall survive the termination of this Indenture and the
Securities.
Anything in this Section 9.2 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request,
in writing, by the Company any money or U.S. Government Obligations held by it
as provided in paragraph (d) above which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
legal defeasance or covenant defeasance.
<PAGE>
75
Section 9.3. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Sections 9.1 and 9.2, and shall apply
the deposited money and the money from U.S. Government Obligations in accordance
with this Indenture to the payment of principal of, premium, if any, and
interest on the Securities.
Section 9.4. Repayment to the Company or Subsidiary Guarantors.
Subject to Sections 8.7, 9.1 and 9.2, the Trustee shall promptly
pay to the Company, or if deposited with the Trustee by any Subsidiary
Guarantor, to such Subsidiary Guarantor, upon receipt by the Trustee of an
Officers' Certificate, any excess money, determined in accordance with Section
9.2, held by it at any time. The Trustee and the Paying Agent shall pay to the
Company or any Subsidiary Guarantor, as the case may be, upon receipt by the
Trustee or the Paying Agent, as the case may be, of an Officers' Certificate,
any money held by it for the payment of principal, premium, if any, or interest
that remains unclaimed for two years after payment to the Holders is required;
provided, however, that the Trustee and the Paying Agent before being required
- -------- -------
to make any payment may, but need not, at the expense of the Company cause to be
published once in a newspaper of general circulation in The City of New York or
mail to each Holder entitled to such money notice that such money remains
unclaimed and that after a date specified therein, which shall be at least 30
days from the date of such publication or mailing, any unclaimed balance of such
money then remaining will be repaid to the Company. After payment to the Company
or any Subsidiary Guarantor, as the case may be, Holders entitled to money must
look solely to the Company for payment as general creditors unless an applicable
abandoned property law designates another person, and all liability of the
Trustee or Paying Agent with respect to such money shall thereupon cease.
Section 9.5. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with this Indenture by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then and only then the Company's and each Subsidiary Guarantor's,
if any, obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had been made pursuant to this Indenture until
such time as the Trustee is permitted to apply all such money or U.S. Government
Obligations in accordance with this Indenture; provided, however, that if the
-------- -------
Company or the Subsidiary Guarantors, as the case may be, has made any payment
of principal of, premium, if any, or interest on any Securities because of the
reinstatement of its obligations, the Company or the Subsidiary Guarantors, as
the case may be, shall be subrogated to the rights of the holders of such
Securities to receive such payment from the money or U.S. Government Obligations
held by the Trustee or Paying Agent.
ARTICLE X.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
<PAGE>
76
Section 10.1. Without Consent of Holders.
The Company and the Subsidiary Guarantors, when authorized by a
Board Resolution, and the Trustee, together, may amend or supplement this
Indenture or the Securities without notice to or consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency, so long as
such change does not adversely affect the rights of any of the Holders in any
material respect; and
(2) to comply with Article Six.
Section 10.2. With Consent of Holders.
Subject to Section 7.7, the Company and each Subsidiary
Guarantor, when authorized by a Board Resolution, the Trustee and the Holders of
not less than a majority in aggregate principal amount of the Securities then
outstanding, may amend or supplement (or waive compliance with any provision of)
this Indenture, the Securities or any Guarantee without any notice to any other
Holder, except that without the consent of each Holder of the Securities
affected, no such amendment, supplement or waiver may:
(1) reduce the amount of the Securities whose Holders must
consent to an amendment, supplement or waiver of any provision of this
Indenture, the Securities or the Guarantees;
(2) reduce the rate of or change or have the effect of changing
the time for payment of interest, including defaulted interest, on any
Securities;
(3) reduce the principal of or change or have the effect of
changing the fixed maturity of any Securities, or change the date on which any
Securities may be subject to redemption or repurchase, or reduce the redemption
or repurchase price therefor;
(4) make any Securities payable in money other than that stated
in the Securities;
(5) make any changes in the provisions of this Indenture
protecting the right of each Holder to receive payment of principal of and
interest on such Securities on or after the due date thereof or to bring suit to
enforce such payment, or permitting the Holders of a majority in principal
amount of the Securities to waive Defaults or Events of Default;
(6) amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control Offer in
the event of a Change of Control or make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto;
(7) modify or change any of the subordination provision of this
Indenture or the related definitions in a manner that would adversely affect the
Holders; or
<PAGE>
77
(8) release all of the Subsidiary Guarantors at any one time from
all of their obligations under the Guarantees otherwise than in accordance with
the terms of this Indenture.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
In connection with any amendment, supplement or waiver under this
Article Ten, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
Section 10.3. Compliance with TIA.
From the date on which this Indenture is qualified under the TIA,
every amendment, waiver or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect.
Section 10.4. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is not
made on any Security. However, any such Holder or subsequent Holder may revoke
the consent as to his or her Security or portion of his or her Security by
notice to the Trustee or the Company received before the date on which the
Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Securities have consented (and not theretofore
revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
<PAGE>
78
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder, unless it makes a change described in Section 10.2, in
which case, the amendment, supplement or waiver shall bind only each Holder of a
Security who has consented to it and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security; provided, however, that any such waiver shall not impair or affect the
-------- -------
right of any Holder to receive payment of principal of and interest on a
Security, on or after the respective due dates expressed in such Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates without the consent of such Holder.
Section 10.5. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms.
Section 10.6. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Ten; provided, however, that the Trustee
-------- -------
may, but shall not be obligated to, execute any such amendment, supplement or
waiver which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Ten is
authorized or permitted by this Indenture.
ARTICLE XI.
GUARANTEE
Section 11.1. Unconditional Guarantee.
Each Subsidiary Guarantor hereby unconditionally guarantees (such
guarantee to be referred to herein as the "Guarantee"), on a senior subordinated
---------
basis, jointly and severally, subject to Article Twelve, to each Holder of a
Security authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, the Securities or the obligations of the Company
hereunder or thereunder, that: (i) the principal of and interest on the
Securities will be promptly paid in full when due, subject to any applicable
grace period, whether at maturity, by acceleration or otherwise and interest on
the overdue principal, if any, and interest on any interest, to the extent
lawful, of the Securities and all other obligations of the Company to the
Holders or the Trustee hereunder or thereunder will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; and (ii) in case
of any extension of time of payment or renewal of any Securities or of any such
other obligations, the
<PAGE>
79
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration or otherwise, subject, however, in
the case of clauses (i) and (ii) above, to the limitations set forth in Section
11.5. Each Subsidiary Guarantor hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Securities with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that this
Guarantee will not be discharged except by complete performance of the
obligations contained in the Securities, this Indenture and in this Guarantee.
If any Holder or the Trustee is required by any court or otherwise to return to
the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or
other similar official acting in relation to the Company or any Subsidiary
Guarantor, any amount paid by the Company or any Subsidiary Guarantor to the
Trustee or such Holder, this Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Subsidiary Guarantor further
agrees that, as between each Subsidiary Guarantor, on the one hand, and the
Holders and the Trustee, on the other hand, (x) the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article Seven for the
purposes of this Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article Seven, such obligations (whether or not due and payable)
shall forthwith become due and payable by each Subsidiary Guarantor for the
purpose of this Guarantee.
Section 11.2. Subordination of Guarantee.
The obligations of each Subsidiary Guarantor to the Holders of
Securities pursuant to the Guarantee and this Indenture are expressly
subordinate and subject in right of payment to the prior payment in full of all
Guarantor Senior Indebtedness of such Subsidiary Guarantor, to the extent and in
the manner provided in Article Twelve.
Section 11.3. Severability.
In case any provision of this Guarantee shall be invalid, illegal
or unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Section 11.4. Release of a Subsidiary Guarantor.
Upon the sale or disposition (whether by merger, stock purchase,
asset sale or otherwise) of a Subsidiary Guarantor (or all or substantially all
its assets) to an entity which is not a Subsidiary of the Company and which sale
or disposition is otherwise in compliance
<PAGE>
80
with the terms of this Indenture (including, without limitation, Sections 5.16
and 6.1), such Subsidiary Guarantor shall be deemed released from all
obligations under this Article Eleven without any further action required on the
part of the Trustee or any Holder; provided, however, that any such termination
-------- -------
shall occur only to the extent that all obligations of such Subsidiary Guarantor
under all of its guarantees of, and under all of its pledges of assets or other
security interests which secure, such Indebtedness of the Company shall also
terminate upon such release, sale or transfer.
The Trustee shall deliver an appropriate instrument evidencing such
release upon receipt of a request by the Company accompanied by an Officers'
Certificate certifying as to the compliance with this Section 11.4. Any
Subsidiary Guarantor not so released remains liable for the full amount of
principal of and interest on, and all other obligations under, the Securities as
provided in this Article Eleven.
Section 11.5. Limitation of Subsidiary Guarantor's Liability.
Each Subsidiary Guarantor and by its acceptance hereof each Holder
hereby confirms that it is the intention of all such parties that the guarantee
by such Subsidiary Guarantor pursuant to its Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law. To effectuate the foregoing intention, the
Holders and such Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under the Guarantee shall be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Subsidiary Guarantor (including, but not limited to,
the Guarantor Senior Indebtedness of such Subsidiary Guarantor) and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under its Guarantee or pursuant to Section 11.7, result in the
obligations of such Subsidiary Guarantor under the Guarantee not constituting
such fraudulent transfer or conveyance under federal or state law.
Section 11.6. Subsidiary Guarantors May Consolidate, etc., on Certain Terms.
(a) Nothing contained in this Indenture or in any of the
Securities shall prevent any consolidation or merger of a Subsidiary Guarantor
with or into the Company or another Subsidiary Guarantor or shall prevent any
sale or conveyance of the property of a Subsidiary Guarantor as an entirety or
substantially as an entirety, to the Company or another Subsidiary Guarantor.
Upon any such consolidation, merger, sale or conveyance, the Guarantee given by
such Subsidiary Guarantor shall no longer have any force or effect.
(b) Except as set forth in Article Five and Article Six hereof,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Subsidiary Guarantor with or into a corporation
or corporations other than the Company or another Subsidiary Guarantor (whether
or not affiliated with the Subsidiary Guarantor); provided, however, that,
-------- -------
subject to Sections 11.4 and 11.6(a), (i) immediately after such transaction,
and giving effect thereto, no Default or Event of Default shall have occurred as
<PAGE>
81
a result of such transaction and be continuing, and (ii) upon any such
consolidation, merger, sale or conveyance, the Guarantee set forth in this
Article Eleven, and the due and punctual performance and observance of all of
the covenants and conditions of this Indenture to be performed by such
Subsidiary Guarantor, shall be expressly assumed (in the event that the
Subsidiary Guarantor is not the surviving corporation in the merger), by
supplemental indenture satisfactory in form to the Trustee, executed and
delivered to the Trustee, by the corporation formed by such consolidation, or
into which the Subsidiary Guarantor shall have merged, or by the corporation
that shall have acquired such property. In the case of any such consolidation,
merger, sale or conveyance and upon the assumption by the successor corporation,
by supplemental indenture executed and delivered to the Trustee and satisfactory
in form to the Trustee of the due and punctual performance of all of the
covenants and conditions of this Indenture to be performed by the Subsidiary
Guarantor, such successor corporation shall succeed to and be substituted for
the Subsidiary Guarantor with the same effect as if it had been named herein as
a Subsidiary Guarantor; provided, however, that solely for purposes of computing
-------- -------
amounts described in subclause (c) of Section 5.3(a), any such successor
corporation shall only be deemed to have succeeded to and be substituted for any
Subsidiary Guarantor with respect to periods subsequent to the effective time of
such merger, consolidation or transfer of assets.
Section 11.7. Contribution.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under the Guarantee, such Funding Guarantor shall be
-----------------
entitled to a contribution from all other Subsidiary Guarantors in a pro rata
amount based on the Adjusted Net Assets of each Subsidiary Guarantor (including
the Funding Guarantor) for all payments, damages and expenses incurred by that
Funding Guarantor in discharging the Company's obligations with respect to the
Securities or any other Subsidiary Guarantor's obligations with respect to the
Guarantee. "Adjusted Net Assets" with respect to the Guarantee of such
-------------------
Subsidiary Guarantor at any date shall mean the lesser of the amount by which
(x) the fair value of the property of such Subsidiary Guarantor exceeds the
total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date (other than liabilities of such Subsidiary
Guarantor under Indebtedness which is subordinated to such Guarantee)), but
excluding liabilities under the Guarantee, of such Subsidiary Guarantor at such
date and (y) the present fair salable value of the assets of such Subsidiary
Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Subsidiary Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date (other than liabilities of such Subsidiary Guarantor under Indebtedness
which is subordinated to such Guarantee) and after giving effect to any
collection from any Subsidiary of such Subsidiary Guarantor in respect of the
obligations of such Subsidiary under the Guarantee), excluding debt in respect
of the Guarantee of such Subsidiary Guarantor, as they become absolute and
matured.
Section 11.8. Waiver of Subrogation.
<PAGE>
82
Each Subsidiary Guarantor hereby irrevocably waives any claim or
other rights which it may now or hereafter acquire against the Company that
arise from the existence, payment, performance or enforcement of such Subsidiary
Guarantor's obligations under the Guarantee and this Indenture, including,
without limitation, any right of subrogation, reimbursement, exoneration,
indemnification, and any right to participate in any claim or remedy of any
Holder of Securities against the Company, whether or not such claim, remedy or
right arises in equity, or under contract, statute or common law, including,
without limitation, the right to take or receive from the Company, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to any Subsidiary Guarantor in violation of the preceding sentence
and the Securities shall not have been paid in full, such amount shall have been
deemed to have been paid to such Subsidiary Guarantor for the benefit of, and
held in trust for the benefit of, the Holders of the Securities, and shall,
subject to the provisions of Section 11.2, Article Four and Article Twelve,
forthwith be paid to the Trustee for the benefit of such Holders to be credited
and applied upon the Securities, whether matured or unmatured, in accordance
with the terms of this Indenture. Each Subsidiary Guarantor acknowledges that it
will receive direct and indirect benefits from the financing arrangements
contemplated by this Indenture and that the waiver set forth in this Section
11.8 is knowingly made in contemplation of such benefits.
Section 11.9. Waiver of Stay, Extension or Usury Laws.
Each Subsidiary Guarantor covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive each
such Subsidiary Guarantor from performing its Guarantee as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) each such Subsidiary Guarantor hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
ARTICLE XII.
SUBORDINATION OF GUARANTEE OBLIGATIONS
Section 12.1. Guarantee Obligations Subordinated to Guarantor Senior
Indebtedness.
Anything herein to the contrary notwithstanding, each of the
Subsidiary Guarantors, for itself and its successors, and each Holder, by his or
her acceptance of Guarantees, agrees that the payment of all Obligations owing
to the Holders in respect of its Guarantee (collectively, as to any Subsidiary
Guarantor, its "Guarantee Obligations") is subordinated, to the extent and in
---------------------
the manner provided in this Article Twelve, to the prior payment in full in cash
or Cash Equivalents, or such payment duly provided for to the satisfaction of
the holders of Guarantor Senior Indebtedness, of all Obligations on Guarantor
<PAGE>
83
Senior Indebtedness of such Subsidiary Guarantor, including without limitation,
the Subsidiary Guarantors' obligations under the Bank Facility.
This Article Twelve shall constitute a continuing offer to all
Persons who become holders of, or continue to hold, Guarantor Senior
Indebtedness, and such provisions are made for the benefit of the holders of
Guarantor Senior Indebtedness and such holders are made obligees hereunder and
any one or more of them may enforce such provisions.
Section 12.2. Suspension of Guarantee Obligations When Guarantor Senior
Indebtedness in Default.
(a) If any default occurs and is continuing in the payment when
due, whether at maturity, upon any redemption, by declaration or otherwise, of
any principal or interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, any Designated Senior
Indebtedness of a Subsidiary Guarantor or guaranteed by a Subsidiary Guarantor
(which Designated Senior Indebtedness or guarantee, as the case may be,
constitutes Guarantor Senior Indebtedness of such Subsidiary Guarantor), no
payment of any kind or character shall be made by or on behalf of the Company or
any other Person on its or their behalf with respect to any Obligations on the
Securities or to acquire any of the Securities for cash or property or
otherwise. In addition, if any other event of default occurs and is continuing
with respect to any Designated Senior Indebtedness of a Subsidiary Guarantor, as
such event of default is defined in the instrument creating or evidencing such
Designated Senior Indebtedness, permitting the holders of such Designated Senior
Indebtedness then outstanding to accelerate the maturity thereof and if the
Representative for the respective issue of Designated Senior Indebtedness gives
a Default Notice, then, unless and until all events of default with respect to
such Designated Senior Indebtedness have been cured (if capable of being cured)
or waived in writing or have ceased to exist or the Trustee receives notice from
the Representative for the respective issue of Designated Senior Indebtedness
terminating the Blockage Period, during the Blockage Period, neither the Company
nor any other Person on its behalf shall (x) make any payment of any kind or
character with respects to any Obligations on the Securities or (y) acquire any
of the Securities for cash or property or otherwise. Notwithstanding anything
herein to the contrary, in no event will a Blockage Period extend beyond 179
days from the date the payment on the Securities was due and only one such
Blockage Period may be commenced within any 360 consecutive days. No event of
default which existed or was continuing on the date of the commencement of any
Blockage Period with respect to the Designated Senior Indebtedness shall be, or
be made, the basis for commencement of a second Blockage Period by the
Representative of such Designated Senior Indebtedness whether or not within a
period of 360 consecutive days, unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of commencement of such
Blockage Period, that in either case, would give rise to an event of default
pursuant to any provisions under which an event of default previously existed or
was continuing shall constitute a new event of default for this purpose).
<PAGE>
84
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 12.2(a), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Guarantor Senior Indebtedness
(pro rata to such holders on the basis of the respective amount of Guarantor
Senior Indebtedness held by such holders) or their respective Representatives,
as their respective interests may appear. The Trustee shall be entitled to rely
on information regarding amounts then due and owing on the Guarantor Senior
Indebtedness, if any, received from the holders of Guarantor Senior Indebtedness
(or their Representatives) or, if such information is not received from such
holders or their Representatives, from the Company and only amounts included in
the information provided to the Trustee shall be paid to the holders of
Guarantor Senior Indebtedness.
(c) Nothing contained in this Article Twelve shall limit the right of
the Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Section 7.2 or to pursue any rights or
remedies hereunder; provided, however, that so long as any Indebtedness
-------- -------
permitted to be incurred under this Indenture pursuant to the Bank Facility
shall be outstanding, no such acceleration shall be effective until the earlier
of (i) acceleration of any such Indebtedness under the Bank Facility or (ii)
five business days after giving notice to the Representative under the Bank
Facility of such acceleration, and all Guarantor Senior Indebtedness thereafter
due or declared to be due shall first be paid in full in cash or Cash
Equivalents before the Holders are entitled to receive any payment of any kind
or character with respect to Obligations on the Securities.
Section 12.3. Guarantee Obligations Subordinated to Prior Payment of All
Guarantor Senior Indebtedness on Dissolution, Liquidation or
Reorganization of Such Subsidiary Guarantor.
(a) Upon any payment or distribution of assets of any Subsidiary
Guarantor of any kind or character, whether in cash, property or securities to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of such
Subsidiary Guarantor, whether voluntary or involuntary, or in a bankruptcy,
reorganization, insolvency, receivership or other similar proceeding relating to
any Subsidiary Guarantor or its property, whether voluntary or involuntary, but
excluding any liquidation or dissolution of a Subsidiary Guarantor into the
Company or into another Subsidiary Guarantor:
(i) the holders of all Guarantor Senior Indebtedness of such
Subsidiary Guarantor shall first be entitled to receive payments in full in
cash or Cash Equivalents, or such payment duly provided for to the
satisfaction of the holders of Guarantor Senior Indebtedness, of all
amounts payable under Guarantor Senior Indebtedness before the Holders will
be entitled to receive any payment or distribution of any kind or character
on account of the Guarantee of such Subsidiary Guarantor, and until all
Obligations with respect to the Guarantor Senior Indebtedness are paid in
full in cash or Cash Equivalents, or such payment duly provided for to the
satisfaction of the holders of Guarantor Senior Indebtedness, any
distribution to which the Holders would be entitled
<PAGE>
85
shall be made to the holders of Guarantor Senior Indebtedness of such
Subsidiary Guarantor;
(ii) any payment or distribution of assets of such Subsidiary
Guarantor of any kind or character, whether in cash, property or
securities, to which the Holders or the Trustee on behalf of the Holders
would be entitled except for the provisions of this Article Twelve shall be
paid by the liquidating trustee or agent or other Person making such a
payment or distribution, directly to the holders of Guarantor Senior
Indebtedness of such Subsidiary Guarantor or their Representatives, ratably
according to the respective amounts of such Guarantor Senior Indebtedness
remaining unpaid held or represented by each, until all such Guarantor
Senior Indebtedness remaining unpaid shall have been paid in full in cash
or Cash Equivalents, or such payment duly provided for to the satisfaction
of the holders of Guarantor Senior Indebtedness, after giving effect to any
concurrent payment or distribution to the holders of such Guarantor Senior
Indebtedness; and
(iii) in the event that, notwithstanding the foregoing, any
payment or distribution of assets of such Subsidiary Guarantor of any kind
or character, whether such payment shall be in cash, property or
securities, and such Subsidiary Guarantor shall have made payment to the
Trustee or directly to the Holders or any Paying Agent in respect of
payment of the Guarantees before all Guarantor Senior Indebtedness of such
Subsidiary Guarantor is paid in full in cash or Cash Equivalents, or such
payment duly provided for to the satisfaction of the holders of Guarantor
Senior Indebtedness, such payment or distribution (subject to the
provisions of Sections 12.6 and 12.7) shall be received, segregated from
other funds, and held in trust by the Trustee or such Holder or Paying
Agent for the benefit of, and shall immediately be paid over by the Trustee
(if the notice required by Section 12.6 has been received by the Trustee)
or by the Holder to, the holders of such Guarantor Senior Indebtedness or
their Representatives, ratably according to the respective amounts of such
Guarantor Senior Indebtedness held or represented by each, until all such
Guarantor Senior Indebtedness remaining unpaid shall have been paid in full
in cash or Cash Equivalents, or such payment duly provided for to the
satisfaction of the holders of Guarantor Senior Indebtedness, after giving
effect to any concurrent payment or distribution to the holders of
Guarantor Senior Indebtedness.
(b) Each Subsidiary Guarantor shall give prompt notice to the
Trustee prior to any dissolution, winding-up, total or partial liquidation or
total or reorganization (including, without limitation, in bankruptcy,
insolvency, or receivership proceedings or upon any assignment for the benefit
of creditors or any other marshaling of such Subsidiary Guarantor's assets and
liabilities).
(c) To the extent any payment of Guarantor Senior Indebtedness
(whether by or on behalf of a Subsidiary Guarantor, as proceeds of security or
enforcement of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
than, if
<PAGE>
86
such payment is recovered by, or paid over to, such receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person, the Guarantor
Senior Indebtedness or part thereof originally intended to be satisfied shall be
deemed to be reinstated and outstanding as if such payment has not occurred.
Section 12.4. Holders of Guarantee Obligations To Be Subrogated to Rights of
Holders of Guarantor Senior Indebtedness.
(a) Subject to the payment in full in cash or Cash Equivalents,
or such payment duly provided for to the satisfaction of the holders of
Guarantor Senior Indebtedness, of all Guarantor Senior Indebtedness, the Holders
of Guarantee Obligations of a Subsidiary Guarantor shall be subrogated to the
rights of the holders of Guarantor Senior Indebtedness of such Subsidiary
Guarantor to receive payments or distributions of assets of such Subsidiary
Guarantor applicable to such Guarantor Senior Indebtedness until all amounts
owing on or in respect of the Guarantee Obligations shall be paid in full in
cash or Cash Equivalents, and for the purpose of such subrogation no payments or
distributions to the holders of such Guarantor Senior Indebtedness by or on
behalf of such Subsidiary Guarantor, or by or on behalf of the Holders by virtue
of this Article Twelve, which otherwise would have been made to the Holders
shall, as between such Subsidiary Guarantor and the Holders, be deemed to be
payment by such Subsidiary Guarantor to or on account of such Guarantor Senior
Indebtedness, it being understood that the provisions of this Article Twelve are
and are intended solely for the purpose of defining the relative rights of the
Holders, on the one hand, and the holders of such Guarantor Senior Indebtedness,
on the other hand.
(b) If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article Twelve shall
have been applied, pursuant to the provisions of this Article Twelve, to the
payment of all amounts payable under such Guarantor Senior Indebtedness, then
the Holders shall be entitled to receive from the holders of such Guarantor
Senior Indebtedness any such payments or distributions received by such holders
of such Guarantor Senior Indebtedness in excess of the amount sufficient to pay
all amounts payable under or in respect of such Guarantor Senior Indebtedness in
full in cash or Cash Equivalents, or such payment duly provided for to the
satisfaction of the holders of Guarantor Senior Indebtedness.
(c) Each Holder by purchasing or accepting a Security waives any
and all notice of the creation, modification, renewal, extension or accrual of
any Guarantor Senior Indebtedness of the Subsidiary Guarantors and notice of or
proof of reliance by any holder or owner of Guarantor Senior Indebtedness of the
Subsidiary Guarantors upon this Article Twelve and the Guarantor Senior
Indebtedness of the Subsidiary Guarantors shall conclusively be deemed to have
been created, contracted or incurred in reliance upon this Article Twelve, and
all dealings between the Subsidiary Guarantors and the holders and owners of the
Guarantor Senior Indebtedness of the Subsidiary Guarantors shall be deemed to
have been consummated in reliance upon this Article Twelve.
Section 12.5. Obligations of the Subsidiary Guarantors Unconditional.
<PAGE>
87
(a) Nothing contained in this Article Twelve or elsewhere in this
Indenture or in the Guarantees is intended to or shall impair, as between the
Subsidiary Guarantors and the Holders, the obligation of the Subsidiary
Guarantors, which is absolute and unconditional, to pay to the Holders all
amounts due and payable under the Guarantees as and when the same shall become
due and payable in accordance with their terms, or is intended to or shall
affect the relative rights of the Holders and creditors of the Subsidiary
Guarantors other than the holders of the Guarantor Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or any Holder from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article Twelve, of the
holders of Guarantor Senior Indebtedness in respect of cash, property or
securities of the Subsidiary Guarantors received upon the exercise of any such
remedy. Upon any payment or distribution of assets of any Subsidiary Guarantor
referred to in this Article Twelve, the Trustee, subject to the provisions of
Sections 8.1 and 8.2, and the Holders shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which any liquidation,
dissolution, winding-up or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent
or other Person making any payment or distribution to the Trustee or to the
Holders for the purpose of ascertaining the Persons entitled to participate in
such payment or distribution, the holders of Guarantor Senior Indebtedness and
other Indebtedness of any Subsidiary Guarantor, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article Twelve. Nothing in this Article Twelve
shall apply to the claims of, or payments to, the Trustee under or pursuant to
Section 8.7. The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or itself to be a holder of any
Guarantor Senior Indebtedness (or a trustee on behalf of, or other
representative of, such holder) to establish that such notice has been given by
a holder of such Guarantor Senior Indebtedness or a trustee or Representative on
be half of any such holder.
(b) In the event that the Trustee determines in good faith that
any evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article Twelve, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article Twelve, and if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 12.6. Trustee Entitled To Assume Payments Not Prohibited in Absence of
Notice.
The Trustee shall not at any time be charged with knowledge of
the existence of any facts that would prohibit the making of any payment to or
by the Trustee unless and until the Trustee or any Paying Agent shall have
received notice thereof from the Company or any Subsidiary Guarantor or from one
or more holders of Guarantor Senior Indebtedness or from any Representative
therefore and, prior to the receipt of any such notice, the Trustee, subject to
the provisions of Sections 8.1 and 8.2, shall be entitled in all respects
conclusively to assume (in the absence of actual knowledge to the contrary) that
no such fact exists.
<PAGE>
88
Section 12.7. Application by Trustee of Assets Deposited with It.
U.S. Legal Tender or U.S. Government Obligations deposited in
trust with the Trustee pursuant to and in accordance with Sections 9.1 and 9.2
shall be for the sole benefit of Holders of the Securities and, to the extent
allocated for the payment of Securities, shall not be subject to the
subordination provisions of this Article Twelve or Article Four. Otherwise, any
deposit of assets or securities by or on behalf of a Subsidiary Guarantor with
the Trustee or any Paying Agent (whether or not in trust) for payment of the
Guarantees shal l be subject to the provisional signs of this Article Twelve;
provided, however, that if prior to the second Business Day preceding the date
- -------- -------
on which by the terms of this Indenture any such assets may become distributable
for any purpose (including, without limitation, the payment of either principal
of or interest on any Security) the Trustee or such Paying Agent shall not have
received with respect to such assets the notice provided for in Section 12.6,
then the Trustee or such Paying Agent shall have full power and authority to
receive such assets and to apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary received by it
on or after such date. The foregoing shall not apply to the Paying Agent if the
Company or any Subsidiary or Affiliate of the Company is acting as Paying Agent.
Nothing contained in this Section 12.7 shall limit the right of the holders of
Guarantor Senior Indebtedness to recover payments as contemplated by this
Article Twelve.
Section 12.8. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Guarantor
Senior Indebtedness to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of any Subsidiary Guarantor or by any act or failure to act, by any such
holder, or by any non-compliance by any Subsidiary Guarantor with the terms,
provisions and covenants of this Indenture, regardless of any knowledge thereof
any such holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section 12.8, the holders of Guarantor Senior Indebtedness may, at any time and
from time to time, without the consent of or notice to the Trustee or the
Holders of the Securities, without incurring responsibility to the Holders of
the Securities and without impairing or releasing the subordination provided in
this Article Twelve or the obligations hereunder of the Holders of the
Securities to the holders of Guarantor Senior Indebtedness, do any one or more
of the following: (1) change the manner, place, terms or time of payment of, or
renew or alter, Guarantor Senior Indebtedness or any instrument evidencing the
same or any agreement under which Guarantor Senior Indebtedness is outstanding
or otherwise amend, renew, exchange, restate, modify or supplement in any manner
Guarantor Senior Indebtedness or any instrument evidencing or guaranteeing
Guarantor Senior Indebtedness or securing the same or any agreement under which
Guarantor Senior Indebtedness is outstanding; (2) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing
Guarantor Senior Indebtedness; (3) settle or compromise any Guarantor Senior
Indebtedness release any Person liable in any manner for the collection or
payment of Guarantor Senior Indebtedness; and (4) exercise or delay in or
refrain from exercising any rights against the Subsidiary Guarantors and any
other Person, fail to take or to record or otherwise perfect, for
<PAGE>
89
any reason or for no reason, any lien or security interest securing Guarantor
Senior Indebtedness, elect any remedy or otherwise deal freely with the Company.
Section 12.9. Holders Authorize Trustee To Effectuate Subordination of
Guarantee Obligations.
Each Holder of the Guarantee Obligations by its acceptance
thereof authorizes and expressly directs the Trustee on its behalf to take such
action as may be necessary or appropriate to effect the subordination provisions
contained in this Article Twelve, and appoints the Trustee its attorney-in-fact
for such purpose, including, in the event of any liquidation, dissolution,
winding-up, reorganization, assignment for the benefit of creditors or
marshaling of assets of any Subsidiary Guarantor tending towards liquidation or
reorganization of the business and assets of any Subsidiary Guarantor, the
immediate filing of a claim for the unpaid balance under its or his Guarantee
Obligations in the form required in said proceedings and cause said claim to be
approved. If the Trustee does not file a proper claim or proof of debt in the
form required in such proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then any of the other holders of the
Guarantor Senior Indebtedness or their Representative is hereby authorized, to
file an appropriate claim for and on behalf of the Holders of said Guarantee
Obligations. Nothing herein contained shall be deemed to authorize the Trustee
or the holders of Guarantor Senior Indebtedness or their Representative to
authorize or consent to or accept or adopt on behalf of any holder of Guarantee
Obligations any plan of reorganization, arrangement, adjustment or composition
affecting the Guarantee Obligations or the rights of any Holder thereof, or to
authorize the Trustee or the holders of Guarantor Senior Indebtedness or their
Representative to vote in respect of the claim of any holder of Guarantee
Obligations in any such proceeding.
Section 12.10. Right of Trustee To Hold Guarantor Senior Indebtedness.
The Trustee shall be entitled to all of the rights set forth in
this Article Twelve in respect of any Guarantor Senior Indebtedness at any time
held by it to the same extent as any other holder of Guarantor Senior
Indebtedness, and nothing in this Indenture shall be construed to deprive the
Trustee of any of its rights as such holder.
Section 12.11. No Suspension of Remedies.
(a) The failure to make a payment in respect of the Guarantees by
reason of any provision of this Article Twelve shall not be construed as
preventing the occurrence of a Default or an Event of Default under Section 7.1.
(b) Except as the effectiveness of acceleration is limited by
Section 12.2(c), nothing contained in this Article Twelve shall limit the right
of the Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Article Seven or to pursue any rights or
remedies hereunder or under applicable law, subject to the rights, if any, under
this Article Twelve of the holders, from time to time, of Guarantor Senior
Indebtedness.
<PAGE>
90
Section 12.12. No Fiduciary Duty of Trustee to Holders of Guarantor Senior
Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Guarantor Senior Indebtedness, and it undertakes to perform or
observe such of its covenants and obligations as are specifically set forth in
this Article Twelve, and no implied covenants or obligations with respect to the
Guarantor Senior Indebtedness shall be read into this Indenture against the
Trustee. The Trustee shall not be liable to any such holders (other than for
its willful misconduct or gross negligence) if it shall pay over or deliver to
the holders of Guarantee Obligations or the Guarantors or any other Person,
money or assets in compliance with the terms of this Indenture. Nothing in this
Section 12.12 shall affect the obligation of any Person other than the Trustee
to hold such payment for the benefit of, and to pay such payment over to, the
holders of Guarantor Senior Indebtedness or their Representative.
ARTICLE XIII.
MISCELLANEOUS
Section 13.1. TIA Controls.
If any provision of this Indenture limits, qualifies, or
conflicts with the duties imposed by operation of the TIA, the TIA shall
control.
Section 13.2. Notices.
Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by telex, by telecopier or registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
if to the Company or any Subsidiary Guarantor:
Rental Service Corporation
6929 E. Greenway Park
Suite 200
Scottsdale, Arizona 85254
Attention: Chief Executive Officer,
Chief Financial Officer and
Manager of Financial Reporting
with a copy to:
Latham & Watkins
633 W. Fifth Street
Suite 4000
Los Angeles, California 90071
Attention: Elizabeth Blendell
<PAGE>
91
if to the Trustee:
Norwest Bank Minnesota, N.A.
6th and Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Administration
Each of the Company, the Trustee and the Subsidiary Guarantors by
written notice to each other such person may designate additional or different
addresses for notices to such person. Any notice or communication to the
Company, the Trustee and the Subsidiary Guarantors shall be deemed to have been
given or made as of the date so delivered if personally delivered; when answered
back, if telexed; when receipt is acknowledged, if telecopied; and five (5)
calendar days after mailing if sent by registered or certified mail, postage
prepaid (except that any notice or communication to the Trustee or a notice of
change of address shall not be deemed to have been given until actually received
by the Trustee or the addressee, as applicable).
Any notice or communication mailed to a Holder shall be mailed to
him or her by first class mail or other equivalent means at his or her address
as it appears on the registration books of the Registrar and shall be
sufficiently given to him or her if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 13.3. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Securities. The
Company, the Subsidiary Guarantors, the Trustee, the Registrar and any other
person shall have the protection of TIA Section 312(c).
Section 13.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company, upon request, shall furnish
to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 13.5. Statements Required in Certificate or Opinion.
<PAGE>
92
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 5.7, shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or she
has made such examination or investigation as is necessary to enable him or her
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with; provided, however,
-------- -------
that with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
Section 13.6. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Paying Agent or Registrar may make reasonable rules for
its functions.
Section 13.7. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of
-------------
payment is a Saturday, a Sunday or a day on which banking institutions in New
York, New York, in the city in which the principal corporate trust office of the
Trustee is located or at such place of payment are not required to be open. If a
payment date is a Legal Holiday at such place, payment may be made at such place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
Section 13.8. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Indenture.
Section 13.9. No Adverse Interpretation of Other Agreements.
<PAGE>
93
This Indenture may not be used to interpret another indenture,
loan or debt agreement of any of the Company or any of its Subsidiaries. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 13.10. No Recourse Against Others.
No director, officer, employee, stockholder or incorporator of
the Company or its Subsidiaries, as such, shall have any liability for any
obligations of the Company under the Securities or this Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Security waives and releases all such
liability. Such waiver and release are part of the consideration for the
issuance of the Securities.
Section 13.11. Successors.
All agreements of the Company and each Subsidiary Guarantor in
this Indenture and the Securities shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successor.
Section 13.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
Section 13.13. Headings and Table of Contents.
The headings and table of contents contained in this Indenture
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Indenture.
Section 13.14. Severability.
In case any one or more of the provisions in this Indenture or in
the Securities shall be held invalid, illegal or unenforceable, in any respect
for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions shall
be enforceable to the full extent permitted by law.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
RENTAL SERVICE CORPORATION
By: /s/ Robert M. Wilson
------------------------------
Name: Robert M. Wison
Title: Senior Vice President
(Signature Page Continues)
<PAGE>
SUBSIDIARY GUARANTORS:
RSC ACQUISITION CORP.,
RSC ALABAMA, INC.,
RSC CENTER, INC.,
RSC DUVAL, INC.,
RSC HOLDINGS, INC.,
RSC INDUSTRIAL CORPORATION,
RSC RENTS, INC. and
WALKER JONES EQUIPMENT, INC., as guarantors
By: /s/ Robert M. Wilson
-------------------------------
Name: Robert M. Wilson
Title: Senior Vice President
(for each of the above-listed guarantors)
(Signature Page Continues)
<PAGE>
NORWEST BANK MINNESOTA, N.A., as Trustee
By: /s/ Raymond S. Haverstock
-------------------------------
Name: Raymond S. Haverstock
Title: Authorized Signatory
<PAGE>
1
EXHIBIT A
FORM OF SECURITY
[FACE OF SECURITY]
RENTAL SERVICE CORPORATION
9% Senior Subordinated Note due 2008
No. $_______________________
CUSIP No. ___________
RENTAL SERVICE CORPORATION, a Delaware corporation (the "Company,"
which term includes any successor corporation), for value received promises to
pay to CEDE & CO. or registered assigns, the principal sum of ________________
Dollars, on May 15, 2008.
Interest Payment Dates: May 15 and November 15 commencing on November
15, 1998.
Record Dates: May 1 and November 1.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
A-1
<PAGE>
2
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officer.
Dated: May 15, 1998
RENTAL SERVICE CORPORATION
By:
-------------------------------
Name:
Title:
Trustee's Certification of Authentication
This is one of the 9% Senior Subordinated Notes Due 2008 described in the
within-mentioned Indenture.
NORWEST BANK MINNESOTA, N.A.,
as Trustee
By:
-------------------------------
Authorized Signatory
A-2
<PAGE>
3
[REVERSE SIDE OF SECURITY]
RENTAL SERVICE CORPORATION
9% SENIOR SUBORDINATED NOTE DUE 2008
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE
WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE
LAST DATE ON WHICH RENTAL SERVICE CORPORATION OR ANY AFFILIATE OF RENTAL SERVICE
CORPORATION WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY)
ONLY (A) TO RENTAL SERVICE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, AND TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES TO NON- U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPHS (a)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT (AND IF ACQUIRING THE SECURITIES FROM SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," IS ACQUIRING SECURITIES HAVING AN AGGREGATE PRINCIPAL
AMOUNT OF NOT LESS THAN $250,000), OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; SUBJECT IN
EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF
ITS PROPERTY OR THE PROPERTY OF SUCH INVESTOR ACCOUNT OR ACCOUNTS BE AT ALL
TIMES WITHIN ITS OR THEIR CONTROL AND IN COMPLIANCE WITH ANY APPLICABLE STATE
SECURITIES LAWS PROVIDED THAT RENTAL SERVICE CORPORATION AND THE TRUSTEE SHALL
HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSES
(D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF
A-3
<PAGE>
4
THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE TRUSTEE.
1. Interest.
RENTAL SERVICE CORPORATION (the "Company"), promises to pay
interest on the principal amount of this Security at the rate per annum shown
above. The Company will pay interest semi-annually on each May 15 and November
15 of each year (the "Interest Payment Date"), commencing on November 15, 1998,
to the Holders of record on the immediately preceding May 1 and November 1.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance of the Securities. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
The Company shall pay interest on overdue principal and interest on
overdue installments of interest, to the extent lawful, at a rate equal to the
rate of interest otherwise payable on the Securities.
Pursuant to a registration rights agreement (the "Registration
Rights Agreement") dated as of the date hereof, the Company and the Subsidiary
Guarantors have agreed to register the Securities and the guarantees thereof
under the Act. The Securities are subject to the payment of additional interest
if the Company is not in compliance with its obligations under the Registration
Rights Agreement within the time periods specified therein.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the interest Payment Date even if the
Securities are canceled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
its check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address. Notwithstanding the foregoing, the Company shall pay or cause to be
paid all amounts payable with respect to non-DTC eligible Securities by wire
transfer of Federal funds to the account of the Holders of such Securities.
3. Paying Agent and Registrar.
Initially, Norwest Bank Minnesota, N.A. (the "Trustee") will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-Registrar without notice to the Holders. The Company or any of its
Subsidiaries may, subject to certain exceptions, act as Paying Agent, Registrar
or co-Registrar.
A-4
<PAGE>
5
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture, dated as of
May 13, 1998 (the "Indenture"), among the Company, the Subsidiary Guarantors and
the Trustee. Capitalized terms herein are used as defined in the Indenture
unless otherwise defined herein. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) (the "TIA"), as
in effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and Holders of Securities
are referred to the Indenture and said Act for a statement of them. The
Securities are general unsecured obligations of the Company limited in aggregate
principal amount not to exceed $300.0 million, of which $200.0 million will be
offered as of the Issue Date and will mature on May 15, 2008. Payment on each
Security is guaranteed on a senior subordinated basis, jointly and severally, by
the Subsidiary Guarantors pursuant to Article Eleven of the Indenture.
5. Optional Redemption.
On or after May 15, 2003, the Securities may be redeemed in whole
at any time or in part from time to time, at the option of the Company, upon not
less than 30 nor more than 60 days notice, at a redemption price equal to the
applicable percentage of the principal amount thereof set forth below, together
with accrued and unpaid interest (if any) to the Redemption Date, if redeemed
during the twelve-month period commencing on May 15 of the year set forth below:
<TABLE>
<CAPTION>
Year Redemption Price
<S> <C>
2003.................. 104.500%
2004.................. 103.000%
2005.................. 101.500%
2006 and thereafter... 100.000%
</TABLE>
In addition, on or prior to May 15, 2001, the Company may, at its
option, use the net cash proceeds of one or more Equity Offering to redeem the
Securities at a Redemption Price equal to 109% of the principal amount thereof
plus accrued and unpaid interest thereon, if any, to the Redemption Date;
provided, that at least 65% of the principal amount of Securities originally
- --------
issued remains outstanding immediately after any such redemption. In order to
effect the foregoing redemption with the proceeds of any Equity Offering, the
Company shall make such redemption not more than 120 days after the consummation
of any such Equity Offering.
6. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder of Securities to be
redeemed at such Holder's registered address. In order to effect a redemption
with the proceeds of a Public Equity Offering, the Company shall send the
redemption notice not later than 120 days after the
A-5
<PAGE>
6
consummation of such Equity Offering. Securities in denominations larger than
$1,000 may be redeemed in part.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent for redemption on such Redemption Date
and payment of the Securities called for redemption is not prohibited under
Article Four or Article Twelve of the Indenture, then, unless the Company
defaults in the payment of such Redemption Price, the Securities called for
redemption will cease to bear interest and the only right of the Holders of such
Securities will be to receive payment of the Redemption Price.
7. Change of Control Offer.
Upon the occurrence of a Change of Control, each Holder shall have the
right to require the repurchase of such Holder's Securities pursuant to a Change
of Control Offer at a purchase price equal to 101% of the principal amount
thereof plus accrued interest, if any, to the date of purchase. The Company
shall not be required to make a Change of Control Offer, as provided above, if,
in connection with any Change of Control, it had made an offer to purchase (an
"Alternate Offer") any and all Securities validly tendered at a cash price equal
to or higher than the Change of Control Offer Price and has purchased all
Securities properly tendered in accordance with the terms of such Alternate
Offer.
8. Limitation on Asset Sales.
Under certain circumstances the Company is required to apply the net
proceeds from Asset Sales to the repayment of Senior Indebtedness, an investment
in properties and assets that replace the properties and assets that are the
subject of such Asset Sale, an investment in properties and assets that will be
used in the business of the Company and its Restricted Subsidiaries existing on
the Issue Date or in businesses reasonably related thereto or to purchase in a
Net Proceeds Offer (at a price equal to 100% of the aggregate principal amount
thereof, plus accrued interest to the date of purchase) such aggregate principal
amount of Securities which, when added to the accrued interest thereon, shall be
equal to the net proceeds required to be applied thereto.
9. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption.
10. Persons Deemed Owners.
A-6
<PAGE>
7
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
11. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee and the Paying Agents will pay the money back to the
Company at its request. After that, all liability of the Trustee and such
Paying Agents with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity.
If the Company at any time deposits with the Trustee U.S. Legal Tender
or U.S. Government Obligations sufficient to pay the principal of and interest
on the Securities to redemption or maturity and complies with the other
provisions of the Indenture relating thereto, the Company will be discharged
from certain provisions of the Indenture and the Securities (including the
financial covenants, but excluding its obligation to pay the principal of and
interest on the Securities).
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Securities and the
Guarantees may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding except a
default in payment of the principal of or interest on any Securities. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Securities to, among other things, cure any ambiguity,
defect or inconsistency, comply with Article Six or Section 11.6 of the
Indenture, so long as such change does not adversely affect the rights of any of
the Holders in any material respect.
14. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Subsidiaries to, among other things, incur additional
Indebtedness or Liens, make payments in respect of its Capital Stock and merge
or consolidate with any other person and sell, lease, transfer or otherwise
dispose of substantially all of its properties or assets. The limitations are
subject to a number of important qualifications and exceptions. The Company
must annually report to the Trustee on compliance with such limitations.
15. Subordination.
The Securities will be subordinated in right of payment, in the manner
and to the extent set forth in the Indenture, to the prior payment in full of
all Senior Indebtedness of the Company. The Guarantees are subordinated in
right of payment, in the manner and to the extent set forth in the Indenture, to
the prior payment in full of Guarantor Senior Indebtedness.
A-7
<PAGE>
8
To the extent and in the manner provided in the Indenture, Senior Indebtedness,
and in the case of payment by a Subsidiary Guarantor, Guarantor Senior
Indebtedness, must be paid before any payment may be made to any Holder of this
Security. Any Holder by accepting this Security agrees to the subordination and
authorizes the Trustee to give it effect.
16. Successors.
When a successor assumes all the obligations of its predecessor under
the Securities and the Indenture, the predecessor will be released from those
obligations.
17. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Securities. Subject to certain limitations,
Holders of a majority in aggregate principal amount of the Securities then
outstanding may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of Securities notice of any continuing Default
or Event of Default (except a Default in payment of principal or interest) if it
determines that withholding notice is in their interest.
18. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
19. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as such,
of the Company shall have any liability for any obligation of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
20. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on this Security.
21. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the
A-8
<PAGE>
9
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
22. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities immediately prior to the qualification of the
Indenture under the TIA as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture.
A-9
<PAGE>
10
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
________________________________________________________________________________
(Print or type assignee's Social Security or other identifying number)
and irrevocably appoint_________________________________________________________
as agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him or her.
Dated:________________ Signature:________________________________
(Sign exactly as your name appears on the face of this
Security)
Signature Guarantee:_________________________________
Note: Signature must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Security
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) the second anniversary of the Issue Date (provided,
--------
however, that neither the Company nor any affiliate of the Company has held any
- -------
beneficial interest in such Security, or portion thereof, at any time on or
prior to the second anniversary of the Issue Date), the undersigned confirms
that it has not utilized any general solicitation or general advertising in
connection with the transfer:
A-10
<PAGE>
11
[Check One]
(1) ____ to the Company or a Subsidiary thereof; or
(2) ____ pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended; or
(3) ____ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as
amended) that has furnished to the Trustee a signed letter containing
certain representations and agreements (the form of which letter can
be obtained from the Trustee); or
(4) ____ outside the United states to a "foreign person'' in compliance with
Rule 904 of Regulation S under the Securities Act of 1933, as amended;
or
(5) ____ pursuant to the exemption from registration provided by Rule 144
under the Securities Act of 1933, as amended; or
(6) ____ pursuant to an effective registration statement under the Securities
Act of 1933, as amended; or
(7) ____ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Security
is not being transferred to an "affiliate"' of the Company as defined in Rule
144 under the Securities Act of 1933, as amended (an "Affiliate"):
The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided, however, that if item (3), (4),
-------- -------
(5) or (7) is checked, the Company or the Trustee may require, prior to
registering any such transfer of the Securities, in their sole discretion, such
written legal opinions, certifications (including an investment letter in the
case of box (3) or (4)) and other information as the Trustee or the Company have
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.
If none of the foregoing items are checked, the Trustee or Registrar
shall not be obligated to register this Security in the name of any person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.17 of the Indenture shall have
been satisfied.
Dated: ____________________ Signed: ________________________________
A-11
<PAGE>
12
(Sign exactly as your name appears on the other
side of this Security)
Signature Guarantee: ___________________________________________________________
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: _________________________ Signed: ____________________________________
NOTICE: To be executed by an executive officer
A-12
<PAGE>
13
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 5.15 or 5.16 of the Indenture, check the space below:
__ Section 5.15 __ Section 5.16
If you want to elect to have only part of the Security purchased by
the Company pursuant to Section 5.15 or Section 5.16 of the Indenture, as the
case may be, state the amount you elect to have purchased: $_________________.
Date:_______________________
_______________________________________________________
(Sign exactly as your name appears on the face of this
Security)
Tax Identification No: ________________________________
_______________________________________________________
(Signature Guaranteed)
Note: Signature must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.
A-13
<PAGE>
1
EXHIBIT B
[FORM OF LEGEND FOR GLOBAL SECURITIES]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR
BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO
A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.17 OF THE INDENTURE.
B-1
<PAGE>
1
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
_____________ __, ____
[Address]
Re: RENTAL SERVICE CORPORATION (the "Company") -
9% Senior Subordinated Notes due 2008 (the "Notes")
---------------------------------------------------
_______________________
Ladies and Gentlemen:
In connection with our proposed purchase of 9% Senior Subordinated
Notes due 2008 (the "Notes") of RENTAL SERVICE CORPORATION (the "Company"), we
confirm that:
1. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the indenture
relating to the Notes (the "Indenture") and the undersigned agrees to be bound
by, and not to resell, pledge or otherwise transfer the Notes except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act"), and all applicable State securities
laws.
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act or any other applicable securities law, and
that the Notes may not be offered or sold within the United States or to, or for
the account or benefit of, U.S. persons except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which
we are acting as hereinafter stated, that if we should sell any Notes, we will
do so only (i) to the Company or any subsidiary thereof, (ii) inside the United
States in accordance with Rule 144A under the Securities Act to a person who we
reasonably believe is a "qualified institutional buyer" (as defined in Rule 144A
promulgated under the Securities Act), (iii) inside the United States to an
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
the Trustee (as defined in the Indenture) a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Notes (the form of which letter can be obtained from the Trustee), (iv) outside
the United States in accordance with Rule 904 of Regulation S promulgated under
the Securities Act, (v) pursuant to the exemption from registration provided by
Rule 144 under the Securities Act (if available), or (vi) pursuant to an
effective registration statement under the Securities Act, and we further agree
to provide to any person purchasing any of the Notes from us a notice advising
such purchaser that resales of the Notes are restricted as stated herein.
3. We understand that, on any proposed resale of any Notes, we will
be required to furnish to the Trustee and the Company such certification, legal
opinions and other information as the Trustee and the Company may reasonably
require to confirm that the
C-1
<PAGE>
proposed sale complies with the foregoing restrictions. We further understand
that the Notes purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or their investment, as the case may be.
5. We are acquiring the Notes purchased by us for our account or for
one or more accounts (each of which is an institutional "accredited investor")
as to each of which we exercise sole investment discretion.
6. We have received a copy of the Company's Offering Memorandum
dated May __, 1998 and acknowledge that we have had access to such financial and
other information and have been afforded the opportunity to ask such questions
of representatives of the Company and receive answers thereto, as we deem
necessary in connection with our decision to purchase the Notes.
You, the Company, the Trustee, the Initial Purchasers and others are
entitled to rely upon this letter and are irrevocably authorized to produce this
letter or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
__________________________________________
[Name of Transferee]
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
C-2
<PAGE>
1
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
______________ ___, _____
[Address]
Re: RENTAL SERVICE CORPORATION (the "Company") -
9% Senior Subordinated Notes due 2008 (the "Notes")
_______________________
Ladies and Gentlemen:
In connection with our proposed sale of $[_________] aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United States, or
(b) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither we nor any person acting on
our behalf knows that the transaction has been prearranged with a buyer in the
United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S,
as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Notes.
You, the Company, the Trustee and counsel for the Company are entitled
to rely upon this letter and are irrevocably authorized to produce this letter
or a copy hereof to any interested party in any administrative or legal
proceedings or official inquiry with respect to the matters covered hereby.
Terms used in this certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferee]
D-1
<PAGE>
2
By: _________________________________________
Authorized Signature
D-2
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF LATHAM & WATKINS]
June 11, 1998
Rental Service Corporation
6929 E. Greenway Parkway, Suite 200
Scottsdale, AZ 85254
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
In connection with the registration of $200,000,000 aggregate principal
amount of 9% Senior Subordinated Notes due 2008 (the "New Notes") by Rental
Service Corporation, a Delaware corporation (the "Company"), together with the
guarantees of the New Notes pursuant to Article XI of the Indenture (as
defined herein) (the "Subsidiary Guarantees") by RSC Acquisition Corp., RSC
Alabama, Inc., RSC Center, Inc., RSC Duval Inc., RSC Holdings, Inc., RSC
Industrial Corporation, RSC Rents, Inc. and Walker Jones Equipment, Inc.
(collectively, the "Subsidiary Guarantors"), on Form S-4 filed with the
Securities and Exchange Commission (the "Commission") herewith (the
"Registration Statement"), you have requested our opinion with respect to the
matters set forth below. The New Notes will be issued pursuant to an indenture
(the "Indenture"), dated as of May 13, 1998, among the Company, the Subsidiary
Guarantors and Norwest Bank Minnesota, N.A., as trustee (the "Trustee"). The
New Notes will be issued in exchange for the Company's outstanding 9% Senior
Subordinated Notes due 2008 (the "Old Notes") on the terms set forth in the
prospectus contained in the Registration Statement and the Letter of
Transmittal filed as an exhibit thereto (the "Exchange Offer").
In our capacity as your special counsel, we have made such legal and factual
examinations and inquiries, including an examination of originals or copies
certified or otherwise identified to our satisfaction of such documents,
corporate records and instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
to authentic original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transactions only of
the internal laws of the State of New York and the General Corporation Law of
the State of Delaware and we express no opinion with respect to the
applicability thereto, or the effect thereon, of the laws of any other
jurisdiction or, in the case of Delaware, any other laws, or as to any matters
of municipal law or the laws of any local agencies within any state.
Subject to the foregoing and the other matters set forth herein, it is our
opinion that, as of the date hereof:
1. The New Notes have been duly authorized by all necessary corporate
action of the Company, and when duly executed, authenticated and delivered
in accordance with the terms of the Exchange Offer and the Indenture, will
constitute legally valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms.
2. Each of the Subsidiary Guarantees has been duly authorized by all
necessary corporate action of the respective Subsidiary Guarantors, and
upon due execution, authentication and delivery of the New Notes in
accordance with the terms of the Exchange Offer and the Indenture, will be
legally valid and binding obligations of the respective Subsidiary
Guarantors, enforceable against the Subsidiary Guarantors in accordance
with their terms.
<PAGE>
The opinions rendered in paragraphs 1 and 2 above are subject to the
following exceptions, limitations and qualifications: (i) the effect of
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws now or hereafter in effect relating to or affecting the
rights and remedies of creditors; and (ii) the effect of general principles of
equity, whether enforcement is considered in a proceeding in equity or at law,
and the discretion of the court before which any proceeding therefor may be
brought.
To the extent that the obligations of the Company and the Subsidiary
Guarantors under the Indenture may be dependent upon such matters, we have
assumed for purposes of this opinion that (i) the Trustee is validly existing
and in good standing under the laws of its jurisdiction of organization; (ii)
the Trustee has been duly qualified to engage in the activities contemplated
by the Indenture; (iii) the Trustee is in compliance generally, and with
respect to acting as Trustee under the Indenture, with all applicable laws and
regulations; and (iv) the Trustee has the requisite organization and other
power and authority to perform its obligations under the Indenture.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained under the heading "Legal
Matters."
Very truly yours,
/s/ Latham & Watkins
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF LATHAM & WATKINS]
June 11, 1998
Rental Service Corporation
6929 E. Greenway Parkway
Suite 200
Scottsdale, Arizona 85254
Re: Rental Service Corporation--Registration of
9% Senior Subordinated Notes due 2008
Ladies and Gentlemen:
You have requested our opinion concerning the material federal income tax
consequences expected to result to holders from the exchange of 9% Senior
Subordinated Notes due 2008 of Rental Service Corporation, a Delaware
corporation (the "Company"), for outstanding 9% Senior Subordinated Notes due
2008 of the Company, in connection with the Registration Statement on Form S-4
filed herewith (the "Registration Statement").
The facts, as we understand them, and upon which with your permission we
rely in rendering the opinion expressed herein, are set forth in the
Registration Statement. Based on such facts, we confirm that the information
in the Registration Statement set forth under the caption "Material Federal
Income Tax Considerations" constitutes our opinion as to the material federal
income tax consequences of the exchange of Private Notes for Exchange Notes to
holders of Private Notes.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation
or difference in the facts from those set forth in the Registration Statement
may affect the conclusion stated herein.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the headings "Material
Federal Income Tax Considerations" and "Legal Matters."
Very truly yours,
/s/ Latham & Watkins
<PAGE>
EXHIBIT 10.9
FIRST AMENDMENT AND CONSENT
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT AND CONSENT TO SECOND AMENDED AND RESTATED CREDIT
AGREEMENT (this "First Amendment") dated as of April 30, 1998 relates to that
---------------
certain Second Amended and Restated Credit Agreement dated as of December 2,
1997 (as amended, restated, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among RSC Alabama, Inc., RSC Center, Inc.
----------------
(formerly known as The Air & Pump Company), RSC Duval Inc., RSC Industrial
Corporation, RSC Rents, Inc. and Walker Jones Equipment, Inc. (collectively, the
"Borrowers"), RSC Acquisition Corp., RSC Holdings, Inc. and Rental Service
---------
Corporation (collectively, the "Parent Guarantors"), each financial institution
-----------------
identified on Annex I thereto (together with its successors and permitted
assigns pursuant to Section 12.8 thereof, a "Lender"), 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 thereof, the "Agent").
-----
1. DEFINITIONS. Capitalized terms used and not otherwise defined
-----------
herein have the meanings assigned to them in the Credit Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT. Upon the "Amendment
----------------------------------
Effective Date" (as defined in Section 5 below), the Credit Agreement is hereby
amended as follows:
2.1 AMENDMENTS TO SECTION 1.1. Section 1.1 of the Credit
-------------------------
Agreement is hereby amended as follows:
(a) the definition of "Applicable Eurodollar Rate Margin" is
amended and restated in its entirety to read as set forth on Exhibit I
---------
attached hereto and made a part hereof;
(b) the definition of "Applicable Prime Rate Margin" is
amended and restated in its entirety to read as set forth on Exhibit
-------
II attached hereto and made a part hereof;
--
(c) the definition of "Asset Sale" is amended and restated
in its entirety to read as follows:
Asset Sale means (i) 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)
<PAGE>
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) and (ii) any
event constituting, or which is deemed to be, an "Asset Sale" (as
defined in the Senior Subordinated Note Indenture).
(d) the definition of "Change in Control" is amended as
follows:
(i) to delete in its entirety the word "or" at the
end of clause (ii) thereof;
(ii) to delete in its entirety the period (".") at the
end of clause (iii) thereof and to substitute "; or" in lieu
thereof; and
(iii) to add the following as clause (iv) thereof:
(iv) a "Change of Control" (as defined in the
Senior Subordinated Note Indenture).
(e) the following definition of "First Amendment" is added
to Section 1.1 of the Credit Agreement in proper alphabetical order:
First Amendment means the First Amendment and Consent dated
---------------
as of April 30, 1998 to Second Amended and Restated Credit
Agreement dated as of December 2, 1997, among the Borrowers, the
Parent Guarantors, the Agent and the Lenders.
(f) the following definition of "First Amendment Effective
Date" is added to Section 1.1 of the Credit Agreement in proper
alphabetical order:
First Amendment Effective Date means the "Amendment
------------------------------
Effective Date" under (and as defined in) the First Amendment.
(g) the definition of "Net Cash Proceeds" is amended and
restated in its entirety to read as follows:
Net Cash Proceeds means, with respect to any Asset Sale
-----------------
relating to any property of any Credit Party or its Subsidiaries,
(i) 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
-2-
<PAGE>
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 and (ii)
any other net proceeds which constitute or are deemed "Net Cash
Proceeds" (as defined in the Senior Subordinated Note Indenture).
(h) the definition of "Permitted Subordinated Indebtedness"
is amended and restated in its entirety to read as follows:
Permitted Subordinated Indebtedness means the Senior
-----------------------------------
Subordinated Notes issued by RSC and the unsecured guarantee(s)
thereof by certain of the other Credit Parties, in each case on
the terms set forth in the Senior Subordinated Note Indenture.
(i) the definition of "Pro Forma" is amended and restated in
its entirety to read as follows:
Pro Forma means the unaudited pro forma consolidated balance
---------
sheet of RSC, dated as of March 31, 1998, and giving effect to
the issuance of the Senior Subordinated Notes, the consummation
of the acquisitions described therein and the extensions of
credit contemplated by this Credit Agreement, attached hereto as
Exhibit G.
---------
(j) the definition of "Requisite Lenders" is amended to
delete in its entirety the phrase "incurred by RSC" in clause (ii)(B)
thereof;
(k) the following definition of "Senior Subordinated Note
Indenture" is added to Section 1.1 of the Credit Agreement in proper
alphabetical order:
Senior Subordinated Note Indenture means the Indenture
----------------------------------
pursuant to which the Senior Subordinated Notes are issued by RSC
and guaranteed by certain of the other Credit Parties and the
terms of which have been approved in accordance with the First
Amendment.
(l) the following definition of "Senior Subordinated Notes"
is added to Section 1.1 of the Credit Agreement in proper alphabetical
order:
Senior Subordinated Notes means (i) the unsecured Senior
-------------------------
Subordinated Notes issued by RSC on the First Amendment Effective
Date with respect to which (A) the aggregate principal amount
thereof
-3-
<PAGE>
shall not exceed $200,000,000, (B) the effective interest rate
thereon shall not exceed 10 1/2% per annum (provided, that the
--- ----- --------
effective interest rate may be increased by not more than 1 1/2%
per annum in the event RSC fails to comply with certain
--- -----
requirements to file a registration statement with respect to
such Senior Subordinated Notes) and (C) the maturity date shall
not be earlier than the tenth anniversary of the First Amendment
Effective Date and (ii) unsecured notes issued in exchange for
the Senior Subordinated Notes described in clause (i) which have
----------
substantially identical terms as such Senior Subordinated Notes.
2.2 AMENDMENT TO SECTION 4.5(A). Section 4.5(a) of the Credit
---------------------------
Agreement is hereby amended to delete in its entirety the reference to
"4.00%" therein and to substitute in lieu thereof "3.75%".
2.3 AMENDMENTS TO SECTION 4.6. Section 4.6 of the Credit
-------------------------
Agreement is hereby amended as follows:
(a) to delete in its entirety each reference to "2.50%"
therein and to substitute in lieu thereof "2.25%"; and
(b) to delete in its entirety the reference to "4.00%"
therein and to substitute in lieu thereof "3.75%".
2.4 AMENDMENTS TO SECTION 4.8(C). Section 4.8(c) of the Credit
----------------------------
Agreement is hereby amended as follows:
(a) to delete in its entirety the reference to "270 days"
therein and to substitute in lieu thereof "240 days";
(b) to delete in its entirety each reference to "365 days"
therein and to substitute in lieu thereof "330 days"; and
(c) to delete in its entirety the reference to "365th day"
therein and to substitute in lieu thereof "330th day".
2.5 AMENDMENT TO SECTION 6.7. Section 6.7 of the Credit
------------------------
Agreement is hereby amended to insert the phrase "and the incurrence of any
Permitted Subordinated Indebtedness" immediately following the phrase
"After giving effect to the transactions contemplated by this Credit
Agreement" therein.
2.6 AMENDMENT TO SECTION 6.9. Section 6.9 of the Credit
------------------------
Agreement is hereby amended and restated in its entirety to read as
follows:
-4-
<PAGE>
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, 1997, (b) the unaudited financial
statements of RSC and its Subsidiaries as of March 31, 1998, (c) the
Pro Forma and (d) the Projections. The Financial Statements described
in clauses (a) and (b) 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 (other than
the guarantee(s) of the Senior Subordinated Notes by certain of the
Credit Parties). The Pro Forma fairly presents on a pro forma basis
--- -----
the financial condition of RSC and its Subsidiaries as of March 31,
1998 but after giving effect to the incurrence of Permitted
Subordinated Indebtedness and the consummation of the acquisitions and
transactions described therein, and reflects on a pro forma basis
--- -----
those liabilities reflected in the notes thereto and resulting from
the incurrence of Permitted Subordinated Indebtedness and the
consummation of the 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.
2.7 AMENDMENT TO SECTION 7.2(C). Section 7.2(c) of the Credit
---------------------------
Agreement is hereby amended to insert the phrase "Schedule B to this
----------
Agreement and" immediately after the word "modify" in the last sentence
thereof.
2.8 AMENDMENT TO SECTION 8.2. Section 8.2 of the Credit
------------------------
Agreement is hereby amended to delete in its entirety the text thereof and
to substitute in lieu thereof the text set forth on Exhibit III attached
-----------
hereto and made a part hereof.
2.9 AMENDMENT TO SECTION 8.3. Section 8.3 of the Credit
------------------------
Agreement is hereby amended to delete in its entirety the text thereof and
to substitute in lieu thereof the text set forth on Exhibit IV attached
----------
hereto and made a part hereof.
2.10 AMENDMENT TO SECTION 8.4. Section 8.4 of the Credit
------------------------
Agreement is hereby amended to delete in its entirety the text thereof and
to substitute in lieu thereof the text set forth on Exhibit V attached
---------
hereto and made a part hereof.
-5-
<PAGE>
2.11 AMENDMENTS TO SECTION 8.5. Section 8.5 of the Credit
-------------------------
Agreement is hereby amended as follows:
(a) to amend and restate in its entirety the table of Fiscal
Years and Maximum Expenditure Amounts in subsection (f) thereof to
read as follows:
<TABLE>
<CAPTION>
==================================
FISCAL YEAR MAXIMUM AMOUNT
==================================
<S> <C>
1997 $160,000,000
==================================
1998 $220,000,000
==================================
1999 $235,000,000
==================================
2000 $250,000,000
==================================
2001 $270,000,000
==================================
2002 $340,000,000
==================================
2003 $340,000,000
==================================
2004 $340,000,000
==================================
</TABLE>
(b) to delete in its entirety the reference in clause (iii)
of subsection (g) thereof to "$15,000,000" and to substitute in lieu
thereof "$25,000,000".
2.12 AMENDMENTS TO SECTION 8.7. Section 8.7 of the Credit
--------------------------
Agreement is hereby amended as follows:
(a) to add the following phrase immediately before the semi-
colon (";") at the end of subsection (c) thereof: ", provided, that
--------
such Purchase Money Liens and other Liens are created within 90 days
after the incurrence of the related Indebtedness"; and
(b) to add the following phrase immediately before the semi-
colon (";") at the end of subsection (e) thereof: "so long as any
appropriate legal proceedings which may have been duly initiated for
the review of such judgment shall not have been finally terminated or
the period within which such proceedings may be initiated shall not
have expired".
2.13 AMENDMENT TO SECTION 8.8. Section 8.8 of the Credit
------------------------
Agreement is hereby amended to add the following immediately before the
period (".") at the end thereof:
-6-
<PAGE>
and (iii) unsecured guarantees by Subsidiaries of RSC of the Senior
Subordinated Notes, provided that, prior to or concurrently with the
--------
execution of any such guarantee by any such Subsidiary, such
Subsidiary shall have become a Borrower or a Subsidiary Guarantor
pursuant to, and shall have otherwise complied with the requirements
of, Section 8.20.
------------
2.14 AMENDMENTS TO SECTION 8.10. Section 8.10 of the Credit
--------------------------
Agreement is hereby amended as follows:
(a) to amend and restate in its entirety clause (iv) of
subsection (a) thereof to read as follows:
(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 scheduled payments of principal and
interest (including additional interest at the rate
described in the definition of "Senior Subordinated Notes")
on the Senior Subordinated Notes permitted to be made
pursuant to subsection (b) below, provided, that any payment
-------------- --------
permitted under this clause (iv) is payable and is paid no
-----------
earlier than one Business Day prior to the date when such
cash interest payment is due.
(b) to amend and restate in its entirety subsection (b)
thereof to read as follows:
(b) None of the Credit Parties or their respective
Subsidiaries shall, directly or indirectly, make any payment or
prepayment of principal or, premium, if any, or interest on, or
redemption (including, without limitation, by making payments to
a sinking or analogous fund) or repurchase of, or deposit to
defease fully or partially any of their respective covenants or
obligations with respect to (i) any Permitted Subordinated
Indebtedness or (ii) any Mandatory Redeemable Obligation;
provided, that RSC may make scheduled payments of principal and
--------
interest (including additional interest at the rate described in
the definition of "Senior Subordinated Notes") on the Senior
Subordinated Notes to the extent the same are permitted to be
made pursuant to the terms of the Senior Subordinated Note
Indenture as the same is in effect on the First Amendment
Effective Date.
-7-
<PAGE>
2.15 AMENDMENTS TO SECTION 8.20. Section 8.20 of the Credit
--------------------------
Agreement is hereby amended to delete in its entirety the phrase "a
Subsidiary of a Borrower acquired in an Acquisition" in the proviso to
clause (ii) thereof and to substitute in lieu thereof ", unless a
Subsidiary of a Borrower acquired in an Acquisition shall otherwise be
required to become a Borrower or a Subsidiary Guarantor pursuant to Section
8.8, such Subsidiary".
2.16 AMENDMENT TO ANNEX I. Annex I to the Credit Agreement is
--------------------
hereby deleted in its entirety and new Annex I, attached hereto as Exhibit
-------
VI, is substituted in lieu thereof.
--
2.17 AMENDMENT TO EXHIBIT G. Exhibit G to the Credit Agreement
----------------------
(Pro Forma) is hereby deleted in its entirety and new Exhibit G, attached
hereto as Exhibit VII, is substituted in lieu thereof.
-----------
2.18 AMENDMENT TO EXHIBIT H. Exhibit H to the Credit Agreement
----------------------
(Projections) is hereby deleted in its entirety and new Exhibit H, attached
hereto as Exhibit VIII, is substituted in lieu thereof.
------------
2.19 AMENDMENT TO EXHIBIT S. Exhibit S to the Credit Agreement
----------------------
(Acquisition Document List) is hereby amended to delete in its entirety the
reference to "$15,000,000" in paragraph C thereof and to insert
"$25,000,000" in lieu thereof.
2.20 AMENDMENT TO EXHIBIT U. Exhibit U to the Credit Agreement
----------------------
(New Subsidiary Document List) is hereby amended to delete in its entirety
the phrase "A Subsidiary of a Borrower acquired in an Acquisition" and to
substitute in lieu thereof "Unless a Subsidiary of a Borrower acquired in
an Acquisition shall otherwise be required to become a Borrower or a
Subsidiary Guarantor pursuant to Section 8.8 of the Credit Agreement, such
Subsidiary".
3. CONSENT. As of the Amendment Effective Date, the Lenders hereby
-------
consent to the issuance by RSC of the Senior Subordinated Notes and the
guarantee thereof by RSC Acquisition, RSC Holdings and each Borrower (and,
subject to Section 8.8 of the Credit Agreement, any Subsidiary which becomes a
guarantor of the Senior Subordinated Notes after the Amendment Effective Date),
provided that (i) the aggregate principal amount of the Senior Subordinated
- --------
Notes shall not exceed $200,000,000, (ii) the effective interest rate thereon
shall not exceed 10 1/2% per annum (provided, that the effective interest rate
--- ----- --------
may be increased by not more than 1 1/2% per annum in the event RSC fails to
--- -----
comply with certain requirements to file a registration statement with respect
to such Senior Subordinated Notes), (iii) the maturity date shall not be earlier
than the tenth anniversary of the First Amendment Effective Date, (iv) no
collateral or security secures the payment or performance of the Senior
Subordinated Notes or any guaranty thereof and (v) all of the other material
terms and conditions of the Senior
-8-
<PAGE>
Subordinated Notes and the guaranties thereof shall be as set forth on Exhibit
-------
IX attached hereto and made a part hereof.
- --
4. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers hereby
------------------------------
represents and warrants to each Lender, the Issuing Bank and the Agent that, as
of the Amendment Effective Date (after giving effect to this First Amendment and
the incurrence of Permitted Subordinated Indebtedness):
(a) Each of the representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct on and as of
such dates, as if then made, other than representations and warranties that
relate solely to an earlier date;
(b) No Default or Event of Default shall have occurred and is
continuing;
(c) No change, occurrence, event or development or event involving a
prospective change that is reasonably likely to have a Material Adverse
Effect shall have occurred and be continuing;
(d) No Change of Control has occurred; and
(e) All consents necessary to permit the incurrence of Permitted
Subordinated Indebtedness by the Credit Parties pursuant to the Senior
Subordinated Note Indenture have been obtained, and no material breach of
any term or provision of the Senior Subordinated Note Indenture or the
Senior Subordinated Notes 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 Credit Parties' incurrence of Permitted Subordinated
Indebtedness, and the Senior Subordinated Notes have been issued in
compliance in all material respects with all applicable Requirements of
Law.
5. AMENDMENT EFFECTIVE DATE. This First Amendment shall become
------------------------
effective as of the date on or before May 31, 1998 (the "Amendment Effective
-------------------
Date") when each of the following conditions shall have been satisfied:
- ----
(a) the Agent shall have received each of the following documents, in
each case in form and substance reasonably satisfactory to the Agent:
(i) counterparts hereof executed by each Borrower, each Parent
Guarantor, the Agent and each Revolving Credit Lender identified on
Annex I to the Credit Agreement (after giving effect to this First
Amendment) and the Majority Term Loan Lenders;
-9-
<PAGE>
(ii) to the extent necessary in connection with any
reallocation of the Revolving Credit Commitments or Term Loan
Outstandings, (A) replacement Revolving Credit Notes or Term Notes,
executed by the applicable Borrower and in substantially the form of
Exhibit I or Exhibit M, as the case may be and (B) any necessary
--------- ---------
assignment agreements relating to such reallocation;
(iii) a certificate of the Secretary or Assistant Secretary of
each Credit Party certifying (A) the resolutions of the Board of
Directors of such Credit Party authorizing, to the extent applicable,
the issuance or guaranty of the Senior Subordinated Notes and the
execution, delivery and performance of this First Amendment, (B) the
names, incumbency and signatures of the officers of such Credit Party
authorized to execute, deliver and perform the Credit Documents
(including any officers which may be executing Credit Documents in
connection with an Acquisition) and (C) the accuracy and completeness
of the Governing Documents delivered to the Agent, the Issuing Banks
and the Lenders prior to the Amendment Effective Date, attaching
thereto any and all amendments and modifications of such Governing
Documents not previously delivered to such parties;
(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
to the effectiveness of this First Amendment (other than conditions
within the control of the Agent and the Lenders) have been met (or,
concurrently with the Amendment Effective Date, will be met), all
representations and warranties made in this First Amendment are true
and correct and (after giving effect to this First Amendment) no
Default or Event of Default has occurred and is continuing;
(v) a Solvency Certificate for the Credit Parties, on a
combined basis, executed by a Financial Officer of each Credit Party ,
giving effect to this First Amendment and the issuance and guaranty of
the Senior Subordinated Notes;
(vi) certified copies of the Senior Subordinated Note Indenture
and the offering memorandum and prospectus for the Senior Subordinated
Notes;
(vii) a funds flow memorandum certified by a Financial Officer
of each Credit Party with respect to the proceeds of the Senior
Subordinated Notes and the payment of transaction costs related
thereto;
(viii) an opinion of Latham & Watkins, special counsel to the
Credit Parties, with respect to this First Amendment, non-
contravention of the Credit Agreement, as amended by this First
Amendment, with the Senior Subordinated Note Indenture and such other
matters as the Agent may reasonably request;
-10-
<PAGE>
(ix) to the extent similar opinions are delivered in connection
with the issuance and guaranty of the Senior Subordinated Notes,
opinions of Texas, Mississippi and Alabama counsel to the Credit
Parties, with respect to this First Amendment and such other matters
as the Agent may reasonably request; and
(x) such additional documentation as the Agent may reasonably
request.
(b) RSC shall have issued the Senior Subordinated Notes in an
aggregate principal amount of at least $150,000,000, the net proceeds of
which shall have been paid to the Agent, for the benefit of the Revolving
Credit Lenders, for application on the outstanding principal amount of the
Revolving Loans.
(c) 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 issuance of the Senior Subordinated Notes or the transactions
contemplated by this First Amendment, except for such laws, regulations,
orders or decrees, or pending or threatened litigation that in the
aggregate could not reasonably be expected to result in a Material Adverse
Effect.
(d) 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
Amendment Effective Date shall have been paid.
6. MISCELLANEOUS. This First Amendment is a Credit Document. The
-------------
headings herein are for convenience of reference only and shall not alter or
otherwise affect the meaning hereof. Except to the extent specifically amended
or modified hereby for the periods specified herein, the provisions of the
Credit Agreement shall not be amended, modified, impaired or otherwise affected
hereby and the Credit Agreement and all of the Obligations are hereby confirmed
in full force and effect. The execution, delivery and effectiveness of this
First Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of the Agent, any Lender or the Issuing
Bank under any of the Credit Documents, nor constitute a waiver of any provision
of any of the Credit Documents.
7. COUNTERPARTS. This First Amendment may be executed in any number
------------
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
8. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
-------------
THIS FIRST AMENDMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS
FIRST AMENDMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL
BE GOVERNED BY THE
-11-
<PAGE>
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.
-12-
<PAGE>
IN WITNESS WHEREOF, the Agent, the Lenders, the Borrowers and the
Parent Guarantors have caused this First Amendment to be executed by their
respective officers thereunto duly authorized as of the date first above
written.
BORROWERS: RSC ALABAMA, INC.
- ---------
By: /s/ Robert M. Wilson
---------------------------
Name: Robert M. Wilson
-------------------------
Title: Secretary
------------------------
RSC CENTER, INC.
By: /s/ Robert M. Wilson
---------------------------
Name: Robert M. Wilson
-------------------------
Title: Secretary
------------------------
RSC DUVAL INC.
By: /s/ Robert M. Wilson
---------------------------
Name: Robert M. Wilson
-------------------------
Title: Secretary
------------------------
RSC INDUSTRIAL CORPORATION
By: /s/ Robert M. Wilson
---------------------------
Name: Robert M. Wilson
-------------------------
Title: Secretary
------------------------
RSC RENTS, INC.
By: /s/ Robert M. Wilson
---------------------------
Name: Robert M. Wilson
-------------------------
Title: Secretary
------------------------
S-1-
<PAGE>
WALKER JONES EQUIPMENT, INC.
By: /s/ Robert M. Wilson
----------------------------
Name: Robert M. Wilson
--------------------------
Title: Secretary
-------------------------
PARENT GUARANTORS: RSC ACQUISITION CORP.
- -----------------
By: /s/ Robert M. Wilson
---------------------------
Name: Robert M. Wilson
-------------------------
Title: Secretary
------------------------
RSC HOLDINGS, INC.
By: /s/ Robert M. Wilson
---------------------------
Name: Robert M. Wilson
-------------------------
Title: Secretary
------------------------
RENTAL SERVICE CORPORATION
By: /s/ Robert M. Wilson
---------------------------
Name: Robert M. Wilson
-------------------------
Title: Secretary
------------------------
AGENT: BT COMMERCIAL CORPORATION,
- -----
as Agent, as a Revolving Credit Lender and as a
Term Loan Lender
By: /s/ Richard Faulkner
---------------------------
Name: Richard Faulkner
-------------------------
Title: Associate
------------------------
REVOLVING CREDIT LENDERS: BANKBOSTON, N.A.
- ------------------------
By: /s/ Robert J. Brandow
---------------------------
Name: Robert J. Brandow
-------------------------
Title: Director
------------------------
S-2-
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ M. Van Otterloo
----------------------------------
Name: M. Van Otterloo
--------------------------------
Title: Senior Relationship Manager
-------------------------------
BANK ONE, ARIZONA, NA
By: /s/ Michael V. McCann
----------------------------------
Name: Michael V. McCann
--------------------------------
Title: Vice President
-------------------------------
BANQUE PARIBAS
By: /s/ Matthew C. Bishop
-----------------------------------
Name: Matthew C. Bishop
---------------------------------
Title: Assistant Vice President
--------------------------------
By: /s/ Claire Bailhe
-----------------------------------
Name: Claire Bailhe
---------------------------------
Title: Director
--------------------------------
BNY FINANCIAL CORPORATION
By: /s/ Gregory C. Harbaugh
-----------------------------------
Name: Gregory C. Harbaugh
---------------------------------
Title: Vice President
--------------------------------
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ William Shiao
-----------------------------------
Name: William Shiao
---------------------------------
Title: Assistant Vice President
--------------------------------
S-3-
<PAGE>
U.S. BANK NATIONAL ASSOCIATION f/k/a
COLORADO NATIONAL BANK
By: /s/ Kelly Condon
-----------------------------
Name: Kelly Condon
---------------------------
Title: Vice President
--------------------------
COMERICA BANK
By: /s/ Eoin Collins
-----------------------------
Name: Eoin Collins
---------------------------
Title: Account Officer
--------------------------
CONGRESS FINANCIAL CORPORATION (WESTERN)
By: /s/ Randy J. Bowman
-----------------------------
Name: Randy J. Bowman
---------------------------
Title: Sr. Vice President
--------------------------
CORESTATES BANK, N.A.
By: /s/ Jennifer Avrigian
-----------------------------
Name: Jennifer Avrigian
---------------------------
Title: Assistant Vice President
--------------------------
CREDITANSTALT CORPORATE FINANCE,
INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
By:
-----------------------------
Name:
---------------------------
Title:
-----------------------------
S-4-
<PAGE>
DEUTSCHE FINANCIAL SERVICES
CORPORATION
By: /s/ Kenneth C. MacDonell
---------------------------
Name: Kenneth C. MacDonell
-------------------------
Title: Vice President
------------------------
FLEET CAPITAL CORPORATION
By: /s/ Richard Kritsch
----------------------------
Name: Richard Kritsch
--------------------------
Title: VP Senior Loan Officer
-------------------------
HELLER FINANCIAL, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
IBJ SCHRODER BUSINESS CREDIT CORPORATION
By: /s/ Christopher J. Norrito
----------------------------
Name: Christopher J. Norrito
--------------------------
Title: Vice President
-------------------------
KEY CORPORATE CAPITAL INC.
By: /s/ Michael F. McCullough
----------------------------
Name: Michael F. McCullough
--------------------------
Title: Vice President
-------------------------
LASALLE NATIONAL BANK, N.A.
By: /s/ Christopher G. Clifford
----------------------------
Name: Christopher G. Clifford
--------------------------
Title: Sr. Vice President
-------------------------
S-5-
<PAGE>
THE LONG TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By: /s/ T. Morgan Edwards II
-----------------------------
Name: T. Morgan Edwards II
---------------------------
Title: Deputy General Manager
--------------------------
MELLON BANK, N.A.
By: /s/ Norman R. Smith
----------------------------
Name: Norman R. Smith
--------------------------
Title: Vice President
-------------------------
NATIONAL BANK OF CANADA
By: /s/ R. A. McKerroll
----------------------------
Name: R. A. McKerroll
--------------------------
Title: Vice President
-------------------------
By: /s/ Thomas H. Hopkins
----------------------------
Name: Thomas H. Hopkins
--------------------------
Title: Vice President
-------------------------
NATIONSBANK OF TEXAS, N.A.
By: /s/ E. James Beckemeier
-----------------------------
Name: E. James Beckemeier
--------------------------
Title: Vice President
-------------------------
SANWA BANK CALIFORNIA
By: /s/ Robert G. Moore
----------------------------
Name: Robert G. Moore
--------------------------
Title: Vice President
-------------------------
S-6-
<PAGE>
SOUTHERN PACIFIC BANK
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
SUMITOMO BANK OF CALIFORNIA
By: /s/ Matthew R. Van Steenhuyse
-------------------------------
Name: Matthew R. Van Steenhuyse
-----------------------------
Title: Vice President
----------------------------
SUMMIT COMMERCIAL/GIBRALTAR CORP.
(formerly known as Gibraltar Corporation of
America)
By: /s/ Harvey Friedman
-------------------------------
Name: Harvey Friedman
-----------------------------
Title: Executive Vice President
----------------------------
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Alan Young
------------------------------
Name: Alan Young
----------------------------
Title: Assistant Vice President
---------------------------
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/ Merritt S. Hooper
-----------------------------
Name: Merritt S. Hooper
---------------------------
Title: Vice President
--------------------------
S-7-
<PAGE>
PARIBAS CAPITAL FUNDING LLC
By: /s/ Jeffrey J. Youle
----------------------------
Name: Jeffrey J. Youle
--------------------------
Title: Director
-------------------------
SENIOR HIGH INCOME PORTFOLIO, INC.
By: /s/ John M. Johnson
---------------------------
Name: John M. Johnson
-------------------------
Title: Authorized Signatory
------------------------
MERRILL LYNCH DEBT STRATEGIES PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By: /s/ John M. Johnson
---------------------------
Name: John M. Johnson
-------------------------
Title: Authorized Signatory
------------------------
KZH-ING-2 CORPORATION
By:
---------------------------
Name:
-------------------------
Title:
------------------------
BANKERS TRUST COMPANY
By: /s/ James Reilly
---------------------------
Name: James Reilly
-------------------------
Title: Vice President
------------------------
S-8-
<PAGE>
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company,
its Investment Manager
By:
---------------------------
Name:
-------------------------
Title:
------------------------
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisers (Bermuda), Ltd.,
as General Partner
By:
--------------------------
Name:
-------------------------
Title:
------------------------
By: TCW Investment Management Company,
as Investment Adviser
By:
---------------------------
Name:
-------------------------
Title:
------------------------
TORONTO DOMINION (TEXAS), INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
S-9-
<PAGE>
CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC.,
as Attorney-in-Fact and on behalf of First All
American Financial Life Insurance Company
By: /s/ Philip C. Robbins
-----------------------------
Name: Philip C. Robbins
---------------------------
Title: Vice President
--------------------------
CYPRESSTREE INVESTMENT PARTNERS I, LIMITED
By: CypressTree Investment Management
Company, Inc., as Portfolio Manager
By: /s/ Philip C. Robbins
-----------------------------
Name: Philip C. Robbins
---------------------------
Title: Vice President
--------------------------
MORGAN STANLEY SENIOR FUNDING, INC.
By: /s/ Christopher A. Pucillo
-----------------------------
Name: Christopher A. Pucillo
---------------------------
Title: Vice President
--------------------------
S-10-
<PAGE>
EXHIBIT I
TO
FIRST AMENDMENT AND CONSENT
New Definition of Applicable Eurodollar Rate Margin
---------------------------------------------------
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%; (ii) for the period commencing on April 1, 1998 until the First
Amendment Effective Date, 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 2.50:1
- ----------------------------------------------------------------------
Less than or equal 1.50%
to 2.50:1 and greater
than 2.25:1
- -----------------------------------------------------------------------
Less than or equal 1.25%
to 2.25:1
=======================================================================
</TABLE>
(iii) for the period commencing on the First Amendment Effective Date and ending
on December 31, 1998, 1.50%; and (iv) from and after January 1, 1999, 1.75%,
provided that, from and after January 1, 1999, 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
- --------------
<PAGE>
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 1.50%
to 3.00:1 and greater
than 2.50:1
- ------------------------------------------------------------------
Less than or equal 1.25%
to 2.50:1 and greater
than 2.25:1
- ------------------------------------------------------------------
Less than or equal 1.00%
to 2.25:1 and greater
than 1.75:1
- ------------------------------------------------------------------
Less than or equal 0.75%
to 1.75:1
==================================================================
</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 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.
-I-2
<PAGE>
EXHIBIT II
TO
FIRST AMENDMENT AND CONSENT
New Definition of Applicable Prime Rate Margin
----------------------------------------------
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%; (ii) for the period commencing on April 1, 1998 until the First
Amendment Effective Date, 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>
(iii) for the period commencing on the First Amendment Effective Date and ending
on December 31, 1998, zero (-0-); and (iv) from and after January 1, 1999,
0.25%, provided that, from and after January 1, 1999, 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
--------------
-II-1-
<PAGE>
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-
to 3.00:1 and greater
than 2.50:1
-------------------------------------------------------------
Less than or equal (0.25%)
to 2.50:1 and greater
than 2.25:1
-------------------------------------------------------------
Less than or equal (0.50%)
to 2.25:1 and greater
than 1.75:1
-------------------------------------------------------------
Less than or equal (0.75%)
to 1.75:1
=============================================================
</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 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.
-II-2-
<PAGE>
EXHIBIT III
TO
FIRST AMENDMENT AND CONSENT
Amended and Restated Section 8.2
--------------------------------
8.2 Minimum Interest Coverage Ratio. The Credit Parties shall not
-------------------------------
permit the ratio of (i) EBITA to (ii) Interest Expense, 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 ratio set out opposite
such date below:
<TABLE>
<CAPTION>
QUARTERLY DETERMINATION
DATE MINIMUM RATIO
=====================================================
<S> <C>
December 31, 1997 2.0x
-----------------------------------------------------
March 31, 1998 2.0x
-----------------------------------------------------
June 30, 1998 2.1x
-----------------------------------------------------
September 30, 1998 2.1x
-----------------------------------------------------
December 31, 1998 2.1x
-----------------------------------------------------
March 31, 1999 2.1x
-----------------------------------------------------
June 30, 1999 2.1x
-----------------------------------------------------
September 30, 1999 2.1x
-----------------------------------------------------
December 31, 1999 2.2x
-----------------------------------------------------
March 31, 2000 2.2x
-----------------------------------------------------
June 30, 2000 2.3x
-----------------------------------------------------
September 30, 2000 2.3x
-----------------------------------------------------
December 31, 2000 2.3x
-----------------------------------------------------
March 31, 2001 2.4x
-----------------------------------------------------
June 30, 2001 2.5x
-----------------------------------------------------
September 30, 2001 2.5x
-----------------------------------------------------
December 31, 2001 2.6x
-----------------------------------------------------
</TABLE>
-III-1-
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY DETERMINATION
DATE MINIMUM RATIO
=====================================================
<S> <C>
March 31, 2002 2.6x
-----------------------------------------------------
June 30, 2002 2.6x
-----------------------------------------------------
September 30, 2002 2.6x
-----------------------------------------------------
December 31, 2002 2.6x
-----------------------------------------------------
March 31, 2003 2.7x
-----------------------------------------------------
June 30, 2003 2.7x
-----------------------------------------------------
September 30, 2003 2.7x
-----------------------------------------------------
December 31, 2003 2.7x
-----------------------------------------------------
March 31, 2004 2.7x
-----------------------------------------------------
June 30, 2004 2.7x
-----------------------------------------------------
September 30, 2004 2.7x
-----------------------------------------------------
December 31, 2004 2.7x
=====================================================
</TABLE>
-III-2-
<PAGE>
EXHIBIT IV
TO
FIRST AMENDMENT AND CONSENT
Amended and Restated Section 8.3
--------------------------------
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, determined as of each Quarterly Determination Date set out below for the
twelve-month period ending on such Quarterly Determination Date, to be greater
than the ratio set out opposite such date below:
<TABLE>
<CAPTION>
QUARTERLY DETERMINATION
DATE MAXIMUM RATIO
==========================================================
<S> <C>
December 31, 1997 5.5x
----------------------------------------------------------
March 31, 1998 4.5x
----------------------------------------------------------
June 30, 1998 4.5x
----------------------------------------------------------
September 30, 1998 4.0x
----------------------------------------------------------
December 31, 1998 3.8x
----------------------------------------------------------
March 31, 1999 3.6x
----------------------------------------------------------
June 30, 1999 3.6x
----------------------------------------------------------
September 30, 1999 3.4x
----------------------------------------------------------
December 31, 1999 3.4x
----------------------------------------------------------
March 31, 2000 3.4x
----------------------------------------------------------
June 30, 2000 3.4x
----------------------------------------------------------
September 30, 2000 3.2x
----------------------------------------------------------
December 31, 2000 3.2x
----------------------------------------------------------
March 31, 2001 3.2x
----------------------------------------------------------
June 30, 2001 3.2x
----------------------------------------------------------
September 30, 2001 3.0x
----------------------------------------------------------
December 31, 2001 3.0x
----------------------------------------------------------
</TABLE>
-IV-1-
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY DETERMINATION
DATE MAXIMUM RATIO
==========================================================
<S> <C>
March 31, 2002 3.0x
----------------------------------------------------------
June 30, 2002 3.0x
----------------------------------------------------------
September 30, 2002 2.9x
----------------------------------------------------------
December 31, 2002 2.9x
----------------------------------------------------------
March 31, 2003 2.9x
----------------------------------------------------------
June 30, 2003 2.9x
----------------------------------------------------------
September 30, 2003 2.8x
----------------------------------------------------------
December 31, 2003 2.8x
----------------------------------------------------------
March 31, 2004 2.8x
----------------------------------------------------------
June 30, 2004 2.8x
----------------------------------------------------------
September 30, 2004 2.7x
----------------------------------------------------------
December 31, 2004 2.7x
==========================================================
</TABLE>
-IV-2
<PAGE>
EXHIBIT V
TO
FIRST AMENDMENT AND CONSENT
Amended and Restated Section 8.4
--------------------------------
8.4 Minimum EBITDA. The Credit Parties shall not permit EBITDA,
--------------
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 $115,000,000
---------------------------------------------------
September 30, 1998 $140,000,000
---------------------------------------------------
December 31, 1998 $160,000,000
---------------------------------------------------
March 31, 1999 $180,000,000
---------------------------------------------------
June 30, 1999 $200,000,000
---------------------------------------------------
September 30, 1999 $210,000,000
---------------------------------------------------
December 31, 1999 $220,000,000
---------------------------------------------------
March 31, 2000 $230,000,000
---------------------------------------------------
June 30, 2000 $240,000,000
---------------------------------------------------
September 30, 2000 $260,000,000
---------------------------------------------------
December 31, 2000 $270,000,000
---------------------------------------------------
March 31, 2001 $280,000,000
---------------------------------------------------
June 30, 2001 $290,000,000
---------------------------------------------------
September 30, 2001 $300,000,000
---------------------------------------------------
December 31, 2001 $320,000,000
---------------------------------------------------
March 31, 2002 $340,000,000
---------------------------------------------------
</TABLE>
-V-1-
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY DETERMINATION
DATE MINIMUM AMOUNT
==================================================
<S> <C>
June 30, 2002 $350,000,000
---------------------------------------------------
September 30, 2002 $370,000,000
---------------------------------------------------
December 31, 2002 $380,000,000
---------------------------------------------------
March 31, 2003 $390,000,000
---------------------------------------------------
June 30, 2003 $400,000,000
---------------------------------------------------
September 30, 2003 $410,000,000
---------------------------------------------------
December 31, 2003 $420,000,000
---------------------------------------------------
March 31, 2004 $430,000,000
---------------------------------------------------
June 30, 2004 $440,000,000
---------------------------------------------------
September 30, 2004 $450,000,000
----------------------------------------------------
December 31, 2004 $460,000,000
====================================================
</TABLE>
-V-2-
<PAGE>
EXHIBIT 10.46
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT (the "Agreement") made effective as of
the 14th day of January, 1998, between Rental Service Corporation, a Delaware
corporation (the "Company" or the "Employer") and Martin R. Reid, an employee of
the Company (the "Employee").
WHEREAS, the Company has established the 1996 Equity Participation
Plan (the "Plan"); and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Plan provides for the issuance of shares of Common Stock,
$.01 par value, subject to certain restrictions thereon (hereinafter referred to
as "Restricted Stock"); and
WHEREAS, the Compensation Committee of the Company's Board of
Directors (the "Committee"), appointed to administer the Plan, has determined
that it would be to the advantage and best interest of the Company and its
stockholders to issue the Restricted Stock provided for herein to Employee in
consideration of past and future services to the Employer and other good and
valuable consideration provided for herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates. All capitalized terms used
herein without definition shall have the meaning ascribed to such terms in the
Plan.
Section 1.1 - Board
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
<PAGE>
"Committee" shall mean the Compensation Committee of the Board,
appointed as provided in the Plan.
Section 1.4 - Company Subsidiary
"Company Subsidiary" shall mean any corporation in an unbroken chain
of corporations beginning with the Company if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing 50
percent or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain. "Company Subsidiary" shall also
mean any partnership in which the Company and/or any Company Subsidiary owns
more than 50 percent of the capital or profits interests.
Section 1.5 - Employment Agreement
"Employment Agreement" shall mean the employment agreement between
Company and Employee dated the same date as this Agreement.
Section 1.6 - Exchange Act
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.7 - Restricted Stock
"Restricted Stock" shall mean Common Stock of the Company issued under
this Agreement and subject to the Restrictions imposed hereunder.
Section 1.8 - Restrictions
"Restrictions" shall mean the restrictions on sale or other transfer
set forth in Section 4.2 and 4.3(a) and the exposure to forfeiture or repurchase
set forth in Section 3.1.
Section 1.9 - Rule 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended from time to time.
Section 1.10 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.11 - Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
2
<PAGE>
ARTICLE II
ISSUANCE OF RESTRICTED STOCK
Section 2.1 - Issuance of Restricted Stock
In consideration of Employee's past services to the Company and for
his agreement to remain in the employ of at least one of such entities and for
other good and valuable consideration, on the date hereof the Company
irrevocably issues to Employee 10,000 shares of its $.01 par value Common Stock
upon the terms and conditions set forth in this Agreement.
Section 2.2 - Purchase Price
The purchase price of the Restricted Stock shall be $.01 per share
without commission or other charge, payable in cash or by check.
Section 2.3 - Consideration to Company
As partial consideration for the issuance of Restricted Stock by the
Company, Employee agrees to render faithful and efficient services to the
Company pursuant to his Employment Agreement for a period of at least one (1)
year from the date this Restricted Stock is issued. Nothing in this Agreement
or in the Plan shall confer upon Employee any right to continue in the employ of
the Company.
Section 2.4 - Adjustments in Restricted Stock
In the event that the outstanding shares of the Company's Common Stock
are changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend or
combination of shares, the Committee, subject to the provisions of the Plan and
this Agreement, shall make an appropriate and equitable adjustment in the number
and kind of shares of Restricted Stock, to the end that after such event
Employee's proportionate interest shall be maintained as before the occurrence
of such event. Any such adjustment made by the Committee shall be final and
binding upon Emloyee, the Company and all other interested persons.
ARTICLE III
RESTRICTIONS
Section 3.1 - Repurchase of Restricted Stock
Immediately upon a termination of Employee's employment, the Company
shall have the right to repurchase from the Employee all shares of Restricted
Stock then subject to Restrictions at a cash price of $.01 per share; provided
that no such right of repurchase shall exist
3
<PAGE>
if the Restrictions lapse upon any such termination pursuant to the Employment
Agreement, this Agreement or any other agreement.
Section 3.2 - Legend
Certificates representing shares of Restricted Stock issued pursuant
to this Agreement shall, until all Restrictions lapse and new certificates are
issued pursuant to Section 3.3, bear the following legend:
"The shares represented by this certificate are subject to
reacquisition by Rental Service Corporation and such shares may not be sold or
otherwise transferred except pursuant to the provisions of the Restricted Stock
Agreement by and between Rental Service Corporaton and the registered owner of
such shares."
Section 3.3 - Lapse of Restrictions
(a) Subject to Sections 3.4 and 4.5, the Restrictions shall lapse as
to one-fourth of the Restricted Stock on each of the first, second, third and
fourth anniversaries of the grant of the Restricted Stock.
(b)Upon the lapse of the Restrictions, the Company shall cause new
certificates to be issued with respect to such shares and delivered to Employee
or his legal representative, free from the legend provided for in Section 3.2
and any of the other Restrictions. Notwithstanding the foregoing, no such new
certificate shall be delivered to Employee or his legal representative unless
and until Employee or his legal representative shall have paid to the Company in
cash the full amount of all federal and state withholding or other employment
taxes applicable to the taxable income of Employee resulting from the grant of
Restricted Stock or the lapse of the Restrictions.
Section 3.4 - Merger, Consolidation, Exchange, Acquisition,Liquidation
or Dissolution
In the event of the merger or consolidation of the Company into
another corporation, or the exchange of all or substantially all of the assets
of the Company for the securities of another corporation, or the acquisition by
another corporation or person of all or substantially all of the Company's
assets or 80% or more of the Company's then outstanding voting stock, or the
liquidation or dissolution of the Company (any such event being an
"Acquisition"), the Committee may, in its absolute discretion and on such terms
and conditions as it deems appropriate, provide by resolution adopted prior to
such event that at some time prior to the effective date of such event, the
Restrictions upon some or all shares of Restricted Stock shall immediately lapse
and/or that some or all of such shares shall cease to be subject to repurchase
or forfeiture under Section 3.1 after such event.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of the lapse of the Restrictions, including, but not by
way of limitation, provisions to ensure that
4
<PAGE>
any such acceleration shall be conditioned upon the consummation of the
contemplated corporate transaction.
Notwithstanding the foregoing, the provisions of the Employment
Agreement dealing with lapse of Restrictions on a Change of Control (as defined
therein) shall govern with respect to an Acquisition that is also a Change of
Control.
Section 3.5 - Restrictions On New Shares
In the event that the outstanding shares of the Company's Common Stock
are changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation pursuant to a merger of the
Company into another corporation, or the exchange of all or substantially all of
the assets of the Company for the securities of another corporation, or the
acquisition by another corporation of 80% or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the Company, or a
stock split-up or stock dividend, such new or additional or different shares or
securities which are attributable to Employee in his capacity as the owner of
the Restricted Stock then subject to Restrictions, shall be considered to be
Restricted Stock and shall be subject to all of the Restrictions, unless the
Committee provides, pursuant to Section 3.4, for the expiration of the
Restrictions on the shares of Restricted Stock underlying the distribution of
the new or additional shares or securities.
ARTICLE IV
MISCELLANEOUS
Section 4.1 - Administration
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret, amend or
revoke any such rules. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon Employee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination, or
interpretation made in good faith with respect to the Plan or the Restricted
Stock. In its absolute discretion, the Board may at any time and from time to
time exercise any and all rights and duties of the Committee under the Plan and
this Agreement except with respect to matters, if any, which under Rule 16b-3
are required to be determined in the sole discretion of the Committee.
Section 4.2 - Restricted Stock Not Transferable
Restricted Stock (including any shares received by holders thereof
with respect to shares of Restricted Stock as a result of stock dividends, stock
splits or any other form of recapitalization) shall be subject to the following
Restrictions until such Restrictions lapse or expire pursuant to this Agreement:
5
<PAGE>
Neither the Restricted Stock nor any interest or right therein or part
thereof shall be liable for the debts, contracts, or engagements of Employee or
his successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy) and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 4.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 4.3 - Conditions to Issuance of Stock Certificates
Shares of Restricted Stock may be either previously authorized but
unissued shares or issued shares which have then been reacquired by the Company.
Such shares shall be fully paid and nonassessable. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
pursuant to this Agreement prior to fulfillment of all of the following
conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time as the Committee may
from time to time establish for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
Section 4.4 - Escrow
The Secretary or such other escrow holder as the Committee may appoint
shall retain physical custody of the certificates representing the Restricted
Stock, including shares of Restricted Stock issued pursuant to Section 3.5,
until all of the Restrictions expire or shall have been removed; provided,
however, that in no event shall Employee retain physical custody of any
certificates representing Restricted Stock issued to him.
Section 4.5 - Notices
Any notice to be given by the Employee under the terms of this
Agreement shall be addressed to the Secretary of the Company or his office. Any
notice to be given to the
6
<PAGE>
Employee shall be addressed to him at the address given beneath his signature
hereto. By a notice given pursuant to this Section, either party may hereafter
designate a different address for notices to be given to him. Any notice which
is required to be given to Employee shall, if Employee is then deceased, be
given to Employee's personal representative if such representative has
previously informed the Company of his status and address by written notice
under this Section. Any notice be deemed duly given when deposited (with postage
prepaid) in a post office or branch post office regularly maintained by the
United States Postal Service.
Section 4.6 - Rights as Stockholder
Except as otherwise provided herein, upon the delivery of Restricted
Stock to the escrow holder pursuant to Section 4.4, the holder of the Restricted
Stock shall have all the rights of a stockholder with respect to the Restricted
Stock, including the right to vote the Restricted Stock and the right to receive
all dividends or other distributions paid or made with respect to the Restricted
Stock; provided, however, that in the discretion of the Committee, any
extraordinary distributions with respect to the Common Stock that is subject to
the Restrictions may also be subject to the Restrictions.
Section 4.7 - Titles
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 4.8 - Construction
This Agreement shall be administered, interpreted and enforced under
the internal laws of the State of Delaware.
Section 4.9 - Conformity to Securities Laws
The Employee acknowledges that the Plan and this Agreement are
intended to conform to the extent necessary with all provisions of all
applicable federal and state laws, rules and regulations (including, but not
limited to the Securities Act and the Exchange Act and any and all regulations
and rules promulgated by the Securities and Exchange Commission thereunder,
including without limitation the applicable exemptive conditions of Rule 16b-3)
and to such approvals by any listing, regulatory or other governmental authority
as may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Notwithstanding anything herein to the contrary, the Plan
shall be administered, and the Restricted Stock is granted, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan, this Agreement and the Restricted Stock
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.
Section 4.10 - Amendments
This Agreement and the Plan may be amended without the consent of the
Employee provided that such amendment would not impair any rights of the
Employee under
7
<PAGE>
this Agreement. No amendment of this Agreement shall, without the consent of the
Employee, impair any rights of the Employee under this Agreement.
IN WITNESS WHEREOF, this Employment Agreement has been executed and
delivered by the parties hereto.
RENTAL SERVICE CORPORATION
By: /s/ Robert M. Wilson
------------------------------
Robert M. Wilson
Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
/s/ Martin R. Reid
- ------------------------------
Martin R. Reid
10801 E. Happy Valley Road, #44
Scottsdale, AZ 85255
8
<PAGE>
EXHIBIT 10.49
-----------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of May 13, 1998
Among
RENTAL SERVICE CORPORATION
and
THE GUARANTORS NAMED HEREIN
as Issuers
and
BT ALEX. BROWN INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
WILLIAM BLAIR & COMPANY,
as Initial Purchasers
9% Senior Subordinated Notes due 2008
--------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is dated as of
---------
May 13, 1998, among RENTAL SERVICE CORPORATION, a Delaware corporation (the
"Company"), the subsidiaries of the Company listed on the signature pages
- --------
hereto, as guarantors (the "Guarantors"), and together with the Company, the
----------
"Issuers"), and BT ALEX. BROWN INCORPORATED, MERRILL LYNCH, PIERCE, FENNER &
- --------
SMITH INCORPORATED, MORGAN STANLEY & CO. INCORPORATED AND WILLIAM BLAIR &
COMPANY, as initial purchasers (collectively, the "Initial Purchasers").
------------------
This Agreement is entered into in connection with the Purchase
Agreement, dated May 8, 1998, among the Issuers and the Initial Purchasers (the
"Purchase Agreement"), which provides for the sale by the Company to the Initial
------------------
Purchasers of $200,000,000 aggregate principal amount of the Company's 9% Senior
Subordinated Notes due 2008 (the "Notes"), guaranteed by the Guarantors (the
-----
"Guarantees"). In order to induce the Initial Purchasers to enter into the
- -----------
Purchase Agreement, the Issuers have agreed to provide the registration rights
set forth in this Agreement for the benefit of the Initial Purchasers and any
subsequent holder or holders of the Notes. The execution and delivery of this
Agreement is a condition to the Initial Purchasers' obligation to purchase the
Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4 hereof.
-------------------
Advice: See the last paragraph of Section 5 hereof.
------
Agreement: See the introductory paragraphs hereto.
---------
Applicable Period: See Section 2 hereof.
-----------------
Effectiveness Date: The 150th day after the Issue Date; provided,
------------------ --------
however, that with respect to any Shelf Registration, the Effectiveness Date
- -------
shall be the 60th day after the Filing Date with respect thereto.
Effectiveness Period: See Section 3(a) hereof.
--------------------
Event Date: See Section 4(b) hereof.
----------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the SEC promulgated thereunder.
<PAGE>
2
Exchange Notes: See Section 2 hereof.
--------------
Exchange Offer: See Section 2 hereof.
--------------
Exchange Offer Registration Statement: See Section 2 hereof.
-------------------------------------
Filing Date: (A) With respect to the Exchange Offer Registration
-----------
Statement, the 90th day after the Issue Date and (B) with respect to a Shelf
Registration Statement (which may be applicable notwithstanding the consummation
of the Exchange Offer), the 30th day after the delivery of a Shelf Notice.
Holder: Any registered holder of a Registrable Note or Registrable
------
Notes.
Indemnified Person: See Section 7(c) hereof.
------------------
Indemnifying Person: See Section 7(c) hereof.
-------------------
Indenture: The Indenture, dated as of May 13, 1998, by and among
---------
the Issuers and Norwest Bank Minnesota, N.A., as Trustee, pursuant to which the
Notes and the Guarantees are being issued, as the same may be amended or
supplemented from time to time in accordance with the terms thereof.
Initial Purchasers: See the introductory paragraphs hereto.
------------------
Initial Shelf Registration: See Section 3(a) hereof.
--------------------------
Inspectors: See Section 5(m) hereof.
----------
Issue Date: May 13, 1998, the date of original issuance of the Notes.
----------
Issuers: See the introductory paragraphs hereto.
-------
NASD: See Section 5(r) hereof.
----
Offering Memorandum: The final offering memorandum of the Company
-------------------
dated May 8, 1998, in respect of the offering of the Notes.
Participant: See Section 7(a) hereof
-----------
Participating Broker-Dealer: See Section 2(b) hereof.
---------------------------
Person: An individual, trustee, corporation, partnership, joint stock
------
company, trust, unincorporated association, union, business association, firm or
other legal entity.
Private Exchange: See Section 2(b) hereof.
----------------
<PAGE>
3
Private Exchange Notes: See Section 2(b) hereof.
----------------------
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act and any term sheet filed pursuant to Rule
434 under the Securities Act), as amended or supplemented by any prospectus
supplement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs hereof.
------------------
Records: See Section 5(m) hereof.
-------
Registrable Notes: Each Note upon its original issuance and at all
-----------------
times subsequent thereto, each Exchange Note as to which Section 2(c)(iv)
hereof is applicable upon original issuance and at all times subsequent thereto
and each Private Exchange Note upon original issuance thereof and at all times
subsequent thereto, until (i) a Registration Statement (other than, with respect
to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the
Exchange Offer Registration Statement) covering such Note, Exchange Note or
Private Exchange Note has been declared effective by the SEC and such Note,
Exchange Note or such Private Exchange Note, as the case may be, has been
disposed of in accordance with such effective Registration Statement, (ii) such
Note has been exchanged pursuant to the Ex change Offer for an Exchange Note or
Exchange Notes that may be resold without complying with the prospectus delivery
requirements of the 1933 Act, (iii) such Note, Exchange Note or Private Exchange
Note, as the case may be, ceases to be outstanding for purposes of the Indenture
or (iv) such Note, Exchange Note or Private Exchange Note, as the case may be,
has been or may be resold without restriction pursuant to Rule 144 under the
Securities Act.
Registration Statement: Any registration statement of the Company
----------------------
and/or the Guarantors that covers any of the Notes, the Exchange Notes or the
Private Exchange Notes (and the related Guarantees) filed with the SEC under the
Securities Act, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule
--------
may be amended from time to, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC.
Rule 144A: Rule 144A promulgated under the Securities Act, as such
---------
Rule may be amended from time to time, or any similar rule (other than Rule 144)
or regulation hereafter adopted by the SEC.
<PAGE>
4
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c) hereof.
------------
Shelf Registration: See Section 3(b) hereof.
------------------
Subsequent Shelf Registration: See Section 3(b) hereof.
-----------------------------
TIA: The Trust Indenture Act of 1939, as amended.
---
Trustee: The trustee under the Indenture and the trustee (if any)
-------
under any in denture governing the Exchange Notes and Private Exchange Notes.
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of one or more of the Issuers are sold to an underwriter for
reoffering to the public.
2. Exchange Offer
--------------
(a) To the extent not prohibited by law or SEC staff interpretation,
the Issuers shall file with the SEC, no later than the Filing Date, a
Registration Statement (the "Exchange Offer Registration Statement") on an
-------------------------------------
appropriate registration form with respect to a registered offer (the
"Exchange Offer") to exchange any and all of the Registrable Notes for a
---------------
like aggregate principal amount of notes of the Company, guaranteed by the
Guarantors, that are identical in all material respects to the Notes,
except that the Exchange Notes shall contain no restrictive legend thereon
(the "Exchange Notes"), and which are entitled to the benefits of the
--------------
Indenture or a trust indenture which is identical in all material respects
to the Indenture (other than such changes to the Indenture or any such
identical trust indenture as are necessary to comply with the TIA) and
which, in either case, has been qualified under the TIA. The Exchange
Offer shall comply with all applicable tender offer rules and regulations
under the Exchange Act and other applicable law. The Issuers shall use
their reasonable best efforts to (x) cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act on or before
the Effectiveness Date; (y) keep the Exchange Offer open for at least 20
business days (or longer if required by applicable law) after the date that
notice of the Exchange Offer is mailed to Holders; and (z) consummate the
Exchange Offer on or prior to the 45th day following the date on which the
Exchange Offer Registration Statement is declared effective by the SEC.
If, after
<PAGE>
5
the Exchange Offer Registration Statement is initially declared effective
by the SEC, the Exchange Offer or the issuance of the Exchange Notes
thereunder is interfered with by any stop order, injunction or other order
or requirement of the SEC or any other governmental agency or court, the
Exchange Offer Registration Statement shall be deemed not to have become
effective for purposes of this Agreement.
Each Holder that participates in the Exchange Offer will be required,
as a condition to its participation in the Exchange Offer, to represent to the
Company in writing (which may be contained in the applicable letter of
transmittal) that any Exchange Notes to be received by it will be acquired in
the ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement or understanding with any
Person to participate in the distribution of the Exchange Notes in violation of
the provisions of the Securities Act, that such Holder is not an affiliate of
the Company within the meaning of the Securities Act and that such Holder is not
acting on behalf of a Person who could not make the foregoing representations.
Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, mutatis
-------
mutandis, solely with respect to Registrable Notes that are Private Exchange
- --------
Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and Exchange
Notes held by Participating Broker-Dealers (as defined), and the Issuers shall
have no further obligation to register Registrable Notes (other than Private
Exchange Notes and other than in respect of any Exchange Notes as to which
clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof.
No securities other than the Exchange Notes and Guarantees shall be
included in the Exchange Offer Registration Statement.
(b) The Issuers shall include within the Prospectus contained in the
Exchange Offer Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, which shall
contain a summary statement of the positions taken or policies made by the
staff of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) of Exchange Notes received by such brokerdealer in the
Exchange Offer (a "Participating Broker-Dealer"), whether such positions or
---------------------------
policies have been publicly disseminated by the staff of the SEC or such
positions or policies represent the prevailing views of the staff of the
SEC. Such "Plan of Distribution" section shall also expressly permit, to
the extent permitted by applicable policies and regulations of the SEC, the
use of the Prospectus by all Persons subject to the prospectus delivery
requirements of the Securities Act, including, to the extent permitted by
applicable policies and regulations of the SEC, all Participating Broker-
Dealers, and include a statement describing the means by which
Participating Broker-Dealers may resell the Exchange Notes in compliance
with the Securities Act.
The Issuers shall use their reasonable best efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
Prospectus contained
<PAGE>
6
therein in order to permit such Prospectus to be lawfully delivered by all
Persons subject to the prospectus delivery requirements of the Securities Act
for such period of time as is necessary to comply with applicable law in
connection with any resale of the Exchange Notes covered thereby; provided,
--------
however, that such period shall not be required to exceed 90 days after such
- -------
Exchange Offer Registration Statement is declared effective (or such longer
period if extended pursuant to the last paragraph of Section 5 hereof) (the
"Applicable Period").
-----------------
If, prior to consummation of the Exchange Offer, any Holder holds any
Notes acquired by it that have, or that are reasonably likely to be determined
to have, the status of an unsold allotment in an initial distribution, or any
Holder is not entitled to participate in the Exchange Offer, the Company upon
the request of any such Holder shall simultaneously with the delivery of the
Exchange Notes in the Exchange Offer, issue and deliver to any such Holder, in
exchange (the "Private Exchange") for such Notes held by any such Holder, a like
----------------
principal amount of notes (the "Private Exchange Notes") of the Company,
----------------------
guaranteed by the Guarantors, that are identical in all material respects to the
Exchange Notes except for the placement of a restrictive legend on such Private
Exchange Notes. The Private Exchange Notes shall be issued pursuant to the same
indenture as the Exchange Notes and bear the same CUSIP number as the Exchange
Notes.
In connection with the Exchange Offer, the Issuers shall:
(i) mail, or cause to be mailed, to each Holder of record
entitled to participate in the Exchange Offer a copy of the Prospectus
forming part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) utilize the services of a depositary for the Exchange Offer
with an address in the Borough of Manhattan, The City of New York;
(iii) permit Holders to withdraw tendered Notes at any time
prior to the close of business, New York time, on the last business day on
which the Exchange Offer shall remain open; and
(iv) otherwise comply in all material respects with all
applicable laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer and the
Private Exchange, if any, the Issuers shall:
(i) accept for exchange all Registrable Notes validly tendered and
not validly withdrawn pursuant to the Exchange Offer and the Private
Exchange, if any;
(ii) deliver to the Trustee for cancellation all Registrable Notes
so accepted for exchange; and
<PAGE>
7
(iii) cause the Trustee to authenticate and deliver promptly to each
Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may
be, equal in principal amount to the Notes of such Holder so accepted for
exchange.
The Exchange Offer and the Private Exchange shall not be subject to
any conditions, other than that (i) the Exchange Offer or Private Exchange, as
the case may be, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) no action or proceeding shall have
been instituted or threatened in any court or by any governmental agency which
might prohibit or materially impair the ability of the Issuers to proceed with
the Exchange Offer or the Private Exchange, and no material adverse development
shall have occurred in any existing action or proceeding with respect to the
Issuers and (iii) all govern mental approvals shall have been obtained, which
approvals the Issuers deem necessary for the consummation of the Exchange Offer
or Private Exchange. In addition, each broker-dealer that desires to participate
in the Exchange Offer and to receive Exchange Notes will be required to
represent that the Notes being tendered by such broker-dealer were acquired in
ordinary trading or market-making activities and not in transactions directly
with any Issuer or Affiliate thereof. A broker-dealer that is not able to make
the foregoing representation will not be permitted to participate in the
Exchange Offer.
The Exchange Notes and the Private Exchange Notes shall be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture and which, in either case, has been qualified under the TIA or
is exempt from such qualification and shall provide that the Exchange Notes (but
not the Private Exchange Notes) shall not be subject to the transfer
restrictions set forth in the Indenture. The Indenture or such indenture shall
provide that the Exchange Notes, the Private Exchange Notes and the Notes shall
vote and consent together on all matters as one class and that none of the
Exchange Notes, the Private Exchange Notes or the Notes will have the right to
vote or consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations,of the staff of the SEC, the Issuers are not permitted to
effect the Exchange Offer, (ii) the Exchange Offer is not consummated
within 195 days of the Issue Date, (iii) any holder of Private Exchange
Notes so requests in writing to the Company within 60 days after the
consummation of the Exchange Offer, or (iv) in the case of any Holder that
participates in the Exchange Offer, such Holder does not receive Exchange
Notes on the date of the exchange that may be sold without restriction
under state and federal securities laws (other than due solely to the
status of such Holder as an affiliate of the Company or an "underwriter",
each within the meaning of the Securities Act), then in the case of each of
clauses (i) to and including (iv) of this sentence, the Company shall
promptly deliver to the Holders and the Trustee written notice thereof (the
"Shelf Notice") and shall file a Shelf Registration pursuant to Section 3
------------
hereof.
3. Shelf Registration
------------------
<PAGE>
8
If at any time a Shelf Notice is delivered as contemplated by Section
2(c) hereof, then:
(a) Shelf Registration. The Issuers, as promptly as practicable,
------------------
shall file with the SEC a Registration Statement for an offering to be made
on a continuous basis pursuant to Rule 415 covering all of the Registrable
Notes not exchanged in the Exchange Offer, Private Exchange Notes and
Exchange Notes as to which Section 2(c)(iv) is applicable (the "Initial
-------
Shelf Registration"). The Issuers shall use their reasonable best efforts
-------------------
to file with the SEC the Initial Shelf Registration on or before the
applicable Filing Date. The Initial Shelf Registration shall be on an
appropriate form permitting registration of such Registrable Notes for
resale by Holders in the manner or manners designated by them (including,
without limitation, one or more underwritten offerings). The Issuers shall
not permit any securities other than the Registrable Notes to be included
in the Initial Shelf Registration or any Subsequent Shelf Registration (as
defined below).
The Issuers shall use their reasonable best efforts to cause the
Initial Shelf Registration to be declared effective under the Securities Act on
or prior to the Effectiveness Date and to keep the Initial Shelf Registration
continuously effective under the Securities Act until the date which is two
years from the Issue Date (the "Effectiveness Period"), or such shorter period
--------------------
ending when (i) all Registrable Notes covered by the Initial Shelf Registration
have been sold in the manner set forth and as contemplated in the Initial Shelf
Registration, pursuant to Rule 144 or otherwise are no longer Registrable Notes
or (ii) a Subsequent Shelf Registration covering all of the Registrable Notes
covered by and not sold under the Initial Shelf Registration or an earlier
Subsequent Shelf Registration has been declared effective under the Securities
Act; provided, however, that the Effectiveness Period in respect of the Initial
-------- -------
Shelf Registration shall be extended to the extent required to permit dealers to
comply with the applicable prospectus delivery requirements of Rule 174 under
the Securities Act and as otherwise provided herein. No Holder may include any
of its Registrable Notes in any Shelf Registration Statement pursuant to this
Agreement or be entitled to receive Additional Interest (as defined below)
pursuant to Section 4 hereof unless and until such Holder furnishes to the
Company, in writing, within 15 business days after receipt of a request
therefor, such information as is required by applicable law and as the Company
may reasonably request for use in connection with any Shelf Registration
Statement or Prospectus or preliminary prospectus included therein. Each Holder
as to which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Company all information required to be disclosed in order to
make information previously furnished to the Company by such Holder not
materially misleading.
(b) Subsequent Shelf Registrations. If the Initial Shelf
------------------------------
Registration or any Subsequent Shelf Registration ceases to be effective
for any reason at any time during the Effectiveness Period (other than as
permitted in the second paragraph of Section 3(a) above because of the sale
of all of the securities registered thereunder), the Issuers shall use
their reasonable best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof, and in any event shall within 30 days
of such cessation of effectiveness amend the Initial Shelf Registration in
a manner to
<PAGE>
9
obtain the withdrawal of the order suspending the effectiveness thereof,
or, in the Company's sole discretion, file an additional "shelf"
Registration Statement pursuant to Rule 415 covering all of the Registrable
Notes covered by and not sold under the Initial Shelf Registration or an
earlier Subsequent Shelf Registration (each, a "Subsequent Shelf
----------------
Registration"). If a Subsequent Shelf Registration is filed, the
------------
Issuers shall use their reasonable best efforts to cause the Subsequent
Shelf Registration to be declared effective under the Securities Act as
soon as practicable after such filing and to keep such subsequent Shelf
Registration continuously effective for a period equal to the number of
days in the Effectiveness Period less the aggregate number of days during
which the Initial Shelf Registration or any Subsequent Shelf Registration
was previously continuously effective. As used herein the term "Shelf
-----
Registration" means the Initial Shelf Registration and any Subsequent Shelf
------------
Registration.
(c) Supplements and Amendments. The Issuers shall promptly
--------------------------
supplement and amend any Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for
such Shelf Registration, if required by the Securities Act, or if
reasonably requested by the Holders of a majority in aggregate principal
amount of the Registrable Notes covered by such Registration Statement or
by any underwriter of such Registrable Notes.
4. Additional Interest
-------------------
(a) The Issuers and the Initial Purchasers agree that the Holders
will suffer damages if the Issuers fail to fulfill their obligations under
Section 2 or Section 3 hereof and that it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, the
Company agrees to pay, as liquidated damages, additional interest on the
Notes ("Additional Interest") under the circumstances and to the extent set
-------------------
forth below (each of which shall be given independent effect):
(i) if (A) neither the Exchange Offer Registration Statement nor
the Initial Shelf Registration has been filed on or prior to the
applicable Filing Date or (B) notwithstanding that the Issuers have
consummated or will consummate the Exchange Offer, the Issuers are
required to file a Shelf Registration and such Shelf Registration is
not filed on or prior to the Filing Date applicable thereto, then,
commencing on the day after any such Filing Date, Additional Interest
shall accrue on the principal amount of the Notes at a rate of 0.25%
per annum for the first 90 days immediately following each such Filing
Date, and such Additional Interest rate shall increase by an
additional 0.25% per annum at the beginning of each subsequent 90-day
period; or
(ii) if (A) neither the Exchange Offer Registration Statement nor
the Initial Shelf Registration is declared effective by the SEC on or
prior to the relevant Effectiveness Date or (B) notwithstanding that
the Issuers have consummated or will consummate the Exchange Offer,
the Issuers are
<PAGE>
10
required to file a Shelf Registration and such Shelf Registration is
not declared effective by the SEC on or prior to the Effectiveness
Date in respect of such Shelf Registration, then, commencing on (x)
the 151st day after the Issue Date, in the case of clause (A) or (y)
the date after the 60th day following the applicable Filing Date in
the case of clause (B), Additional Interest shall accrue on the
principal amount of the Notes at a rate of 0.25% per annum for the
first 90 days immediately following the day after such date, and such
Additional Interest rate shall increase by an additional 0.25% per
annum at the beginning of each subsequent 90-day period; or
(iii) if (A) the Issuers have not exchanged Exchange Notes for
all Notes validly tendered in accordance with the terms of the
Exchange Offer on or prior to the 45th day after the date on which the
Exchange Offer Registration Statement relating thereto was declared
effective or (B) if applicable, a Shelf Registration has been declared
effective and such Shelf Registration ceases to be effective at any
time during the Effectiveness Period, then Additional Interest shall
accrue on the principal amount of the Notes at a rate of 0.25% per
annum for the first 90 days commencing on the (x) 46th day after such
effective date, in the case of (A) above, or (y) the day such Shelf
Registration ceases to be effective in the case of (B) above, and such
Additional Interest rate shall increase by an additional 0.25% per
annum at the beginning of each such subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not exceed
- -------- -------
at any one time in the aggregate 1.50% per annum; provided, further, however,
-------- ------- -------
that (1) upon the filing of the Exchange Offer Registration Statement or a Shelf
Registration as required hereunder (in the case of clause (i) above of this
Section 4), (2) upon the effectiveness of the Exchange Offer Registration
Statement or a Shelf Registration Statement as required hereunder (in the case
of clause (ii) of this Section 4), or (3) upon the exchange of the applicable
Exchange Notes for all Notes tendered (in the case of clause (iii)(A) of this
Section 4), or upon the effectiveness of the applicable Shelf Registration
Statement which had ceased to remain effective (in the case of (iii)(B) of this
Section 4), Additional Interest on the Notes in respect of which such events
relate as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue.
(b) The Company shall notify the Trustee within three business days
after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). Any amounts
----------
of Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this
Section 4 will be payable in cash semiannually on each May 15 and November
15 (to the holders of record on the May 1 and November 1 immediately
preceding such dates), commencing with the first such date occurring after
any such Additional Interest commences to accrue. The amount of Additional
Interest will be determined by multiplying the applicable Additional
Interest rate by the principal amount of the Registrable Notes, multiplied
by a fraction, the numerator of which is the number of days such Additional
Interest rate was applicable during such period (determined on the basis of
a 360-day year
<PAGE>
11
comprised of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed), and the denominator of which is 360.
5. Registration Procedures
-----------------------
In connection with the filing of any Registration Statement pursuant
to Sections 2 or 3 hereof, the Issuers shall effect such registrations to permit
the sale of the securities covered thereby in accordance with the intended
method or methods of disposition thereof, and pursuant thereto and in connection
with any Registration Statement filed by the Issuers hereunder each of the
Issuers shall:
(a) Prepare and file with the SEC prior to the applicable Filing
Date, a Registration Statement or Registration Statements as prescribed by
Sections 2 or 3 hereof, and use its reasonable best efforts to cause each
such Registration Statement to become effective and remain effective as
provided herein; provided, however, that, if (1) such filing is pursuant to
-------- -------
Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who
seeks to sell Exchange Notes during the Applicable Period relating thereto,
before filing any Registration Statement or Prospectus or any amendments or
supplements thereto, the Issuers shall furnish to and afford the Holders of
the Registrable Notes included in such Registration Statement or each such
Participating Broker-Dealer, as the case may be, their counsel and the
managing underwriters, if any, a reasonable opportunity to review copies of
all such documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed prior to
the effectiveness of such Registration Statement (in each case at least
five business days prior to such filing, or such later date as is
reasonable under the circumstances). The Issuers shall not file any
Registration Statement or Prospectus or any amendments or supplements
thereto if the Holders of a majority in aggregate principal amount of the
Registrable Notes included in such Registration Statement, or any such
Participating Broker-Dealer, as the case may be, their counsel, or the
managing underwriters, if any, shall reasonably object on a timely basis.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration Statement or Exchange Offer
Registration Statement, as the case may be, as may be necessary to keep
such Registration Statement continuously effective for the Effectiveness
Period or the Applicable Period, as the case may be; cause the related
Prospectus to be supplemented by any Prospectus supplement required by
applicable law, and as so supplemented to be filed pursuant to Rule 424 (or
any similar provisions then in force) promulgated under the Securities Act;
and comply with the provisions of the Securities Act and the Exchange Act
applicable to each of them with respect to the disposition of all
securities covered by such Registration Statement as so amended or in such
Prospectus as so supplemented and with respect to the subsequent resale of
any securities being sold by a Participating Broker-Dealer covered by any
such
<PAGE>
12
Prospectus. The Issuers shall be deemed not to have used their reasonable
best efforts to keep a Registration Statement effective during the
Effectiveness Period or the Applicable Period, as the case may be, relating
thereto if any Issuer voluntarily takes any action that would result in
selling Holders of the Registrable Notes covered thereby or Participating
Broker-Dealers seeking to sell Exchange Notes not being able to sell such
Registrable Notes or such Exchange Notes during that period unless such
action is required by applicable law or permitted by this Agreement.
(c) If(1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period relating thereto from whom the
Company has received written notice that it will be a Participating Broker-
Dealer in the Exchange Offer, notify the selling Holders of Registrable
Notes, or each such Participating Broker-Dealer, as the case may be, their
counsel and the managing underwriters, if any, promptly (but in any event
within one day), and confirm such notice in writing, (i) when a Prospectus
or any Prospectus supplement or post-effective amendment has been filed,
and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective under the Securities Act
(including in such notice a written statement that any Holder may, upon
request, obtain, at the sole expense of the Issuers, one conformed copy of
such Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be
incorporated by reference and exhibits), (ii) of the issuance by the SEC of
any stop order suspending the effectiveness of a Registration Statement or
of any order preventing or suspending the use of any preliminary prospectus
or the initiation of any proceedings for that purpose, (iii) if at any time
when a prospectus is required by the Securities Act to be delivered in
connection with sales of the Registrable Notes or resales of Exchange Notes
by Participating Broker-Dealers the representations and warranties of the
Issuers contained in any agreement (including any underwriting agreement)
contemplated by Section 5(1) hereof cease to be true and correct in all
material respects, (iv) of the receipt by any Issuer of any notification
with respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the Registrable Notes
or the Exchange Notes to be sold by any Participating Broker-Dealer for
offer or sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event, the
existence of any condition or any information becoming known that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes
in or amendments or supplements to such Registration Statement, Prospectus
or documents so that, in the case of the Registration Statement, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the Prospectus,
it will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated
<PAGE>
13
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (vi) of the
Issuers' determination that a post-effective amendment to a Registration
Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, use its reasonable best
efforts to prevent the issuance of any order suspending the effectiveness
of a Registration Statement or of any order preventing or suspending the
use of a Prospectus or suspending the qualification (or exemption from
qualification) of any of the Registrable Notes or the Exchange Notes to be
sold by any Participating Broker-Dealer, for sale in any jurisdiction, and,
if any such order is issued, to use its reasonable best efforts to obtain
the withdrawal of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriter or underwriters (if any), the Holders
of a majority in aggregate principal amount of the Registrable Notes being
sold in connection with an underwritten offering or any Participating
Broker-Dealer, (i) as promptly as practicable incorporate in a prospectus
supplement or post-effective amendment such information as the managing
underwriter or underwriters (if any), such Holders, any Participating
Broker-Dealer or counsel for any of them reasonably request to be included
therein, (ii) make all required filings of such prospectus supplement or
such post-effective amendment as soon as practicable after an Issuer has
received notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment, and (iii) supplement or make
amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, furnish to each selling
Holder of Registrable Notes and to each such Participating Broker-Dealer
who so requests and to their respective counsel and each managing
underwriter, if any, at the sole expense of the Issuers, one conformed copy
of the Registration Statement or Registration Statements and each post-
effective amendment thereto, including financial statements and schedules,
and, if requested, all documents incorporated or deemed to be incorporated
therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, deliver to each selling
Holder of Registrable Notes, or each such
<PAGE>
14
Participating Broker-Dealer, as the case may be, their respective counsel,
and the underwriters, if any, at the sole expense of the Issuers, as many
copies of the Prospectus or Prospectuses (including each form of
preliminary prospectus) and each amendment or supplement thereto and any
documents incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, the Issuers
hereby consent to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders of Registrable Notes or
each such Participating Broker-Dealer, as the case may be, and the
underwriters or agents, if any, and dealers (if any), in connection with
the offering and sale of the Registrable Notes covered by, or the sale by
Participating Broker-Dealers of the Exchange Notes pursuant to, such
Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any delivery
of a Prospectus contained in the Exchange Offer Registration Statement by
any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, use its reasonable best efforts to register or
qualify, and to cooperate with the selling Holders of Registrable Notes or
each such Participating Broker-Dealer, as the case may be, the managing
underwriter or underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Notes for offer and sale
under the securities or Blue Sky laws of such jurisdictions within the
United States as any selling Holder, Participating Broker-Dealer, or the
managing underwriter or underwriters reasonably request in writing;
provided, however, that where Exchange Notes held by Participating Broker-
-------- -------
Dealers or Registrable Notes are offered other than through an underwritten
offering, the Issuers agree to cause their counsel to perform Blue Sky
investigations and file registrations and qualifications required to be
filed pursuant to this Section 5(h), keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all
other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Exchange Notes held by
Participating Broker-Dealers or the Registrable Notes covered by the
applicable Registration Statement; provided, however, that no Issuer shall
-------- -------
be required to (A) qualify generally to do business in any jurisdiction
where it is not then so qualified, (B) take any action that would subject
it to general service of process in any such jurisdiction where it is not
then so subject or (C) subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Notes to be sold,
which certificates shall not bear any restrictive legends and shall be in a
form eligible for deposit with The Depository Trust Company; and enable
such Registrable Notes to be in such denominations and
<PAGE>
15
registered in such names as the managing underwriter or underwriters, if
any, or Holders may request.
(j) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, upon the occurrence of
any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly
as practicable prepare and (subject to Section 5(a) hereof) file with the
SEC, at the sole expense of the Issuers, a supplement or post-effective
amendment to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated
therein by reference, or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Notes being sold
thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an 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, in light of the circumstances under which they were
made, not misleading. Notwithstanding the foregoing, the Issuers shall not
be required to amend or supplement a Registration Statement, any related
Prospectus or any document incorporated therein by reference, in the event
that, and for a period not to exceed an aggregate of 75 days in any
calendar year if, (i) an event occurs and is continuing as a result of
which the Shelf Registration would, in the Company's good faith judgment,
contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and (ii) (a) the
Company determines in its good faith judgment that the disclosure of such
event at such time would have a material adverse effect on the business,
operations, condition (financial or otherwise) or prospects of the Company
or (b) the disclosure otherwise relates to a pending material business
transaction that has not yet been publicly disclosed or with respect to
which financial statements or other financial information would be required
to be included in a Registration Statement and are not yet available.
(k) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with
certificates for the Registrable Notes in a form eligible for deposit with
The Depository Trust Company and (ii) provide a CUSIP number for the
Registrable Notes.
(l) In connection with any underwritten offering of Registrable Notes
pursuant to a Shelf Registration, enter into an underwriting agreement as
is customary in underwritten offerings of debt securities similar to the
Notes in form and substance reasonably satisfactory to the Company and take
all such other actions as are reasonably requested by the managing
underwriter or underwriters in order to expedite or facilitate the
registration or the disposition of such Registrable Notes and, in such
connection, (i) make such representations and warranties to, and
<PAGE>
16
covenants with, the underwriters with respect to the business of the
Company and the subsidiaries of the Company (including any acquired
business, properties or entity, if applicable) and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, as are customarily made by
issuers to underwriters in underwritten offerings of debt securities
similar to the Notes, and confirm the same in writing if and when requested
in form and substance reasonably satisfactory to the Company; (ii) obtain
the written opinions of counsel to the Company and written updates thereof
in form, scope and substance reasonably satisfactory to the managing
underwriter or underwriters, addressed to the underwriters covering the
matters customarily covered in opinions reasonably requested in
underwritten offerings and such other matters as may be reasonably
requested by the managing underwriter or underwriters; (iii) use its
reasonable best efforts to obtain "cold comfort" letters and updates
thereof in form, scope and substance reasonably satisfactory to the
managing underwriter or underwriters from the independent public
accountants of the Company (and, if necessary, any other independent public
accountants of the Company, any subsidiary of the Company or of any
business acquired by the Company for which financial statements and
financial data are, or are required to be, included or incorporated by
reference in the Registration Statement), addressed to each of the
underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings of debt securities similar to the Notes and such
other matters as reasonably requested by the managing underwriter or
underwriters as permitted by the Statement on Auditing Standards No. 72;
and (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to the
sellers and underwriters, if any, than those set forth in Section 7 hereof
(or such other provisions and procedures acceptable to Holders of a
majority in aggregate principal amount of Registrable Notes covered by such
Registration Statement and the managing underwriter or underwriters or
agents, if any). The above shall be done at each closing under such
underwriting agreement, or as and to the extent required thereunder.
(m) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, make available for
inspection by any selling Holder of such Registrable Notes being sold, or
each such Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Notes, if any, and any
attorney, accountant or other agent retained by any such selling Holder or
each such Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept,
----------
during reasonable business hours, all financial and other records,
pertinent corporate documents and instruments of the Company and
subsidiaries of the Company (collectively, the "Records") as shall be
-------
reasonably necessary to enable them to exercise any applicable due
diligence responsibilities, and cause the officers, directors and employees
of the
<PAGE>
17
Company and any of its subsidiaries to supply all information reasonably
requested by any such Inspector in connection with such Registration
Statement and Prospectus. Each Inspector shall agree in writing that it
will keep the Records confidential and that it will not disclose any of the
Records unless (i) the disclosure of such Records is necessary to avoid or
correct a material misstatement or material omission in such Registration
Statement or Prospectus, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction, or (iii) the information in such Records has been made
generally available to the public not in violation of any person's or
entity's confidentiality obligations; provided, however, that prior notice
-------- -------
shall be provided as soon as practicable to the Company of the potential
disclosure of any information by such Inspector pursuant to clauses (i) or
(ii) of this sentence to permit the Company to obtain a protective order
(or waive the provisions of this paragraph (m)) and that such Inspector
shall take such actions as are reasonably necessary to protect the
confidentiality of such information (if practicable) to the extent such
action is otherwise not inconsistent with, an impairment of or in
derogation of the rights and interests of the Holder or any Inspector.
(n) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the first
Registration Statement relating to the Registrable Notes; and in connection
therewith, cooperate with the trustee under any such indenture and the
Holders of the Registrable Notes, to effect such changes to such indenture
as may be required for such indenture to be so qualified in accordance with
the terms of the TIA; and execute, and use its reasonable best efforts to
cause such trustee to execute, all documents as may be required to effect
such changes, and all other forms and documents required to be filed with
the SEC to enable such indenture to be so qualified in a timely manner.
(o) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders with regard to any
applicable Registration Statement, a consolidated earnings statement
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 60 days after the end of any fiscal quarter (or 120 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Notes are
sold to underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(p) If the Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Company (or to
such other Person as directed by the Issuer) in exchange for the Exchange
Notes or the Private Exchange Notes, as the case may be, the Company shall
mark, or cause to be
<PAGE>
18
marked, on such Registrable Notes that such Registrable Notes are being
canceled in exchange for the Exchange Notes or the Private Exchange Notes,
as the case may be; in no event shall such Registrable Notes be marked as
paid or otherwise satisfied.
(q) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
----
(r) Use its reasonable best efforts to take all other steps
reasonably necessary to effect the registration of the Exchange Notes
and/or Registrable Notes covered by a Registration Statement contemplated
hereby.
The Company may require each seller of Registrable Notes as to which
any registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such Registrable Notes as the
Company may, from time to time, reasonably request. The Company may exclude
from such registration the Registrable Notes of any seller so long as such
seller fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such seller not materially misleading.
If any such Registration Statement refers to any Initial Purchaser by
name or otherwise as the holder of any securities of the Company, then such
Initial Purchaser shall have the right to require (i) the insertion therein of
language, in form and substance reasonably satisfactory to such Initial
Purchaser and the Company, to the effect that the holding by such Initial
Purchaser of such securities is not to be construed as a recommendation by such
Initial Purchaser of the investment quality of the securities covered thereby
and that such holding does not imply that such Initial Purchaser will assist in
meeting any future financial requirements of the Company, or (ii) in the event
that such reference to such Initial Purchaser by name or otherwise is not
required by the Securities Act or any similar federal statute then in force, the
deletion of the reference to such Initial Purchaser in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by its acquisition of such Registrable Notes or Exchange Notes to be sold
by such Participating Broker-Dealer, as the case may be, that, upon actual
receipt of any notice from the Company of the happening of any event of the
kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such
Holder will forthwith discontinue disposition of such Registrable Notes covered
by such Registration Statement or Prospectus or Exchange Notes to be sold by
such Holder or Participating Broker-Dealer, as the case may be, until such
Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or
<PAGE>
19
amended Prospectus contemplated by Section 5(j) hereof, or until it is advised
in writing (the "Advice") by the Company that the use of the applicable
------
Prospectus may be resumed, and has received copies of any amendments or
supplements thereto. In the event that the Company shall give any such notice,
the Applicable Period shall be extended by the number of days during such
periods from and including the date of the giving of such notice to and
including the date when each seller of Registrable Notes covered by such
Registration Statement or Exchange Notes to be sold by such Participating
Broker-Dealer, as the case may be, shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 5(j) hereof or (y)
the Advice.
6. Registration Expenses
---------------------
All fees and expenses incident to the performance of or compliance
with this Agreement by the Issuers (other than any underwriting discounts or
commissions) shall be borne by the Company whether or not the Exchange Offer
Registration Statement or any Shelf Registration is filed or becomes effective
or the Exchange Offer is consummated, including, without limitation, (i) all
registration and filing fees (including, without limitation, (A) fees with
respect to filings required to be made with the NASD in connection with an
underwritten offering and (B) reasonable fees and expenses of compliance with
state securities or Blue Sky laws (including, without limitation, fees and
disbursements of Issuers' counsel in connection with Blue Sky qualifications of
the Registrable Notes or Exchange Notes and determination of the eligibility of
the Registrable Notes or Exchange Notes for investment under the laws of such
jurisdictions (x) where the holders of Registrable Notes are located, in the
case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the
case of Registrable Notes or Exchange Notes to be sold by a Participating
Broker-Dealer during the Applicable Period)), (ii) printing expenses, including,
without limitation, expenses of printing certificates for Registrable Notes or
Exchange Notes in a form eligible for deposit with The Depository Trust Company
and of printing prospectuses if the printing of prospectuses is requested by the
managing underwriter or underwriters, if any, by the Holders of a majority in
aggregate principal amount of the Registrable Notes included in any Registration
Statement or in respect of Registrable Notes or Exchange Notes to be sold by any
Participating Broker-Dealer during the Applicable Period, as the case may be,
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company and reasonable fees and disbursements of one special
counsel for all of the sellers of Registrable Notes (exclusive of any counsel
retained pursuant to Section 7 hereof), (v) fees and disbursements of all
independent certified public accountants referred to in Section 5(l)(iii) hereof
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance), (vi) Securities
Act liability insurance, if the Company desires such insurance, (vii) fees and
expenses of all other Persons retained by the Issuer, (viii) internal expenses
of the Company (including, without limitation, all salaries and expenses of
officers and employees of the Company performing legal or accounting duties),
(ix) the expense of any annual audit, (x) any fees and expenses incurred in
connection with the listing of the securities to be registered on any securities
exchange, and the obtaining of a rating of the securities, in each case, if
applicable, and (xi) the expenses relating to printing, word processing and
distributing all Registration
<PAGE>
20
Statements, underwriting agreements, indentures and any other documents
necessary in order to comply with this Agreement.
7. Indemnification
---------------
(a) Each of the Issuers, jointly and severally, agrees to indemnify
and hold harmless each Holder of Registrable Notes and each Participating
Broker-Dealer selling Exchange Notes during the Applicable Period, the
affiliates, officers, directors, representatives, employees and agents of
each such Person, and each Person, if any, who controls any such Person
within the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act (each, a "Participant"), from and against any and all
-----------
losses, claims, damages, judgments, liabilities and expenses (including,
without limitation, the reasonable legal fees and other expenses actually
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) or Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by, arising
out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the case of the Prospectus in light of the
circumstances under which they were made, not misleading, except insofar as
------
such losses, claims, damages or liabilities are caused by any untrue
statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information relating to any
Participant furnished to the Company in writing by such Participant
expressly for use therein and with respect to any preliminary Prospectus,
to the extent that any such loss, claim, damage or liability arises solely
from the fact that any Participant sold Notes to a person to whom there was
not sent or given a copy of the Prospectus (as amended or supplemented) at
or prior to the written confirmation of such sale if the Company shall have
previously furnished copies thereof to the Participant in accordance
herewith and the Prospectus (as amended or supplemented) would have
corrected any such untrue statement or omission.
(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless the Issuers, their respective affiliates, officers,
directors, representatives, employees and agents of each Issuer and each
Person who controls each Issuer within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent (but on
a several, and not joint, basis) as the foregoing indemnity from the
Issuers to each Participant, but only with reference to information
relating to such Participant furnished to the Company in writing by such
Participant expressly for use in any Registration Statement or Prospectus,
any amendment or supplement thereto, or any preliminary prospectus. The
liability of any Participant under this paragraph shall in no event exceed
the proceeds received by such Participant from sales of Registrable Notes
or Exchange Notes giving rise to such obligations.
<PAGE>
21
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted
against any Person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such Person (the "Indemnified
-----------
Person") shall promptly notify the Persons against whom such indemnity may
------
be sought (the "Indemnifying Persons") in writing, and the Indemnifying
--------------------
Persons, upon request of the Indemnified Person, shall retain counsel
reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Persons may reasonably
designate in such proceeding and shall pay the fees and expenses actually
incurred by such counsel related to such proceeding; provided, however,
-------- -------
that the failure to so notify the Indemnifying Persons (i) will not
relieve it from any liability under paragraph (a) or (b) above unless and
to the extent such failure results in the forfeiture by the Indemnifying
Person of substantial rights and defenses and (ii) will not, in any event,
relieve the Indemnifying Person from any obligations to any Indemnified
Person other than the indemnification obligation provided in paragraphs
(a) and (b) above. In any such proceeding, any Indemnified Person 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 Person unless (i) the
Indemnifying Persons and the Indemnified Person shall have mutually agreed
to the contrary, (ii) the Indemnifying Persons shall have failed within a
reasonable period of time to retain counsel reasonably satisfactory to the
Indemnified Person or (iii) the named parties in any such proceeding
(including any impleaded parties) include both any Indemnifying Person and
the Indemnified Person or any affiliate thereof 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 Persons shall not, in connection with such proceeding or
separate but substantially similar related proceeding in the same
jurisdiction arising out of the same general allegations, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses
shall be reimbursed promptly as they are incurred. Any such separate firm
for the Participants and such control Persons of Participants shall be
designated in writing by Participants who sold a majority in interest of
Registrable Notes and Exchange Notes sold by all such Participants and
shall be reasonably acceptable to the Company, and any such separate firm
for the Issuers, their affiliates, officers, directors, representatives,
employees and agents and such control Persons of such Issuer shall be
designated in writing by such Issuer and shall be reasonably acceptable to
the Holders.
The Indemnifying Persons shall not be liable for any settlement of any
proceeding effected without its prior written consent (which consent shall not
be unreasonably withheld or delayed), but if settled with such consent or if
there be a final non-appealable judgment for the plaintiff for which the
Indemnified Person is entitled to indemnification pursuant to this Agreement,
each of the Indemnifying Persons agrees to indemnify and hold harmless each
Indemnified Person from and against any loss or liability by reason of such
settlement or judgment. No Indemnifying Person shall, without the prior written
consent of the Indemnified Persons (which consent shall not be unreasonably
withheld or delayed),
<PAGE>
22
effect any settlement or compromise of any pending or threatened proceeding in
respect of which any Indemnified Person is or could have been a party, or
indemnity could have been sought hereunder by such Indemnified Person, unless
such settlement (A) includes an unconditional written release of such
Indemnified Person, in form and substance reasonably satisfactory to such
Indemnified Person, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of such Indemnified Person.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason unavailable to, or
insufficient to hold harmless, an Indemnified Person in respect of any
losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraphs, in lieu of indemnifying such
Indemnified Person thereunder and in order to provide for just and
equitable contribution, shall contribute to the amount paid or payable by
such Indemnified Per son as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect (i) the
relative benefits received by the Indemnifying Person or Persons on the one
hand and the Indemnified Person or Persons on the other from the offering
of the Notes or (ii) if the allocation provided by the foregoing clause (i)
is not permitted by applicable law, not only such relative benefits but
also the relative fault of the Indemnifying Person or Persons on the one
hand and the Indemnified Person or Persons on the other in connection with
the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in
respect thereof) as well as any other relevant equitable considerations.
The relative fault of the parties 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 Issuers on the one hand or such
Participant or such other Indemnified Person, as the case may be, on the
other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any
other equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata
--- ----
allocation (even if the Participants 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 Person as a result
of the losses, claims, damages, judgments, liabilities and expenses
referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any reasonable legal
or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes
or Exchange Notes, as the case may be, exceeds the amount of any damages
that such Participant has otherwise been required to pay or has paid by
reason of
<PAGE>
23
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.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under
this Section 7 shall be paid by the Indemnifying Person to the Indemnified
Person as such losses, claims, damages, liabilities or expenses are
incurred. The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Issuers set forth
in this Agreement shall remain operative and in full force and effect,
regard less of (i) any investigation made by or on behalf of any Holder or
any person who controls a Holder, the Issuer, its directors, officers,
employees or agents or any person controlling an Issuer, and (ii) any
termination of this Agreement.
(g) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A
------------------
Each of the Issuers covenants and agrees that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder in a timely manner in
accordance with the requirements of the Securities Act and the Exchange Act and,
if at any time such Issuer is not required to file such reports, such Issuer
will, upon the request of any Holder or beneficial owner of Registrable Notes,
make available such information necessary to permit sales pursuant to Rule 144A
under the Securities Act. Each of the Issuers further covenants and agrees, for
so long as any Registrable Notes remain outstanding that it will make available
any information as any Holder of Registrable Notes may reasonably request, all
to the extent required from time to time to enable such holder to sell
Registrable Notes without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the
Securities Act, as such Rules may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC.
9. Underwritten Registrations
--------------------------
If any of the Registrable Notes covered by any Shelf Registration are
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Issuer.
<PAGE>
24
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous
-------------
(a) No Inconsistent Agreements. The Issuers have not, as of the date
--------------------------
hereof, and the Issuers shall not, after the date of this Agreement, enter
into any agreement with respect to any of its securities that is
inconsistent with the rights granted to the Holders of Registrable Notes in
this Agreement or otherwise conflicts with the provisions hereof. The
rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Issuers'
other issued and outstanding securities under any such agreements. The
Issuers will not enter into any agreement with respect to any of their
securities which will grant to any Person piggy-back registration rights
with respect to any Registration Statement.
(b) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, otherwise than with the prior
written consent of (I) the Company and (II)(A) the Holders of not less than
a majority in aggregate principal amount of the then outstanding
Registrable Notes and (B) in circumstances that would materially adversely
affect the Participating Broker-Dealers, the Participating Broker-Dealers
holding not less than a majority in aggregate principal amount of the
Exchange Notes held by all Participating Broker-Dealers; provided, however,
-------- -------
that Section 7 and this Section 10(c) may not be amended, modified or
supplemented without the prior written consent of each Holder and each
Participating Broker-Dealer (including any person who was a Holder or
Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the
case may be, disposed of pursuant to any Registration Statement) affected
by any such amendment, modification or supplement. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders of
Registrable Notes whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect,
impair, limit or compromise the rights of other Holders of Registrable
Notes may be given by Holders of at least a majority in aggregate principal
amount of the Registrable Notes being sold pursuant to such Registration
Statement.
(c) Notices. All notices and other communications (including,
-------
without limitation, any notices or other communications to the Trustee)
provided for or permitted hereunder shall be made in writing by hand-
delivery, registered first-class mail, next-day air courier or facsimile:
<PAGE>
25
(i) if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or
Participating Broker-Dealer, as the case may be, set forth on the
records of the registrar under the Indenture.
(ii) if to the Issuers, at the address as follows:
c/o Rental Service Corporation
6929 E. Greenway Park
Suite 200
Scottsdale, Arizona 85254
Attention: Chief Executive Officer,
Chief Financial Officer and
Manager of Financial Reporting
with a copy to:
Latham & Watkins
633 W. Fifth Street
Suite 4000
Los Angeles, California 90071
Attention: Elizabeth Blendell
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(d) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the
parties hereto, and to successors and assigns of the Holders who hold
Registrable Securities and the Participating Broker-Dealers.
(e) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
<PAGE>
26
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO
AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(h) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their reasonable best efforts to find and employ
an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It
is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(i) Securities Held by the Company or Its Affiliates. Whenever the
------------------------------------------------
consent or approval of Holders of a specified percentage of Registrable
Notes is required hereunder, Registrable Notes held by the Company or its
affiliates (as such term is defined in Rule 405 under the Securities Act)
shall not be counted in determining whether such consent or approval was
given by the Holders of such required percentage.
(j) Third-Party Beneficiaries. Holders of Registrable Notes and
-------------------------
Participating Broker-Dealers are intended third-party beneficiaries of this
Agreement, and this Agreement may be enforced by such Persons.
(k) Entire Agreement. This Agreement, together with the Purchase
----------------
Agreement and the Indenture, is intended by the parties as a final and
exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein and therein and
any and all prior oral or written agreements, representations, or
warranties, contracts, understandings, correspondence, conversations and
memoranda between the Holders on the one hand and the Issuers on the other,
or between or among any agents, representatives, parents, subsidiaries,
affiliates, predecessors in interest or successors in interest with respect
to the subject matter hereof and thereof are merged herein and replaced
hereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
The Company:
-----------
RENTAL SERVICE CORPORATION
By: /s/ Robert M. Wilson
---------------------------------
Name: Robert M. Wilson
Title: Senior Vice President
The Guarantors:
--------------
RSC ACQUISITION CORP.,
RSC ALABAMA, INC.,
RSC CENTER, INC.,
RSC DUVAL, INC.,
RSC HOLDINGS, INC.,
RSC INDUSTRIAL CORPORATION,
RSC RENTS, INC. and
WALKER JONES EQUIPMENT, INC.
By: /s/ Robert M. Wilson
----------------------------------
Name: Robert M. Wilson
Title: Senior Vice President
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
BT ALEX. BROWN INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
WILLIAM BLAIR & COMPANY, L.L.C.
BY: BT ALEX. BROWN INCORPORATED
By: /s/ Michael R. Duckworth
-------------------------------
Name: Michael R. Duckworth
Title: Managing Director
<PAGE>
EXHIBIT 12.1
RENTAL SERVICE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
----------------------------------------------------- --------------------------------
1995 1996 1997 1997 1998
----------------------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing
operations before provision
for income taxes................ $ 6,116,000 $ 6,711,000 $23,479,000 $3,905,000 $ 9,585,000
Total fixed charges.............. 4,033,000 7,987,000 16,483,000 1,915,000 8,259,000
----------- ----------- ----------- ---------- -----------
Total earnings.................. $10,149,000 $14,698,000 $39,962,000 $5,820,000 $17,844,000
=========== =========== =========== ========== ===========
Fixed charges:
Interest expense................. $ 3,314,000 $ 7,063,000 $14,877,000 $1,597,000 $ 7,583,000
Implicit interest in rent
expense......................... 719,000 924,000 1,606,000 318,000 676,000
----------- ----------- ----------- ---------- -----------
Total fixed charges............. $ 4,033,000 $ 7,987,000 $16,483,000 $1,915,000 $ 8,259,000
=========== =========== =========== ========== ===========
Ratio of earnings to fixed
charges......................... 2.5x 1.8x 2.4x 3.0x 2.2x
=========== =========== =========== ========== ===========
</TABLE>
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF RENTAL SERVICE CORPORATION
RSC Holdings, Inc. (Delaware)
RSC Acquisition Corp. (Delaware)
Rental Service Corporation of Canada Ltd. (Alberta, Canada)
Wholly owned subsidiaries of RSC Holdings, Inc.:
RSC Industrial Corporation (Delaware)
RSC Duval Inc. (Delaware)
RSC Rents, Inc. (California)
Wholly owned subsidiaries of RSC Acquisition Corp.:
RSC Alabama, Inc. (Alabama)
RSC Center, Inc. (Texas)
Walker Jones Equipment, Inc. (Mississippi)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 12, 1998, with respect to the
consolidated financial statements and schedules of Rental Service Corporation
as of December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997, in the Registration Statement (Form S-4 No. 333- )
and related Prospectus of Rental Service Corporation for the registration of
$200,000,000 of its senior subordinated notes.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
June 8, 1998
<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-4 No. 333- ) and related Prospectus of
Rental Service Corporation for the registration of $200,000,000 of its senior
subordinated notes.
/s/ ERNST & YOUNG LLP
Orange County, California
June 8, 1998
<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-4 No. 333- ) and
related Prospectus of Rental Service Corporation for the registration of
$200,000,000 of its senior subordinated notes.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
June 8, 1998
<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-4 No. 333- ) and related Prospectus of Rental Service
Corporation for the registration of $200,000,000 of its senior subordinated
notes.
/s/ McGLADREY & PULLEN, LLP
Moline, Illinois
June 10, 1998
<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-4
No. 333- ) and related Prospectus of Rental Service Corporation for the
registration of $200,000,000 of its senior subordinated notes.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
June 8, 1998
<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 March 3, 1998 with respect to the financial
statements of JDW Enterprises, Inc. d.b.a. Valley Rentals as of December 31,
1996 and 1997 and for the years then ended, in the Registration Statement
(Form S-4 No. 333- ) and related Prospectus of Rental Service Corporation
for the registration of $200,000,000 of its senior subordinated notes.
/s/ WEINTRAUB & MORRISON, P.C.
Tempe, Arizona
June 8, 1998
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
_____________________________
___ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
_____________________________
RENTAL SERVICE CORPORATION
(Exact name of obligor as specified in its charter)
DELAWARE 33-0569350
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6926 E. GREENWAY PARKWAY, SUITE 200
SCOTTSDALE, AZ 85254
(Address of principal executive offices) (Zip code)
_____________________________
9% SENIOR SUBORDINATED NOTES DUE 2008
(Title of the indenture securities)
================================================================================
<PAGE>
Item 1. General Information. Furnish the following information as to the
--------------------
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
-------------------------
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
----------------
Item 16. List of Exhibits. List below all exhibits filed as a part of this
-----------------
Statement of Eligibility. Norwest Bank
incorporates by reference into this Form T-1 the
exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28, 1872,
by the Comptroller of the Currency to The
Northwestern National Bank of Minneapolis.*
b. A copy of the certificate of the Comptroller of
the Currency dated January 2, 1934, approving the
consolidation of The Northwestern National Bank of
Minneapolis and The Minnesota Loan and Trust
Company of Minneapolis, with the surviving entity
being titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated January 12,
1943, as to change of corporate title of
Northwestern National Bank and Trust Company of
Minneapolis to Northwestern National Bank of
Minneapolis.*
<PAGE>
d. A copy of the letter dated May 12, 1983 from the
Regional Counsel, Comptroller of the Currency,
acknowledging receipt of notice of name change
effective May 1, 1983 from Northwestern National
Bank of Minneapolis to Norwest Bank Minneapolis,
National Association.*
e. A copy of the letter dated January 4, 1988 from
the Administrator of National Banks for the
Comptroller of the Currency certifying approval of
consolidation and merger effective January 1, 1988
of Norwest Bank Minneapolis, National Association
with various other banks under the title of
"Norwest Bank Minnesota, National Association."*
Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the
Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b) of the
Act.
Exhibit 7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with registration
statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with registration
statement number 333-53851.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 8/th/ day of June 1998.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
____________________________
Jane Y. Schweiger
Corporate Trust Officer
<PAGE>
EXHIBIT 6
June 8, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
______________________________
Jane Y. Schweiger
Corporate Trust Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF RENTAL SERVICE CORPORATION AS OF DECEMBER 31, 1995 AND
1996 AND FOR EACH OF THE YEARS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001016572
<NAME> RENTAL SERVICE CORP
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR<F1> YEAR<F1>
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 1,455,000 1,452,000
<SECURITIES> 0 0
<RECEIVABLES> 16,218,000 23,021,000
<ALLOWANCES> 1,291,000 2,165,000
<INVENTORY> 5,997,000 10,099,000
<CURRENT-ASSETS> 0 0
<PP&E> 77,156,000 166,210,000
<DEPRECIATION> 13,709,000 29,246,000
<TOTAL-ASSETS> 137,832,000 218,933,000
<CURRENT-LIABILITIES> 0 0
<BONDS> 68,555,000 68,594,000
28,401,000 0
0 0
<COMMON> 42,000 114,000
<OTHER-SE> 4,000 94,958,000
<TOTAL-LIABILITY-AND-EQUITY> 137,832,000 218,933,000
<SALES> 18,747,000 34,136,000
<TOTAL-REVENUES> 65,917,000 128,354,000
<CGS> 12,617,000 24,070,000
<TOTAL-COSTS> 48,162,000 97,112,000
<OTHER-EXPENSES> 7,285,000 15,776,000
<LOSS-PROVISION> 1,040,000 1,692,000
<INTEREST-EXPENSE> 3,314,000 7,063,000
<INCOME-PRETAX> 6,116,000 6,711,000
<INCOME-TAX> 2,401,000 2,722,000
<INCOME-CONTINUING> 3,715,000 3,989,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 478,000 1,269,000
<CHANGES> 0 0
<NET-INCOME> 3,237,000 2,720,000
<EPS-PRIMARY> .38 .16
<EPS-DILUTED> .37 .15
<FN>
<F1>THE FINANCIAL DATA SCHEDULES FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
ARE RESTATED TO CONFIRM THEIR PRESENTATION TO THE REQUIREMENTS OF FAS # 128.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
9% SENIOR SUBORDINATED NOTES DUE 2008
OF
RENTAL SERVICE CORPORATION
PURSUANT TO THE PROSPECTUS DATED , 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE
COMPANY IN ITS SOLE DISCRETION, IN WHICH CASE THE TERM "EXPIRATION DATE"
SHALL MEAN THE LATEST DATE AND TIME TO WHICH THE EXCHANGE OFFER IS
EXTENDED. TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
THE EXCHANGE AGENT IS:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<TABLE>
<CAPTION>
By Hand: By Registered or Certified Mail: By Overnight Courier:
<S> <C> <C>
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
Northstar East Building Corporate Trust Operations Corporate Trust Services
608 Second Avenue South P.O. Box 1517 Sixth and Marquette Avenue
12th Floor Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113
Corporate Trust Services
Minneapolis, MN
</TABLE>
By Facsimile:
(612) 667-4927
Confirm by Telephone:
(612) 667-9764
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE
ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges receipt of the Prospectus dated , 1998
(the "Prospectus"), of Rental Service Corporation, a Delaware corporation (the
"Company"), and this Letter of Transmittal (the "Letter of Transmittal"),
which together with the Prospectus constitutes the Company's offer (the
"Exchange Offer") to exchange $1,000 principal amount principal amount of its
9% Senior Subordinated Notes due 2008 (the "Exchange Notes") for each $1,000
principal amount of its outstanding 9% Senior Subordinated Notes due 2008 (the
"Private Notes"). Recipients of the Prospectus should read the requirements
described in such Prospectus with respect to eligibility to participate in the
Exchange Offer. Capitalized terms used but not defined herein have the meaning
given to them in the Prospectus.
The undersigned hereby tenders the Private Notes described in the box
entitled "Description of Private Notes" below pursuant to the terms and
conditions described in the Prospectus and this Letter of Transmittal. The
undersigned is the registered owner of all the Private Notes and the
undersigned represents that it has received from each beneficial owner of
Private Notes ("Beneficial Owners") a duly completed and executed form of
"Instruction to Registered Holder from Beneficial Owner" accompanying this
Letter of Transmittal, instructing the undersigned to take the action
described in this Letter of Transmittal.
<PAGE>
This Letter of Transmittal is to be used by a holder of Private Notes (i) if
certificates representing Private Notes are to be forwarded herewith, (ii) if
delivery of Private Notes is to be made by book-entry transfer to the Exchange
Agent's account at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer--Procedures for Tendering," or (iii) if a tender is made pursuant to the
guaranteed delivery procedures in the section of the Prospectus entitled "The
Exchange Offer--Guaranteed Delivery Procedures."
The undersigned hereby represents and warrants that the information received
from the beneficial owners is accurately reflected in the boxes entitled
"Beneficial Owner(s)--Purchaser Status" and "Beneficial Owner(s)--Residence."
Any beneficial owner whose Private Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder of Private Notes promptly and
instruct such registered holder of Private Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing this Letter of
Transmittal and delivering its Private Notes, either maker appropriate
arrangements to register ownership of the private Notes in such beneficial
owner's name or obtain a properly completed bond power from the registered
holder of Private Notes. The transfer of record ownership may take
considerable time.
In order to properly complete this Letter of Transmittal, a holder of
Private Notes must (i) complete the box entitled "Description of Private
Notes," (ii) complete the boxes entitled "Beneficial Owner(s)--Purchaser
Status" and "Beneficial Owner(s)--Residence," (iii) if appropriate, check and
complete the boxes relating to book-entry transfer, guaranteed delivery,
Special Issuance Instructions and Special Delivery Instructions, (v) sign the
Letter of Transmittal by completing the box entitled "Sign Here" and (v)
complete the Substitute Form W-9. Each holder of Private Notes should
carefully read the detailed instructions below prior to completing the Letter
of Transmittal.
Holders of Private Notes who desire to tender their Private Notes for
exchange and (i) whose Private Notes are not immediately available or (ii) who
cannot deliver their Private Notes, this Letter of Transmittal and all other
documents required hereby to the Exchange Agent on or prior to the Expiration
Date, must tender the Private Notes pursuant to the guaranteed delivery
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer--Guaranteed Delivery Procedures." See Instruction 2.
Holders of Private Notes who wish to tender their Private Notes for exchange
must complete columns (1) through (3) in the box below entitled "Description
of Private Notes," complete the boxes entitled and sign the box below entitled
"Sign Here." If only those columns are completed, such holder of Private Notes
will have tendered for exchange all Private Notes listed in column (3) below.
If the holder of Private Notes wishes to tender for exchange less than all of
such Private Notes, column (4) must be completed in full. In such case, such
holder of Private Notes should refer to Instruction 5.
2
<PAGE>
DESCRIPTION OF PRIVATE NOTES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(1) (2) (3) (4)
<S> <C> <C> <C>
NAME(S) AND
ADDRESS(ES) OF
REGISTERED
HOLDER(S) OF
PRIVATE
NOTE(S), PRINCIPAL
EXACTLY AS AMOUNT
NAME(S) TENDERED
APPEAR(S) ON PRIVATE NOTE FOR EXCHANGE
PRIVATE NOTE NUMBER(S) AGGREGATE (MUST BE IN
CERTIFICATE(S) (ATTACH SIGNED PRINCIPAL AMOUNT INTEGRAL
(PLEASE FILL LIST REPRESENTED BY MULTIPLES
IN, IF BLANK) IF NECESSARY) CERTIFICATE(S)(1) OF $1,000)(2)
- --------------------------------------------------------------
</TABLE>
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
- -------------------------------------------------------------------------------
1. Unless indicated in the column "Principal Amount Tendered for Exchange,"
any tendering Holder of 9% Senior Subordinated Notes due 2008 will be
deemed to have tendered the entire aggregate principal amount represented
by the column labeled "Aggregate Principal Amount Represented by
Certificate(s)."
2. The minimum permitted tender is $1,000 in principal amount of 9% Senior
Subordinated Notes due 2008. All other tenders must be in integral
multiples of $1,000.
[_] CHECK HERE IF TENDERED PRIVATE NOTES ARE ENCLOSED HEREWITH.
[_] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC
AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS
HEREINAFTER DEFINED) ONLY:
Name of Tendering Institution: ______________________________________________
Account Number: _____________________________________________________________
Transaction Code Number: ____________________________________________________
[_] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE
FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name of Registered Holder of Private Note(s): _______________________________
Date of Execution of Notice of Guaranteed Delivery: _________________________
Window Ticket Number (if available): ________________________________________
Name of Institution which Guaranteed Delivery: ______________________________
Account Number (if delivered by book-entry transfer): _______________________
[_] CHECK HERE IF YOU ARE A BROKER DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name: _______________________________________________________________________
Address: ____________________________________________________________________
3
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 6, 7 AND 8) (SEE INSTRUCTIONS 1, 6, 7 AND 8)
To be completed ONLY (i) if the To be completed ONLY if the
Exchange Notes issued in exchange Exchange Notes issued in exchange
for Private Notes, certificates for for Private Notes, certificates for
Private Notes in a principal amount Private Notes in a principal amount
not exchanged for Exchange Notes, not exchanged for Exchange Notes,
or Private Notes (if any) not or Private Notes (if any) not
tendered for exchange, are to be tendered for exchange, are to be
issued in the name of someone other mailed or delivered (i) to someone
than the undersigned or (ii) if other than the undersigned or (ii)
Private Notes tendered by book- to the undersigned at an address
entry transfer which are not other than the address shown below
exchanged are to be returned by the undersigned's signature.
credit to an account maintained at
DTC.
Mail or deliver to:
Name _______________________________
Issue to: (PLEASE PRINT)
Address ____________________________
Name _______________________________ ____________________________________
(PLEASE PRINT) ____________________________________
Address ____________________________ (INCLUDE ZIP CODE)
____________________________________ ____________________________________
____________________________________ (TAX IDENTIFICATION OR SOCIAL
(INCLUDE ZIP CODE) SECURITY NO.)
____________________________________
(TAX IDENTIFICATION OR SOCIAL
SECURITY NO.)
Credit Private Notes not
exchanged and delivered by book-
entry transfer to DTC account set
forth below:
____________________________________
(ACCOUNT NUMBER)
4
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNER(S)--RESIDENCE
- ---------------------------------------------------------------------------------------------
STATE OF DOMICILE/PRINCIPAL PLACE OF BUSINESS OF PRINCIPAL AMOUNT OF PRIVATE NOTES
EACH BENEFICIAL OWNER OF PRIVATE NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER(S)
<S> <C>
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
</TABLE>
BENEFICIAL OWNER(S)--PURCHASER STATUS
- -------------------------------------------------------------------------------
The beneficial owner of each of the Private Notes described herein is (check
the box that applies):
[_] A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[_] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act)
[_] A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Private Notes outside the United States in accordance
with Rule 904 of the Securities Act
[_] Other (describe) _________________________________________________________
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Pursuant to the offer by Rental Service Corporation, a Delaware corporation
(the "Company"), upon the terms and subject to the conditions set forth in the
Prospectus dated , 1998 (the "Prospectus") and this Letter of
Transmittal (the "Letter of Transmittal"), which together with the Prospectus
constitutes the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount of its 9% Senior Subordinated Notes due 2008 (the "Exchange
Notes") for each $1,000 principal amount of its outstanding 9% Senior
Subordinated Notes due 2008 (the "Private Notes"), the undersigned hereby
tenders to the Company for exchange the Private Notes indicated above.
By executing this Letter of Transmittal and subject to and effective upon
acceptance for exchange of the Private Notes tendered for exchange herewith,
the undersigned will have irrevocably sold, assigned, transferred and
exchanged, to the Company, all right, title and interest in, to and under all
of the Private Notes tendered for exchange hereby, and hereby will have
appointed the Exchange Agent as the true and lawful agent and attorney-in-fact
(with full knowledge that the Exchange Agent also acts as agent of the
Company) of such holder of Private Notes with respect to such Private Notes,
with full power of substitution to (i) deliver certificates representing such
Private Notes, or transfer ownership of such Private Notes on the account
books maintained by DTC (together, in any such case, with all accompanying
evidences of transfer and authenticity), to the Company, (ii) present and
deliver such Private Notes for transfer on the books of the Company and (iii)
receive all benefits and otherwise exercise all rights and incidents of
beneficial ownership with respect to such Private Notes, all in accordance
with the terms of the Exchange Offer. The power of attorney granted in this
paragraph shall be deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that (i) the undersigned is
the owner; (ii) has a net long position within the meaning of Rule 14e-4 under
the Securities Exchange Act of 1934, as amended ("Rule 14e-4") equal to or
greater than
5
<PAGE>
the principal amount of Private Notes tendered hereby; (iii) the tender of
such Private Notes complies with Rule 14e-4 (to the extent that Rule 14e-4 is
applicable to such exchange); (iv) the undersigned has full power and
authority to tender, exchange, assign and transfer the Private Notes and (v)
that when such Private Notes are accepted for exchange by the Company, the
Company will acquire good and marketable title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claims. The undersigned will, upon receipt, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Private
Notes tendered for exchange hereby.
By tendering, the undersigned hereby further represents to the Company that
(i) the Exchange Notes to be acquired by the undersigned in exchange for the
Private Notes tendered hereby and any beneficial owner(s) of such Private
Notes in connection with the Exchange Offer will be acquired by the
undersigned and such beneficial owner(s) in the ordinary course of business of
the undersigned, (ii) the undersigned have no arrangement or understanding
with any person to participate, in the distribution of the Exchange Notes,
(iii) the undersigned and each beneficial owner(s) acknowledge and agree that
any person who is a broker-dealer registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or is participating in the Exchange
Offer for the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (iv) the undersigned and each
beneficial owner understand that a secondary resale transaction described in
clause (iii) above and any resales of Exchange Notes obtained by the
undersigned in exchange for the Private Notes acquired by the undersigned
directly from the Company should be covered by an effective registration
statement containing the selling security holder information required by Item
507 or Item 508, as applicable, of Regulation S-K of the Commission and
(v) neither the undersigned or any beneficial owner is an "affiliate," as
defined in Rule 405 under the Securities Act, of the Company. If the
undersigned is a broker-dealer that will receive Exchange Notes for its own
account in exchange for the Private Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned does not and
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For purposes of the Exchange Offer, the Company will be deemed to have
accepted for exchange, and to have exchanged, validly tendered Private Notes,
if, as and when the Company gives oral or written notice thereof to the
Exchange Agent. Tenders of Private Notes for exchange may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders" in the Prospectus. Any Private Notes
tendered by the undersigned and not accepted for exchange will returned to the
undersigned at the address set forth above unless otherwise indicated in the
box above entitled "Special Delivery Instructions" as promptly as practicable
after the Expiration Date.
The undersigned acknowledges that the Company's acceptance of Private Notes
validly tendered for exchange pursuant to any one of the procedures described
in the section of the Prospectus entitled "The Exchange Offer" and in the
instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of
the Exchange Offer.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions," please return any Private Notes not tendered for exchange in
the name(s) of the undersigned. Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions," please mail any certificates for
Private Notes not tendered or exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Notes issued in exchange for the Private Notes
accepted for exchange in the name(s) of, and return any Private Notes not
tendered for exchange or not exchanged to, the person(s) so indicated. The
undersigned recognizes that the Company has not obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to
transfer any Private Notes from the name of the holder of Private Note(s)
thereof if the Company does not accept for exchange any of the Private Notes
so tendered for exchange or if such transfer would not be in compliance with
any transfer restrictions applicable to such Private Note(s).
6
<PAGE>
IN ORDER TO VALIDLY TENDER PRIVATE NOTES FOR EXCHANGE, HOLDERS OF PRIVATE
NOTES MUST COMPLETE, EXECUTE AND DELIVER THIS LETTER OF TRANSMITTAL.
Except as stated in the Prospectus, all authority herein conferred or agreed
to be conferred shall survive the death, incapacity, or dissolution of the
undersigned, and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned. Except as otherwise stated in the Prospectus, this tender for
exchange of Private Notes is irrevocable.
SIGN HERE
__________________________________________
__________________________________________
SIGNATURE(S) OF OWNER(S)
Dated: _____________________________, 1998
Must be signed by the registered holder(s) of Private
Notes exactly as name(s) appear(s) on certificate(s)
representing the Private Notes or on a security
position listing or by person(s) authorized to become
registered Private Note holder(s) by certificates and
documents transmitted herewith. If signature is by
trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity,
please provide the following information. (See
Instruction 6).
Name(s): _________________________________
__________________________________________
(PLEASE PRINT)
Capacity (full title): ___________________
__________________________________________
Address: _________________________________
__________________________________________
__________________________________________
(INCLUDE ZIP CODE)
__________________________________________
Area Code and Telephone No.: ( )_______
Tax Identification or Social Security
Nos.:
__________________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9
GUARANTEE OF SIGNATURE(S)
(SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 1)
Authorized Signature: ____________________
Dated: ___________________________________
Name and Title: __________________________
(PLEASE PRINT)
Name of Firm: ____________________________
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by an institution
which is (1) a member firm of a registered national securities exchange or of
the National Associate of Securities Dealers, Inc., (2) a commercial bank or
trust company having an office or correspondent in the United States, or (3)
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, which is a member of one of
the following recognized Signature Guarantee Programs (an "Eligible
Institution"):
a. The Securities Transfer Agents Medallion Program (STAMP)
b. New York Stock Exchange Medallion Signature Program (MSP)
c. The Stock Exchange Medallion Program (SEMP)
Signatures on this Letter of Transmittal need not be guaranteed (i) if this
Letter of Transmittal is signed by the registered holder(s) of the Private
Notes tendered herewith and such registered holder(s) have not completed the
box entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (ii) if such Private
Notes are tendered for the account of an Eligible Institution. IN ALL OTHER
CASES, ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PRIVATE NOTES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by holders
of Private Notes (i) if certificates are to be forwarded herewith or (ii) if
tenders are to be made pursuant to the procedures for tender by book-entry
transfer or guaranteed delivery set forth in the section of the Prospectus
entitled "The Exchange Offer." Certificates for all physically tendered
Private Notes or by any timely confirmation of a book-entry transfer (a "Book-
Entry Confirmation"), as well as a properly completed and duly executed copy
of this Letter of Transmittal or facsimile hereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth on the cover of this Letter of Transmittal prior to
5:00 p.m., New York City time, on the Expiration Date. Holders of Private
Notes who elect to tender Private Notes and (i) whose Private Notes are not
immediately available or (ii) who cannot deliver the Private Notes, this
Letter of Transmittal or other required documents to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date, must tender their
Private Notes according to the guaranteed delivery procedures set forth in the
Prospectus. Holders may have such tender effected if: (a) such tender is made
through an Eligible Institution; (b) prior to 5:00 p.m., New York City time,
on the Expiration Date, the Exchange Agent has received from such Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery, setting forth the name and address of the holder of such Private
Notes, the certificate number(s) of such Private Notes and the principal
amount of Private Notes tendered for exchange, stating that tender is being
made thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date, this Letter of Transmittal (or a
facsimile thereof), together with the certificate(s) representing such Private
Notes (or a Book-Entry Confirmation), in proper form for transfer, and any
other documents required by this Letter of Transmittal, will be deposited by
such Eligible Institution with the Exchange Agent; and (c) a properly executed
Letter of Transmittal (or a facsimile hereof), as well as the certificate(s)
for all tendered Private Notes in proper form for transfer or a Book-Entry
confirmation, together with any other documents required by this Letter of
Transmittal, are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
THE METHOD OF DELIVERY OF PRIVATE NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD
OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NEITHER THIS LETTER OF TRANSMITTAL NOR ANY PRIVATE NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
8
<PAGE>
No alternative, conditional or contingent tenders will be accepted. All
tendering holders of Private Notes, by execution of this Letter of Transmittal
(or facsimile hereof, if applicable), waive any right to receive notice of the
acceptance of their Private Notes for exchange.
3. INADEQUATE SPACE. If the space provided in the box entitled "Description
of Private Notes" above is inadequate, the certificate numbers and principal
amounts of the Private Notes being tendered should be listed on a separate
signed schedule affixed hereto.
4. WITHDRAWALS. A tender of Private Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date by delivery of
written or facsimile notice of withdrawal to the Exchange Agent at the address
set forth on the cover of this Letter of Transmittal. To be effective, a
notice of withdrawal of Private Notes must (i) specify the name of the person
who tendered the Private Notes to be withdrawn (the "Depositor"), (ii)
identify the Private Notes to be withdrawn (including the certificate number
of numbers and aggregate principal amount of such Private Notes), and (iii) be
signed by the holder of Private Notes in the same manner as the original
signature on the Letter of Transmittal by which such Private Notes were
tendered (including any required signature guarantees). All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company in its sole discretion, whose determination
shall be final and binding on all parties. Any Private Notes so withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange Offer
and no Exchange Notes will be issued with respect thereto unless the Private
Notes so withdrawn are validly retendered. Properly withdrawn Private Notes
may be retendered by following one of the procedures described in the section
of the Prospectus entitled "The Exchange Offer--Procedures for Tendering" at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
5. PARTIAL TENDERS. Tenders of Private Notes will be accepted only in
integral multiples of $1,000 principal amount. If a tender for exchange is to
be made with respect to less than the entire principal amount of any Private
Notes, fill in the principal amount of Private Notes which are tendered for
exchange in column (4) of the box entitled "Description of Private Notes," as
more fully described in the footnotes thereto. In case of a partial tender for
exchange, a new certificate, in fully registered form, for the remainder of
the principal amount of the Private Notes, will be sent to the holders of
Private Notes unless otherwise indicated in the appropriate box on this Letter
of Transmittal as promptly as practicable after the expiration or termination
of the Exchange Offer.
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, ASSIGNMENT AND ENDORSEMENTS.
(a) The signature(s) of the holder of Private Notes on this Letter of
Transmittal must correspond with the name(s) as written on the face of the
Private Notes without alternation, enlargement or any change whatsoever.
(b) If tendered Private Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
(c) If any tendered Private Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Letter of Transmittal and any necessary or
required documents was there are different registrations or certificates.
(d) When this Letter of Transmittal is signed by the holder of the Private
Notes listed and transmitted hereby, no endorsements of Private Notes or bond
powers are required. If, however, Private Notes not tendered or not accepted,
are to be issued or returned in the name of a person other than the holder of
Private Notes, then the Private Notes transmitted hereby must be endorsed or
accompanied by a properly completed bond power, in a form satisfactory to the
Company, in either case signed exactly as the name(s) of the holder of Private
Notes appear(s) on the Private Notes. Signatures on such Private Notes or bond
powers must be guaranteed by an Eligible Institution (unless signed by an
Eligible Institution).
(e) If this Letter of Transmittal or Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by this
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with this Letter of Transmittal.
9
<PAGE>
(f) If this Letter of Transmittal is signed by a person other than the
registered holder of Private Notes listed, the Private Notes must be endorsed
or accompanied by a properly completed bond power, in either case signed by
such registered holder exactly as the name(s) of the registered holder of
Private Notes appear(s) on the certificates. Signatures on such Private Notes
or bond powers must be guaranteed by an Eligible Institution (unless signed by
an Eligible Institution).
7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company
will pay all transfer taxes, if any, applicable to the exchange of Private
Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed
for any reason other than the exchange of the Private Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemptions
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the Exchange Notes are to
be issued, or if any Private Notes not tendered for exchange are to be issued
or sent to someone other than the holder of Private Notes or to an address
other than that shown above, the appropriate boxes on this Letter of
Transmittal should be completed. Holders of Private Notes tendering Private
Notes by book-entry transfer may request that Private Notes not accepted be
credited to such account maintained at DTC as such holder of Private Notes may
designate.
9. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt), compliance with conditions, acceptance and
withdrawal of tendered Private Notes will be determined by the Company in its
sole discretion, which determination will be final and binding. The Company
reserves the absolute right to reject any and all Private Notes not properly
tendered or any Private Notes the Company's acceptance of which would, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
right to waive any defects, irregularities or conditions of tender as to
particular Private Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured with such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Private Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive,
amend or modify certain of the specified conditions as described under "The
Exchange Offer--Conditions" in the Prospectus in the case of any Private Notes
tendered (except as otherwise provided in the Prospectus).
11. MUTILATED, LOST, STOLEN OR DESTROYED PRIVATE NOTES. Any tendering Holder
whose Private Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address listed below for further
instructions:
----------------------
----------------------
----------------------
12. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for information
or for additional copies of the Prospectus and this Letter of Transmittal may
be directed to the Exchange Agent at the address or telephone number set forth
on the cover of this Letter of Transmittal.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF
APPLICABLE) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY OR THE
NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
10
<PAGE>
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder of Private Notes whose
tendered Private Notes are accepted for exchange may be subject to backup
withholding unless the holder provides the Company (as payor), through the
Exchange Agent, with either (i) such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such holder of Private
Notes is awaiting a TIN) and that (A) the holder of Private Notes has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of a failure to report all interest or dividends or
(B) the Internal Revenue Service has notified the holder of Private Notes that
he or she is no longer subject to backup withholding; or (ii) an adequate
basis for exemption from backup withholding. If such holder of Private Notes
is an individual, the TIN is such holder's social security number. If the
Exchange Agent is not provided with the correct taxpayer identification
number, the holder of Private Notes may be subject to certain penalties
imposed by the Internal Revenue Service.
Certain holders of Private Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding
and reporting requirements. Exempt holders of Private Notes should indicate
their exempt status on Substitute Form W-9. A foreign individual may qualify
as an exempt recipient by submitting to the exchange Agent a properly
completed Internal Revenue Service Form W-8 (which the Exchange Agent will
provide upon request) signed under penalty of perjury, attesting to the
holder's exempt status. See the enclosed Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "Guidelines") for
additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the holder of Private Notes or other Payee. Backup
withholding is not an additional federal income tax. Rather, the federal
income tax liability of persons subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained from the Internal Revenue Service.
The holder of Private Notes is required to give the Exchange Agent the TIN
(e.g., social security number or employer identification number) or the record
owner of the Private Notes. If the Private Notes are held in more than one
name or are note held in the name of the actual owner, consult the enclosed
Guidelines for additional guidance regarding which number to report.
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF 9% SENIOR SUBORDINATED NOTES DUE 2008 OF RENTAL SERVICE CORPORATION
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1998 (the "Prospectus") of Rental Service Corporation, a Delaware
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used by not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the action to be taken
by you relating to the Exchange Offer with respect to the 9% Senior
Subordinated Notes due 2008 (the "Private Notes") held by you for the account
of the undersigned.
The aggregate face amount of the Private Notes held by you for the account
of the undersigned is (fill in amount):
$________ of the Private Notes.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_] To TENDER the following Private Notes held by you for the account of the
undersigned (insert principal amount of Private Notes to be tendered, if any):
$________ of the Private Notes.
[_] NOT to TENDER any Private Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Private Notes held by you for
the account of the undersigned, it is understood that you are authorized (a)
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in
the Letter of Transmittal that are to be made with
11
<PAGE>
respect to the undersigned as a beneficial owner of the Private Notes,
including but not limited to the representations that (i) the undersigned's
principal residence is in the state of (fill in state)________________ , (ii)
the undersigned is acquiring the Exchange Notes in the ordinary course of
business of the undersigned, (iii) the undersigned has no arrangement or
understanding with any person to participate in the distribution of Exchange
Notes, (iv) the undersigned acknowledges that any person who is a broker-dealer
registered under the Exchange Act or is participating in the Exchange Offer for
the purpose of distributing the Exchange Notes must comply with the registration
and prospectus delivery requirements of the Securities Act of 1933, as amended,
in connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the Staff of the Securities
and Exchange Commission set forth in certain no-action letters (See the section
of the Prospectus entitled "The Exchange Offer--Resale of the Exchange Notes"),
(v) the undersigned understands that a secondary resale transaction described in
clause (iv) above and any resales of Exchange Notes obtained by the undersigned
in exchange for the Private Notes acquired by the undersigned directly from the
Company should be covered by an effective registration statement containing the
selling security holder information required by Item 507 or Item 508, if
applicable, of Regulation S-K of the Commission, (vi) the undersigned is not an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company,
and (vii) if the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Private Notes that were acquired as a result
of market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any sale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act; (b) to agree,
on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c)
to take such other action as necessary under the Prospectus or the Letter of
Transmittal to effect the valid tender of Private Notes.
The purchaser status of the undersigned is (check the box that applies):
[_] A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[_] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act)
[_] A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Private Notes outside the United States in accordance
with Rule 904 of the Securities Act
[_] Other (describe) _________________________________________________________
____________________________________________________________________________
SIGN HERE
Name of Beneficial Owner(s): _______________________________________________
____________________________________________________________________________
Signature(s): ______________________________________________________________
____________________________________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
Principal place of business (if different from address listed above): ______
____________________________________________________________________________
____________________________________________________________________________
Telephone Number(s): _______________________________________________________
____________________________________________________________________________
Taxpayer Identification or Social Security Number(s): ______________________
____________________________________________________________________________
Date: ______________________________________________________________________
12
<PAGE>
PAYER'S NAME:
- --------------------------------------------------------------------------------
SUBSTITUTE Social Security
FORM W-9 Number
DEPARTMENT OF THE PART 1--PLEASE PROVIDE ____________________
TREASURY YOUR TIN IN THE BOX AT OR
INTERNAL REVENUE RIGHT AND CERTIFY BY Employer
SERVICE SIGNING AND DATING Identification
BELOW. Number
PAYER'S REQUEST FOR ____________________
TAXPAYER
IDENTIFICATION NUMBER
(TIN)
- --------------------------------------------------------------------------------
PART 2--CERTIFICATION--Under Penalties of Perjury, I certify that:
(1) The number shown on this form is my current taxpayer identification
number (or I am waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) in Part 2 above if
you have been notified by the IRS that you are subject to backup withholding
because of underreporting interest or dividends on your tax return. However,
if after being notified by the IRS that you are subject to backup withholding
you receive another notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item (2).
PART 3--AWAITING TIN [_]
- --------------------------------------------------------------------------------
Name __________________________________________________________________________
Address _______________________________________________________________________
City __________________________ State ___________ Zip Code ________________
Signature ____________________________________ Date __________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECK THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
PAYOR'S NAME: BANK OF NEW YORK TRUST COMPANY OF FLORIDA
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver such an application in the near future. I
understand that if I do not provide a taxpayer identification number within
sixty (60) days, 31% of all reportable payments made to me thereafter will
be withheld until I provide such number.
SIGNATURE ____________________________________________________ DATE __________
13
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
9% SENIOR SUBORDINATED NOTES DUE 2008
THIS FORM, OR ONE SUBSTANTIALLY EQUIVALENT HERETO, MUST BE USED BY ANY
HOLDER OF 9% SENIOR SUBORDINATED NOTES DUE 2008 (THE "PRIVATE NOTES") OF
RENTAL SERVICE CORPORATION, A DELAWARE CORPORATION (THE "COMPANY"), WHO
WISHES TO TENDER PRIVATE NOTES PURSUANT TO THE COMPANY'S EXCHANGE OFFER, AS
DEFINED IN THE PROSPECTUS DATED , 1998 (THE "PROSPECTUS") AND (i)
WHOSE PRIVATE NOTES ARE NOT IMMEDIATELY AVAILABLE OR (ii) WHO CANNOT
DELIVER SUCH PRIVATE NOTES OR ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF
TRANSMITTAL ON OR BEFORE THE EXPIRATION DATE (AS DEFINED IN THE PROSPECTUS)
OR (iii) WHO CANNOT COMPLY WITH THE BOOK-ENTRY TRANSFER PROCEDURE ON A
TIMELY BASIS. SUCH FORM MAY BE DELIVERED BY FACSIMILE TRANSMISSION, MAIL OR
HAND DELIVERY TO THE EXCHANGE AGENT. SEE "THE EXCHANGE OFFER--GUARANTEED
DELIVERY PROCEDURES" IN THE PROSPECTUS.
RENTAL SERVICE CORPORATION
NOTICE OF GUARANTEED DELIVERY
TO: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, THE EXCHANGE AGENT
<TABLE>
<CAPTION>
By Hand: By Registered or Certified Mail: By Overnight Courier:
<S> <C> <C>
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
Northstar East Building Corporate Trust Operations Corporate Trust Services
608 Second Avenue South P.O. Box 1517 Sixth and Marquette Avenue
12th Floor Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113
Corporate Trust Services
Minneapolis, MN
</TABLE>
By Facsimile:
(612) 667-4927
Confirm by Telephone:
(612) 667-9764
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
1
<PAGE>
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Private Notes specified below pursuant to the guaranteed delivery procedures
set forth under the caption "The Exchange Offer--Guaranteed Delivery
Procedures" in the Prospectus. By so tendering, the undersigned does hereby
make, at and as of the date hereof, the representations and warranties of a
tendering Holder of Private Notes set forth in the Letter of Transmittal. The
undersigned hereby tenders the Private Notes listed below:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>
CERTIFICATE NUMBERS <C>
(IF AVAILABLE) PRINCIPAL AMOUNT TENDERED
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death, incapacity, or dissolution of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned.
If Private Notes will be tendered by
book-entry transfer SIGN HERE
--------------------------------------
SIGNATURE(S)
Name of Tendering Institution: ______________________________________
______________________________________
NAME(S) (PLEASE PRINT)
- -------------------------------------- ______________________________________
______________________________________
ADDRESS
The Depository Trust Company Account ______________________________________
No.: ZIP CODE
- -------------------------------------- ______________________________________
AREA CODE AND TELEPHONE NO.
DATE:_________________________________
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in a Recognized Signature Guarantee Medallion
Program, guarantees deposit with the Exchange Agent of the Letter of
Transmittal (or facsimile thereof), together with the Private Notes tendered
hereby in proper form for transfer, or confirmation of the book-entry transfer
of such Private Notes into the Exchange Agent's account at the Depository
Trust Company, pursuant to the procedure for book-entry transfer set forth in
the prospectus, and any other required documents, all by 5:00 p.m., New York
City time, on the fifth New York Stock Exchange trading day following the
Expiration Date (as defined in the Prospectus).
SIGN HERE
-----------------------------------------
NAME OF FIRM
-----------------------------------------
AUTHORIZED SIGNATURE
_________________________________________
NAME(S) (PLEASE PRINT)
_________________________________________
ADDRESS
_________________________________________
ZIP CODE
_________________________________________
AREA CODE AND TELEPHONE NO.
DATE:____________________________________
DO NOT SEND CERTIFICATES FOR PRIVATE NOTES WITH THIS FORM. ACTUAL SURRENDER
OF CERTIFICATES FOR PRIVATE NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED
BY, A COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
INSTRUCTIONS
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at one of its addresses set forth on the cover hereof prior
to the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and all other required documents to the Exchange Agent is at the
election and risk of the Holder but, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange
Agent. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service, properly insured. If such delivery is by
mail, it is recommended that the Holder use properly insured, registered mail
with return receipt requested. For a full description of the guaranteed
delivery procedures, see the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures." In all cases, sufficient time should
be allowed to assure timely delivery. No Notice of Guaranteed Delivery should
be sent to the Company.
2. SIGNATURE ON THIS NOTICE OF GUARANTEED DELIVERY; GUARANTEE OF
SIGNATURES. If this Notice of Guaranteed Delivery is signed by the registered
Holder(s) of the Private Notes referred to herein, then the signature must
correspond with the name(s) as written on the face of the Private Notes
without alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered Holder(s) of any Private Notes listed, this Notice of Guaranteed
Delivery must be accompanied by a properly completed bond power signed as the
name of the registered Holder(s) appear(s) on the face of the Private Notes
without alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing, and, unless waived by the Company, evidence
satisfactory to the Company of their authority so to act must be submitted
with this Notice of Guaranteed Delivery.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
Exchange Offer or the procedure for consenting and tendering as well as
requests for assistance or for additional copies of the Prospectus, the Letter
of Transmittal and this Notice of Guaranteed Delivery, may be directed to the
Exchange Agent at the address set forth on the cover hereof or to your broker,
dealer, commercial bank or trust company.
3
<PAGE>
EXHIBIT 99.3
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security Numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer Identification Numbers have nine digits separated
by only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
<TABLE>
- ------------------------------------------------
<CAPTION>
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF:
- ------------------------------------------------
<S> <C>
1. An individual's The individual
account
2. Two or more The actual owner
individuals (joint of the account
account) or, if combined
funds, any one of the
individuals(1)
3. Husband and wife The actual owner
(joint account) of the account
or, if joint
funds, either
person(1)
4. Custodian account of The minor(2)
a minor (Uniform
Gift to Minors Act)
5. Adult and minor The adult or, if
(joint account) the minor is the
only
contributor, the
minor(1)
6. Account in the name The ward, minor,
of guardian or or incompetent
committee for a person(3)
designated ward,
minor, or
incompetent person
7.a. The usual The grantor-
revocable savings trustee(1)
trust account
(grantor is also
trustee)
b. So-called trust The actual
account that is not a owner(1)
legal or valid trust
under State law
- ------------------------------------------------
</TABLE>
<TABLE>
-----
<CAPTION>
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF:
-----
<S> <C>
8. Sole proprietorship The owner(4)
account
9. A valid trust, estate, The legal entity
or pension trust (Do not furnish
the
identification
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
13. Association, club or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public
Department of entity
Agriculture in the
name of a public
entity (such as a
State or local
government, school
district, or prison)
that receives
agricultural program
payments
</TABLE>
---------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner, and you may also enter your business or "doing
business as" name. You may use either your social security number or your
employer identification number (if you have one).
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE:If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual retirement
plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a) of the Code.
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1) of the Code.
. An entity registered at all times under the Investment Company Act of 1940.
. A foreign central bank of issue.
. A futures commission merchant registered with the Commodity Futures Trading
Commission.
. A middleman known in the investment community as a nominee or who is listed
in the most recent publication of the American Society of Corporate Secre-
taries, Inc., Nominee List.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441 of
the Code.
. Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
. Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. NOTE: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including the exempt-interest dividends
under section 852) of the Code.
. Payments described in section 6049(b)(5) of the Code to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451 of the Code.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
EXEMPT PAYEES DESCRIBED ABOVE SHOULD STILL COMPLETE THE SUBSTITUTE FORM W-9
ENCLOSED HEREWITH TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE
SUBSTITUTE FORM W-9 WITH THE PAYER, CERTIFY YOUR TAXPAYER IDENTIFICATION
NUMBER ON PART III OF THE FORM, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
SIGN AND DATE THE FORM, RETURN IT TO THE PAYER.
Payments that are not subject to information reporting are also not subject
to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044,
6045, 6049, 6050A and 6050N of the Code and their regulations.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes and to help verify the accuracy of your tax return.
Payers must be given the numbers whether or not recipients are required to
file a tax return. Payers must generally withhold 31% of taxable interest,
dividends, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVE-
NUE SERVICE.
