<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] CONFIDENTIAL, FOR USE OF THE
[X] Preliminary proxy statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
RENTAL SERVICE CORPORATION
-----------------------------------------------------
(Name of Registrant as Specified in its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies: NOT
APPLICABLE
(2) Aggregate number of securities to which transaction applies: NOT
APPLICABLE
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): NOT APPLICABLE.
(4) Proposed maximum aggregate value of transaction: NOT APPLICABLE
(5) Total fee paid: NOT APPLICABLE
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: NOT APPLICABLE
(2) Form, Schedule or Registration Statement No.: NOT APPLICABLE
(3) Filing Party: NOT APPLICABLE
(4) Date Filed: NOT APPLICABLE
<PAGE>
RENTAL SERVICE CORPORATION
6929 EAST GREENWAY PARKWAY, SUITE 200
SCOTTSDALE, ARIZONA 85254
(602) 905-3300
March [ ], 1998
Dear Stockholder:
It is my pleasure to invite you to attend your Company's Annual Meeting of
Stockholders. The meeting will be held at the Phoenecian Hotel, 6000 East
Camelback Road, Scottsdale, Arizona 85251 at 10:00 a.m. local time on April
29, 1998.
At this meeting you will be asked to (i) elect directors, (ii) amend the
Company's Amended and Restated Certificate of Incorporation to provide for a
classified Board of Directors, (iii) approve the Company's Management
Incentive Compensation Plan, (iv) amend the Rental Service Corporation First
Amended and Restated Employee Qualified Stock Purchase Plan, (v) amend the
1996 Equity Participation Plan of Rental Service Corporation and (vi) ratify
the selection of the Company's independent auditors for 1998.
If you cannot attend the meeting in person, please be sure to vote your
shares by proxy. Just mark, sign and date the enclosed proxy card and return
it in the enclosed postage-paid envelope. By promptly returning the card, you
will help your Company avoid additional solicitation costs. In person or by
proxy, your vote is important.
I hope you can join me at the Annual Meeting.
Sincerely,
/s/ Martin R. Reid
Martin R. Reid
Chairman and Chief Executive Officer
<PAGE>
RENTAL SERVICE CORPORATION
6929 EAST GREENWAY PARKWAY, SUITE 200
SCOTTSDALE, ARIZONA 85254
(602) 905-3300
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 29, 1998
To Our Stockholders:
The Annual Meeting of Stockholders (the "Annual Meeting") of Rental Service
Corporation, a Delaware corporation (the "Company"), will be held at the
Phoenecian Hotel, 6000 East Camelback Road, Scottsdale, Arizona 85251 at 10:00
a.m. local time on April 29, 1998, for the following purposes:
1. to elect eight directors. If the Company's stockholders approve the
amendment to the Company's Amended and Restated Certificate of
Incorporation to create a classified Board of Directors, the directors
will be elected to a classified Board of Directors, with two directors
initially being elected for a one-year term, three directors initially
being elected for a two-year term and three directors initially being
elected for a three-year term. If such proposal is not approved, all
eight directors will be elected for a one-year term;
2. to consider and act upon a proposal to amend Article Seventh of the
Company's Amended and Restated Certificate of Incorporation to provide
for a classified Board of Directors;
3. to consider and act upon a proposal to approve the Company's Management
Incentive Compensation Plan;
4. to consider and act upon a proposal to amend the Rental Service
Corporation First Amended and Restated Employee Qualified Stock Purchase
Plan (the "Q.S.P. Plan") to shorten to six months the minimum period of
time employees must be employed by the Company in order to be eligible
to participate in the Q.S.P. Plan;
5. to consider and act upon a proposal to amend the 1996 Equity
Participation Plan of Rental Service Corporation (the "1996 Plan") to
increase the number of shares of the Company's Common Stock that may be
issued pursuant to the 1996 Plan to 2,000,000;
6. to ratify the selection of Ernst & Young LLP as independent auditors for
the Company for 1998; and
7. to transact such other business as may properly come before such meeting
or any adjournment thereof.
The Company's Board of Directors (the "Board") intends to present for
election as directors, the nominees named in the accompanying proxy statement,
whose names are incorporated herein by reference.
The Board has fixed the close of business on March 16, 1998 as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the Annual Meeting and any adjournments thereof.
All stockholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors
/s/ Robert M. Wilson
Robert M. Wilson
Secretary
Scottsdale, Arizona
March [ ], 1998
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, IF YOU
CANNOT BE PRESENT, YOU ARE REQUESTED TO SIGN AND DATE THE ENCLOSED PROXY
AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE (TO WHICH
NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES). IF YOU ATTEND
THE ANNUAL MEETING AND WISH TO VOTE IN PERSON, YOUR PROXY WILL NOT BE
USED.
<PAGE>
RENTAL SERVICE CORPORATION
6929 EAST GREENWAY PARKWAY, SUITE 200
SCOTTSDALE, ARIZONA 85254
(602) 905-3300
PROXY STATEMENT
INTRODUCTION
This Proxy Statement ("Proxy Statement") is furnished to the stockholders,
and the enclosed proxy is being solicited, by the Board of Directors (the
"Board") of Rental Service Corporation, a Delaware corporation (the
"Company"), for solicitation of proxies for use at the Company's Annual
Meeting of Stockholders (the "Annual Meeting") to be held at 10:00 a.m. local
time at the Phoenecian Hotel, 6000 East Camelback Road, Scottsdale, Arizona
85251, on Wednesday, April 29, 1998, and at any and all adjournments thereof.
At the Annual Meeting, the holders of the Company's Common Stock, $.01 par
value per share ("Common Stock"), will be asked to vote to:
1. elect eight directors. If the Company's stockholders approve the amendment
to the Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") to create a classified Board, the
directors will be elected to a classified Board, with two directors
initially being elected for one-year term, three directors initially being
elected for a two-year term and three directors initially being elected
for a three-year term. If such proposal is not approved, all eight
directors will be elected for a one-year term;
2. to consider and act upon a proposal to amend (the "Charter Amendment")
Article Seventh of the Certificate of Incorporation to provide for a
classified Board;
3. to consider and act upon a proposal to approve the Company's Management
Incentive Compensation Plan (the "Incentive Plan");
4. to consider and act upon a proposal to amend the Rental Service
Corporation First Amended and Restated Employee Qualified Stock Purchase
Plan (the "Q.S.P. Plan") to shorten to six months the minimum period of
time employees must be employed by the Company in order to be eligible to
participate in the Q.S.P. Plan (the "Q.S.P. Plan Amendment");
5. to consider and act upon a proposal to amend the 1996 Equity Participation
Plan of Rental Service Corporation (the "1996 Plan") to increase the
number of shares of Common Stock that may be issued pursuant to the 1996
Plan to 2,000,000 ("1996 Plan Amendment"); and
6. to ratify the selection of Ernst & Young LLP ("Ernst & Young") as
independent auditors for the Company for 1998.
As of the date of this Proxy Statement, the Board does not know of any other
business that will be presented for consideration at the Annual Meeting. If,
however, any such other business shall properly come before the Annual
Meeting, votes will be cast pursuant to said proxies in accordance with the
judgment of the persons acting under said proxies.
Expenses related to the preparation and mailing of this Proxy Statement and
accompanying notice of meeting and form of proxy are to be paid by the
Company. Following the initial mailing of this Proxy Statement and form of
proxy, the Company and its agents may also solicit proxies by mail, telephone,
facsimile or in person. Employees of the Company who assist in such activities
will not receive additional compensation in connection therewith. The Company
has also engaged ChaseMellon Shareholder Services, L.L.C. to assist
in contacting shareholders whose stock is held in the names of brokers or
other custodians and will pay
<PAGE>
approximately $7,000 plus reasonable out-of-pocket expenses for these
services. Upon request, brokerage firms and other custodians, nominees and
fiduciaries will be reimbursed by the Company for their reasonable expenses
incurred in sending proxy materials to beneficial owners of Common Stock.
It is anticipated the mailing to stockholders of this Proxy Statement and
the enclosed proxy will commence on or about March 30, 1998.
A stockholder giving a proxy pursuant to this solicitation may revoke it at
any time before it is exercised by giving a subsequent proxy, or by delivering
to the Company's Secretary a written notice of revocation prior to the voting
of the proxy at the Annual Meeting. No proxy will be used if the stockholder
is personally present at the Annual Meeting and informs the Secretary in
writing that he or she wishes to vote his or her shares in person.
GENERAL INFORMATION
VOTING SHARES AND VOTING RIGHTS
Only stockholders of record at the close of business on March 16, 1998 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting.
On the Record Date, there were [ ] shares of Common Stock issued and
outstanding. Votes may be cast in person or by proxy, and each share of Common
Stock is entitled to one vote. All shares represented by the accompanying
proxy, if the proxy is properly executed, returned and not revoked, will be
voted as specified by the stockholder. If no contrary instructions are given,
such shares will be voted "FOR" each proposal (i.e., for the election of each
of the eight director nominees named herein, for the amendment of Article
Seventh of the Certificate of Incorporation, for the approval of the Incentive
Plan, for the approval of the amendment to Section 4 of the Q.S.P. Plan, for
the approval of the amendment to the 1996 Plan and for the ratification of
Ernst & Young as independent auditors for the Company for 1998).
A quorum comprising the holders of a majority of the outstanding shares of
Common Stock on the Record Date must be present or represented in order to
transact business at the Annual Meeting. Abstentions and "broker non-votes"
(i.e., shares held by a broker or nominee represented at the meeting, but with
respect to which such broker or nominee is not empowered to vote on a
particular proposal or proposals) will be counted in establishing the quorum.
Directors will be elected by a favorable vote of a plurality of the votes of
the shares of Common Stock present and entitled to vote, in person or by
proxy, at the Annual Meeting. Accordingly, neither abstentions, nor broker
non-votes, will affect the election of candidates receiving the plurality of
votes. In addition, because there is no cumulative voting for directors, each
share of Common Stock has one vote for each position to be filled. Therefore,
a simple majority of the shares voting may elect all of the directors. The
proposals to approve the Charter Amendment and the Q.S.P. Plan Amendment each
require the affirmative vote of a majority of the outstanding Common Stock. In
connection with each such proposal, proxies reflecting abstentions as to a
particular proposal and broker non-votes will be treated as voted for purposes
of such proposal and will have the same effect of votes against such proposal.
The proposals to approve the adoption of the Incentive Plan, to approve the
1996 Plan Amendment, to ratify the selection of the independent auditors for
the Company and any other proposals to come before the Annual Meeting, must
receive the affirmative vote of the holders of a majority of the shares of
Common Stock present and entitled to vote at the Annual Meeting. In connection
with each such proposal, proxies reflecting abstentions as to a particular
proposal will be treated as voted for purposes of such proposal and will have
the same effect of votes against such proposal, while broker non-votes will be
treated as unvoted for purposes of determining approval of such proposal and
will not be counted as votes for or against such proposal.
The beneficial ownership of Common Stock by certain beneficial owners and by
each of the Company's directors, certain of its most highly-compensated
executive officers and all executive officers and directors as a group is set
forth below under "Security Ownership of Certain Beneficial Owners and
Management."
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock outstanding as of February 28, 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, the Chief Executive Officer
and each of the Company's four other most highly compensated executive
officers; 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 (a) 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 (b) 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)........................... 1,238,445 6.0
Brentwood RSC Partners, L.P.(2)........................ 1,235,945 6.0
Frederick J. Warren(2)................................. 1,235,945 6.0
David H. Wong(2)....................................... 1,235,945 6.0
Martin R. Reid(3)(4)(5)................................ 253,944 1.2
David P. Lanoha(3)(6).................................. 146,730 *
Douglas A. Waugaman(3)(4)(5)........................... 83,806 *
John Markle(3)(6)...................................... 43,029 *
Ronald Halchishak(3)(4)................................ 39,340 *
David G. Ledlow(3)(4).................................. 34,531 *
Robert M. Wilson(3)(4)................................. 18,750 *
James R. Buch(3)(4).................................... 3,850 *
Britton H. Murdoch(3)(7)............................... 3,500 *
Christopher A. Laurence(2)(3).......................... 2,500 *
Eric L. Mattson(3)(8).................................. 2,500 *
David B. Harrington(3)(4).............................. -- --
John M. Sullivan(3)(4)................................. -- --
All directors and executive officers as a group (14
persons)(2)(3)(4)(5)(6)(7)(8)......................... 1,870,925 9.1
</TABLE>
- --------
* Less than 1.0%.
(1) A person is deemed as of any date to have "beneficial ownership" of any
security that such person has a right to acquire within 60 days after such
date. Shares 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, and Messrs. Warren and Wong are
general partners of Brentwood Buyout Partners, L.P. ("BBP"), the general
partner of Brentwood RSC Partners; accordingly, Messrs. Barnum, Warren and
Wong may be deemed to be the beneficial owners of the shares owned by BBP
and for purposes of this table they are included. Messrs. Barnum, Warren
and Wong disclaim beneficial ownership of such shares. The address of
Brentwood RSC Partners, Mr. Barnum, Mr. Warren, Mr. Wong and Mr. Laurence
is 11150 Santa Monica Boulevard, Suite 1200, Los Angeles, California
90025.
(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--7,500 shares; Mr. Reid--190,000 shares; Mr. Lanoha--
10,000 shares; Mr. Waugaman--75,000 shares; Mr. Markle--25,000 shares;
Mr. Halchishak--48,750 shares; Mr. Ledlow--48,750 shares; Mr. Wilson--
56,250 shares; Mr. Buch--6,150 shares; Mr. Murdoch--7,500 shares; Mr.
Laurence--7,500 shares; Mr. Mattson--7,500 shares; Mr. Harrington--25,000
shares; and Mr. Sullivan--10,000 shares.
3
<PAGE>
(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.
(6) The address of such person is c/o RSC Center, Inc., 11250 East 40th Avenue,
Denver, Colorado 60239.
(7) 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.
(8) The address of such person is c/o Baker Hughes Incorporated, 3900 Essex
Lane, Suite 1200, Houston, Texas 77027.
4
<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 are expected to be 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.
(4) Includes amounts paid by Acme Holdings, Inc.
(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 ($100,000) and insurance premiums paid by the Company for
life insurance and disability policies covering Mr. Waugaman.
5
<PAGE>
Stock Options Granted in Fiscal 1997. The following table sets forth
information concerning individual grants of stock options made by the Company
during the fiscal year ended December 31, 1997 to each of the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
---------------------------------------------------------- STOCK PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED EXERCISE OR OPTION TERM
UNDERLYING TO EMPLOYEES BASE PRICE ---------------------
NAME OPTIONS GRANTED(#) IN FISCAL YEAR ($/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% $20.25 2007 1,273,512 3,227,328
Ronald Halchishak
Senior Vice President
of Operations.......... -- -- -- -- -- --
David G. Ledlow
Senior Vice President
of Operations.......... -- -- -- -- -- --
</TABLE>
- --------
(1) Such options vest equally over four years from the date of grant.
(2) In connection with his employment agreement in January 1998, the vesting
of Mr. Reid's previously outstanding options was accelerated, and such
options became immediately exercisable.
6
<PAGE>
Aggregated Option Exercises. The following table sets forth information (on
an aggregated basis) concerning each exercise of stock options during the year
ended December 31, 1997 by each of the Named Executive Officers and the year-
end value of unexercised options.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- "IN-THE-MONEY" OPTIONS
SHARES END AT FISCAL YEAR-END(1)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($) 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 New York Stock
Exchange ("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.
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 ("Chairman") 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 the Incentive Plan or another similar 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.
7
<PAGE>
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, Mr. Reid
will resign as Chief Executive Officer (a "Resignation"), but will remain as
Chairman 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 also asks him to step down as Chairman (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," 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 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 or benefit continuation will be available if Mr. Reid is
terminated for "cause" (as defined in the Employment Agreement) or if he
resigns other than due to the Company's breach or at the Board's 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 Company's 401(k) Retirement Savings 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.
TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company and Mr. Waugaman are parties to a Separation and Stock Purchase
Agreement dated July 25, 1995 (the "Waugaman Purchase Agreement"). Pursuant to
the Waugaman Purchase Agreement, if Mr. Waugaman's employment is terminated
without cause or if he is not offered a substantially similar position with a
successor entity following a change of control, he will be entitled to
severance pay equal to nine months base salary. Mr. Waugaman has agreed that
in consideration of such severance benefits, he will not compete with the
Company for a period of nine months if his employment is terminated other than
for cause. In addition, pursuant to an oral arrangement supplementing the
Waugaman Purchase Agreement, RSC has purchased a $500,000 life insurance
policy under which Mr. Waugaman's wife is the beneficiary and a disability
policy for Mr. Waugaman.
8
<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
executive officer due to a reduction in base salary and benefits (other than
across the board salary cuts for employees at such executive officer's level
or changes in benefits). These benefits include a lump sum severance payment
equal to 100% of such 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 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 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, the severance
agreement with Mr. Wilson will continue in effect through April 2000 and the
severance agreement with Mr. Harrington will continue in effect through June
2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to December 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 COMMITTEE REPORT
The Company's executive compensation policies are designed to develop a high
quality management team and to motivate this team to achieve the Company's
short-term and long-term goals. With this in mind, the Company seeks to
develop overall compensation programs that provide the competitive
compensation levels necessary to attract and retain experienced, innovative,
and well-qualified executives. The Company then seeks to provide such
executives with performance bonuses closely linked to their achievement of
objective financial goals, such as growth in operating income and a favorable
return on equity, and to more subjective goals, such as organizational
development and corporate efficiency.
Within this framework, the Company's Compensation Committee is responsible
for determining all aspects of the compensation, including stock options or
other awards, for each of the Company's executive officers.
As one of the factors in its review of compensation matters, the
Compensation Committee considers the anticipated tax effect on the Company and
executives of various payments and benefits. Section 162(m) of the Code (as
defined below) generally disallows the Company's deduction for compensation in
excess of $1,000,000 paid to the Company's chief executive officer (the "CEO")
or to any of the four other most highly compensated executive officers, unless
such excess compensation qualifies as "performance-based compensation." The
Compensation Committee will not necessarily limit executive compensation to
that deductible by the Company under Section 162(m).
The three key components of the Company's compensation programs are base
salary, performance bonuses and stock options and other awards.
Base Salary. Base salary levels for all executive officers are reviewed
annually. As part of this review, the Company takes into account the
compensation packages offered by other companies in the equipment rental
9
<PAGE>
industry, as well as other consolidators comparable in size to the Company.
The Company also gives consideration to the experience, responsibilities,
management and leadership abilities of its individual executive officers and
their actual performance on behalf of the Company.
Performance Bonuses. The Compensation Committee also sets the bonuses of the
executive officers and consults with the CEO regarding the Company's bonus
policies. Currently, the Company maintains certain bonus programs for key
corporate employees and for operations management employees. The purpose of
these programs are (i) to offer incentives to key management of the Company so
as to (a) reward them for achieving financial goals and (b) further the
alignment of interests of key management with the Company's stockholders and
(ii) to provide incentives to operations management to maintain a high level
of profitability and asset utilization and to achieve the Company's financial
goals in individual markets. Bonuses for key corporate employees are based on
the Company's achieving certain earnings per share objectives, and each
participant's bonus award is calculated as a percentage of base salary, and
generally ranges from 20% to 30% of base salary. Bonuses for operations
management employees 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.
Stock Options and Other Awards. The Compensation Committee utilizes stock
options, restricted stock and other equity awards as a key incentive because
they provide executives with the opportunity to become stockholders of the
Company, and thereby share in the long-term appreciation in the value of the
Common Stock. The Compensation Committee believes such awards are beneficial
to the Company and its stockholders because they directly align the interests
of the Company's executives with those of its other stockholders.
The Compensation Committee determines the awards, if any, to be granted from
time to time to executive officers pursuant to the Stock Option Plan for Key
Employees of Acme Acquisition Holdings Corp. (the "1995 Plan") and the 1996
Equity Participation Plan of Rental Service Corporation (the "1996 Plan").
Substantially all of the awards are incentive stock options, which are granted
at no less than the prevailing market value. Accordingly, such awards will
only benefit executives if the price of the Common Stock increases over the
term of the applicable option.
The number of shares of Common Stock subject to individual options is
usually based on the performance of the executive team as a group, as well as
on departmental and individual contributions. Options are granted as
compensation for performance and as an incentive to promote the future growth
and profitability of the Company. In determining the number of shares of
Common Stock subject to such awards, the Committee considers the option and
other compensation policies of the industry. It also takes into account the
outstanding options already held by each individual executive officer, and the
projected value of the options based on historical and assumed appreciation
rates of the Common Stock.
CEO COMPENSATION
As is the case for the other executive officers, the CEO's compensation
package consists of base salary, performance bonus and stock options and other
awards.
The CEO's base compensation for fiscal 1997 was set by the Board in 1996. In
determining the CEO's compensation, the Board considered the overall
compensation packages of other chief executive officers in other companies in
the equipment rental industry. In addition, the Board considered the Company's
performance and its achievement of its financial and business goals and
evaluated the CEO's overall individual performance in the prior fiscal year.
The Board did not assign relative weights or ranking to each of these factors,
but instead made a subjective determination based on consideration of all such
factors.
COMPENSATION COMMITTEE
Britton H. Murdoch
John M. Sullivan
10
<PAGE>
PERFORMANCE GRAPH
The following line graph compares cumulative total stockholder return,
assuming reinvestment of dividends, for: (i) the Common Stock; (ii) the
Standard & Poor's 500 Stock Index; and (iii) the Russell 2000 Index. Because
the Company did not pay dividends on its Common Stock during the measurement
period, the calculation of the cumulative total return stockholders' return
did not include dividends. The Russell 2000 Index is included because it is
comprised of publicly traded issuers with total market capitalization similar
to that of the Company. Because of the small number of publicly-traded
companies in the Company's peer group, the Company does not believe it can
reasonably identify a group of peer issuers at this time. The graph assumes
$100 was invested on September 18, 1996 (the date on which the Company
consummated its initial public offering and was registered under Section 12 of
the 1934 Act).
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period RENTAL S&P RUSSELL
(Fiscal Year Covered) SERV. CORP 500 INDEX 2000 INDEX
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt- 9/18/96 $100.00 $100.00 $100.00
9/30/96 $ 99.43 $100.00 $100.00
12/31/96 $126.44 $108.34 $105.20
3/31/97 $ 87.36 $111.24 $ 99.76
6/30/97 $120.69 $130.66 $115.93
9/30/97 $103.16 $140.45 $133.16
12/31/97 $112.93 $144.48 $128.70
</TABLE>
EQUITY PARTICIPATION PLANS
The Company currently maintains two plans, the 1995 Plan and 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.
11
<PAGE>
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 February 28, 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 (in either case, 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 1,000,000 shares of Common Stock (or
the equivalent in other equity securities) are authorized for issuance upon
exercise or vesting of any Awards. As of February 28, 1998, 20,981 shares were
available for future Awards. If, however, the proposal to amend Section 2.1(a)
of the 1996 Plan is approved, an aggregate of not more than 2,000,000 shares
of Common Stock (or the equivalent in other equity securities) will be
authorized for issuance upon exercise or vesting of any Awards. See "Amendment
to the 1996 Equity Participation Plan of Rental Service Corporation (Proxy
Item 5)". 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. If the
Charter Amendment is approved, however, each non-employee director will
receive an NQSO to purchase 10,000 shares of Common Stock upon his or her
initial election and an NQSO to purchase 2,500 shares at each annual meeting
subsequent to such initial election after which he or she will continue to
serve on the Board. See "Amendment to the 1996 Equity Participation Plan of
Rental Service Corporation (Proxy Item 5)--Awards under the 1996 Plan."
INCENTIVE BONUS PLANS
The Company's Board of Directors has adopted the Management Incentive
Compensation Plan (the "Incentive Plan"), an annual bonus plan under which the
chief executive officer and certain of the Company's other executives
("Incentive Plan Eligible Employees") are eligible to receive bonus payments.
The Incentive Plan is intended to provide an incentive for superior work and
to motivate Incentive Plan Eligible 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 Incentive Plan is subject to stockholder
approval before any bonuses will be paid thereunder. See "Proposal to Approve
the Adoption of the Company's Management Incentive Compensation Plan (Proxy
Item 3)."
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
12
<PAGE>
the Company so as to (i) reward them for achieving financial goals and (ii)
further the alignment of interests of key management with the Company's
stockholders. Bonuses under the Management Bonus Plan are based on achieving
certain earnings per share objectives. Each participant's bonus award is
calculated as a percentage of base salary, and generally ranges from 20% to
30% of base salary.
In addition, the Company maintains Region Manager and General Manager Bonus
Plans (the "Operations Bonus Plan"). The Operations Bonus Plan is designed to
provide incentives to operations management to maintain a high level of
profitability and asset utilization and to achieve the Company's financial
goals in their individual market. Bonuses under the Operations Bonus Plan are
based on the degree to which region or individual location operating profit
objectives are met and generally range from 20% to 75% of the participant's
base salary if financial targets are achieved. If financial targets are
exceeded, participants may receive an additional bonus based on incremental
regional or store profit.
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 a 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 intends to purchase 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 participant, 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 reaches age 62 or (ii) the participant
reaches age 55 with at least seven years of service to the Company.
13
<PAGE>
ELECTION OF DIRECTORS (PROXY ITEM 1)
Currently, the number of directors comprising the Board is fixed by the
Company's Bylaws (the "Bylaws"), which provide that the Board shall consist of
no fewer than four and no more than sixteen directors, with the exact number
to be fixed by the Board. Pursuant to a resolution adopted by the Board, the
authorized number of members of the Board has been set at eight. On February
25, 1998, the Board adopted, subject to stockholder approval, an amendment to
the Certificate of Incorporation to provide for a Classified Board. Assuming
the adoption and effectiveness of the Charter Amendment, the number of
directors comprising the Board will be fixed by the Certificate of
Incorporation. The text of the proposed Charter Amendment, however, also
provides that the Board shall consist of no fewer than four and no more than
sixteen directors, with the exact number initially to be eight unless and
until such number is otherwise fixed by the Board and that any vacancies or
newly created directorships may be filled by a vote of a majority of the
Continuing Directors (as defined in the Certificate of Incorporation).
Accordingly, regardless of whether the Charter Amendment is approved, eight
directors are to be elected at the 1998 Annual Meeting. If the Charter
Amendment is not approved, all eight directors will hold office until the 1999
Annual Meeting, or until their successors are elected and have been qualified.
If, however, the proposal to approve the Charter Amendment is approved, the
Board will be divided into three classes with each class to be as nearly equal
in number as possible and, except as set forth below, directors' terms will
expire at the third annual meeting of stockholders after their election by the
stockholders. See "Proposed Amendment to the Company's Certificate of
Incorporation to Provide for a Classified Board of Directors (Proxy Item 2)."
It is intended the persons named in the enclosed proxy will, unless such
authority is withheld, vote for the election of the eight nominees proposed by
the Board, each of whom is presently a director of the Company. If any of them
should become unavailable prior to the Annual Meeting, the proxy will be voted
for a substitute nominee or nominees designated by the Board, or the number of
directors may be reduced accordingly. Set forth below is information regarding
the name and age of each of the nominees for election to the Board, the class
and initial term of each director (assuming the proposal to approve the
Charter Amendment is adopted), the principal occupation or employment of each
such nominee during the past five years and at present, the name and principal
business of the corporation or other organization, if any, in which such
occupation or employment is or was carried on, directorships of other public
companies held by each such nominee, the present position of such nominee with
the Company and the period during which such nominee has served as a director
of the Company. All of the nominees named below have consented to being named
herein and to serve if elected.
REQUIRED VOTE
The affirmative vote of a majority of the shares of Common Stock voting for
the election of directors at the Annual Meeting will be required to elect each
director.
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES NAMED BELOW
OR THEIR SUBSTITUTES AS DESCRIBED ABOVE.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITIONS AND OFFICES WITH THE COMPANY
---- --- -------- --------------------------------------
<S> <C> <C> <C>
Martin R. Reid.......... 55 1994 Chairman of the Board and Chief Executive Officer
William M. Barnum, Jr. . 43 1992 Director
James R. Buch........... 44 1995 Director
David P. Lanoha......... 48 1998 Director
Christopher A. Laurence. 30 1995 Director
Eric L. Mattson......... 46 1996 Director
Britton H. Murdoch...... 40 1997 Director
John M. Sullivan........ 62 1997 Director
</TABLE>
14
<PAGE>
The principal occupations and positions for the past five years and, in
certain cases prior years, of the directors and executive officers named above
are as set forth below.
Nominees for Election--Terms Expire in 2001 (Class 3). The following
individuals are the nominees of the Board to serve, for the ensuring year, or,
following the effectiveness of the proposal to approve the Charter Amendment,
until the 2001 annual meeting of stockholders:
MARTIN R. REID was elected as a Director and Chief Executive Officer of the
Company in June 1994 and became Chairman of the Board in October 1995. Mr.
Reid was a director of Tuboscope Vetco International Corporation
("Tuboscope"), a provider of oilfield-related inspection and coating services,
until February 1998. 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.
WILLIAM M. BARNUM, JR. has served as a director of the Company since its
formation in 1992 and served as Chairman of the Board from June 1993 through
October 1995. Mr. Barnum is a general partner of BBP, the general partner of
Brentwood RSC Partners, L.P. ("Brentwood RSC Partners"). Brentwood RSC
Partners is a significant stockholder of the Company. See "Security Ownership
of Certain Beneficial Owners and Management." 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.
BRITTON H. MURDOCH has served as a director of the Company since January
1997. Since October 1996, Mr. Murdoch has been Managing Director of Internet
Capital Group, 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.
Nominees for Election--Terms Expire in 2000 (Class 2). The following
individuals are the nominees of the Board to serve, for the ensuring year, or,
following the effectiveness of the proposal to approve the Charter Amendment,
until the 2000 annual meeting of stockholders:
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 1, 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.
CHRISTOPHER A. LAURENCE has served as a director of the Company since
October 1995. Mr. Laurence is a general partner of Brentwood Associates. 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.
Nominees for Election--Terms Expire in 1999 (Class 1). The following
individuals are the nominees of the Board to serve, for the ensuring year, or,
following the effectiveness of the proposal to approve the Charter Amendment,
until the 1999 annual meeting of stockholders:
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 Company's acquisition (the
15
<PAGE>
"Center Acquisition") of all of the outstanding stock of Rent-It-Center, Inc.
d/b/a Center Rentals & Sales and substantially all of the assets of certain
affiliated entities (collectively, "Center"). 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.
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.
Messrs. Reid and Barnum were also directors or executive officers of Acme
Holdings, Inc. ("RHI"), an equipment rental business the Company acquired in
September 1995. 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 Mr. Reid as its Chief Executive Officer in June
1994. This new management team initiated restructuring discussions with the
holders of RHI's debt, culminating in the prepackaged bankruptcy of RHI and
its subsidiaries. On September 12, 1995, the effective date of the prepackaged
bankruptcy plan, Messrs. Reid and Barnum, along with Douglas A. Waugaman, an
executive officer of the Company, were directors or executive officers of RHI.
During 1997, the Board held nine meetings, inclusive of telephonic meetings.
Each director attended at least 75% of the total number of meetings of the
Board, and of committees of the Board on which he served, held during the
year.
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 to 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 OF DIRECTORS
Prior to 1997, the Company did not pay any fees or remuneration to directors
for their service on the Board or any Board committee; however, the Company
reimbursed directors for their out-of-pocket expenses incurred in connection
with attending meetings of the Board.
In 1997, in addition to reimbursement for out-of-pocket expenses, all non-
employee members of the Board received $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 received an additional $1,500 per year. Concurrently, all
non-employee directors received an NQSO to purchase 10,000 shares of Common
Stock upon their initial election to the Board and will receive an NQSO to
purchase 2,500 shares at each annual meeting subsequent to their initial
election at which they are reelected to the Board. If the Charter Amendment is
approved, however, non-employee directors will receive, under the 1996
16
<PAGE>
Plan, an NQSO to purchase 10,000 shares of Common Stock upon their initial
election to the Board and an NQSO to purchase 2,500 shares to each Annual
Meeting subsequent to their initial election after which they will continue to
serve on the Board. See "Equity Participation Plans" and "Amendment to the
1996 Equity Participation Plan of Rental Service Corporation (Proxy Item 5)--
Awards under the 1996 Plan."
CERTAIN INFORMATION WITH RESPECT TO EXECUTIVE OFFICERS
Set forth below is certain information regarding each of the executive
officers of the Company. Further information about Mr. Reid is presented under
"Election of Directors." Officers are appointed by, and serve at the
discretion of, the Board.
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES WITH THE COMPANY
---- --- --------------------------------------
<C> <C> <S>
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......... 39 Senior Vice President of Operations
David B. Harrington......... 44 Senior Vice President of Human Resources
</TABLE>
The principal occupations and positions for the past five years and, in
certain cases prior years, of the executive officers, other than Mr. Reid (for
whom such information is provided above under "Election of Directors"), named
above are as follows:
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 Rental 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 since
January 1998. Mr. Markle initially 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.
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.
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<PAGE>
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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers, directors
and persons who own more than ten percent of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and to furnish the
Company with copies of such reports. To the Company's knowledge, based solely
on the Company's review of the copies of those reports and written
representations it has received, the Company believes all such filings have
been made in a timely manner, except that Martin R. Reid and David G. Ledlow
each filed one Form 4 late.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time, BBP has received investment banking fees from the Company
in connection with certain of 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 $1,084,000 during
the year ended December 31, 1997. 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.
In connection with the Center Acquisition, the Company entered into leases
for certain of Center 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.
RSC and Martin R. Reid are parties to the Employment Agreement pursuant to
which Mr. Reid is employed as Chairman and Chief Executive Officer. See
"Executive Compensation--Employment Agreement with Martin R. Reid." The
Company and Mr. Waugaman are parties to the Waugaman Purchase Agreement, and
certain oral supplements hereto, which provide that following certain
terminations of Mr. Waugaman's employment and following certain changes of
control, Mr. Waugaman will be entitled to certain benefits, subject to certain
conditions. The Company has entered into a severance agreement with each of
Messrs. Halchishak, Harrington, Ledlow and Wilson providing for certain
benefits upon certain terminations of their employment. See "Executive
Compensation--Termination of Employment and Change-In-Control Arrangements."
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 Board 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.
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<PAGE>
PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS (PROXY ITEM 2)
The Board has approved, and recommends the stockholders adopt, an amendment
to the Certificate of Incorporation that would divide the Board into three
classes with staggered terms. The proposal would amend Article Seventh of the
Certificate of Incorporation in its entirety to read as follows:
"The Board of Directors shall be composed of not less than four (4) nor
more than sixteen (16) directors, the specific number to be determined
solely by resolution of the Board of Directors; provided that the Board of
Directors may be less than four until vacancies are filled. Vacancies and
newly created directorships may be filled by a vote of a majority of
Continuing Directors (as defined). No decrease in the number of directors
shall have the effect of shortening the term of any incumbent director. The
Board of Directors shall be divided into three classes, with the classes to
be as equal in number as may be possible, with any director or directors in
excess of the number divisible by three being assigned first to Class 3 and
then to Class 2. At the 1998 annual meeting of stockholders, the following
classes shall be elected for the terms set forth below:
<TABLE>
<CAPTION>
CLASS TERM
----- -------
<S> <C>
Class 1.......................................................... 1 year
Class 2.......................................................... 2 years
Class 3.......................................................... 3 years
</TABLE>
At each annual meeting of stockholders following the 1998 annual meeting,
the number of directors equal to the number of directors in the class whose
term expires at the time of such meeting shall be elected to serve until
the third ensuing annual meeting of stockholders. Unless a director dies,
resigns or is removed, he or she will hold office for the term elected or
until his or her successor is elected and qualified, whichever is later.
Directors may be removed only for cause. Directors need not be stockholders
of this corporation or residents of the State of Delaware.
Notwithstanding anything to the contrary in Article Tenth, any amendment
or modification of this Article Seventh shall require the affirmative vote
of the holders of two-thirds of the outstanding shares entitled to vote at
an election of directors; provided, however, that an amendment or
modification of this Article Seventh that has been approved by a majority
of the Continuing Directors then in office shall only require such
affirmative vote of stockholders as is required by law; provided further,
however, that the number of directors comprising the Board of Directors may
be increased above sixteen (16) by the affirmative vote of two-thirds of
the Continuing Directors then in office. "Continuing Directors" means the
directors who are members of the Board of Directors immediately following
the 1998 annual meeting of stockholders and each new director nominated or
elected by a majority of the then Continuing Directors."
The Board recommends the Certificate of Incorporation be amended to divide
the Board into three classes, as nearly equal in size as possible. Except
during the initial phase-in period, the term of office of the directors of
each class will expire at the third annual meeting after their election. Under
Delaware law, a director appointed by the Board to fill a vacancy shall hold
office until the next election of directors of the class for which such
director was appointed. This proposal is intended to provide continuity and
stability to the Company's management by increasing the effort necessary for a
substantial stockholder to gain control of the Board. Although the Company has
not yet experienced problems with respect to continuity, the Company has been
a public company only since September 1996. Adoption of this proposal will
make it more difficult to change the composition of the Board. In its present
form, the Certificate of Incorporation provides that the number of directors
and other matters related to the election of directors are to be as set forth
in the Bylaws. The Bylaws, in turn, require the entire Board to stand for
election each year, so it would take only one year or less for the entire
Board to be replaced. Following adoption of the proposal, in the absence of
cause, at least two annual meetings of stockholders will be required to effect
a change in the majority of the Board.
19
<PAGE>
Under Delaware law, the directors of a nonclassified board may be removed by
the stockholders with or without cause. If the proposal to classify the Board
is adopted, the directors may be removed by the stockholders only for cause.
The provision for a classified Board may be amended or repealed only by the
affirmative vote of the holders of two-thirds of the outstanding shares
entitled to vote in the election of directors, although the affirmative vote
of the holders of a majority of the outstanding Common Stock is sufficient to
adopt the proposal.
While the Board believes the proposed amendment to the Certificate of
Incorporation should be adopted for the reasons set forth above, the Board is
aware the proposed amendment may have potential antitakeover effects. Dividing
the Board into three classes with staggered terms will make it more difficult
for stockholders to change a majority of the current directors. This provision
is effective without regard to whether a change in control has occurred or is
occurring, and therefore may also have the effect of preventing stockholders
from replacing directors for reasons unrelated to the control of the Company.
The Certificate of Incorporation also contains other provisions that may
limit or prevent a change in control of the Company. Article Fourth of the
Certificate of Incorporation provides that the authorized capital of the
Company consists of 40,000,000 shares of Common Stock and 500,000 shares of
Preferred Stock, par value $.01 per share ("Preferred Stock"). The Board may
issue, from time to time, one or more classes or series of Preferred Stock,
with such designations and preferences, relative voting and other rights as it
deems appropriate, without approval of the Company's stockholders. The Board,
by issuing such common or preferred stock in one or more classes or series,
could adversely affect the voting power of the outstanding shares of Common
Stock, and discourage any attempt to gain control of the Company.
The provisions in the Company's Certificate of Incorporation, and the
proposed Charter Amendment, may tend to deter any unfriendly tender offers or
other efforts to gain control of the Company and thereby deprive stockholders
of opportunities to sell shares at higher-than-market prices. These provisions
will also, however, tend to assure continuity of management and policies and
encourage those seeking control of the Company to negotiate with management to
reach terms acceptable to the Board. The Company is not currently aware of any
effort to accumulate its securities or to gain control of the Company, and the
proposed Charter Amendment is not recommended to block any such effort.
REQUIRED VOTE
The affirmative vote of stockholders holding a majority of the outstanding
Common Stock is required to approve the proposed amendment.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE PROPOSED
CHARTER AMENDMENT.
20
<PAGE>
PROPOSAL TO APPROVE THE ADOPTION OF THE COMPANY'S MANAGEMENT
INCENTIVE COMPENSATION PLAN (PROXY ITEM 3)
The following description of the Incentive Plan is qualified in its entirety
by reference to the Incentive Plan itself, a copy of which is attached hereto
as Annex A. Copies of the Incentive Plan can also be obtained by making
written request to the Company's Secretary.
GENERAL
On February 25, 1998, the Board adopted, subject to stockholder approval,
the Incentive Plan, an annual bonus plan under which the chief executive
officer and certain of the Company's other executives ("Incentive Plan
Eligible Employees") are eligible to receive bonus payments. The Incentive
Plan is intended to provide an incentive for superior work, to motivate
Incentive Plan Eligible 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 Incentive Plan is subject to stockholder approval before
any bonuses will be paid thereunder.
ADMINISTRATION
The Incentive Plan will be administered by a committee (the "Bonus
Committee") consisting of at least two members of the Board who qualify as
"outside directors" under Section 162(m) of the Internal Revenue Code of 1986,
as amended, and the regulations and interpretations promulgated thereunder
(the "Code"). 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 the Incentive Plan.
BONUSES
An Incentive Plan Eligible 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 Incentive Plan Eligible
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 Incentive Plan is not
presently determinable. However, the Incentive Plan provides that the maximum
bonus for an Incentive Plan Eligible Employee shall not exceed $1,000,000 with
respect to any fiscal year.
The Incentive Plan is designed to ensure the annual bonuses paid thereunder
to Incentive Plan Eligible Employees of the Company 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 Incentive Plan Eligible Employees. However, certain performance-based
compensation is not subject to the deduction limit. The Incentive Plan is
designed to provide this type of performance-based compensation to Incentive
Plan Eligible Employees.
Bonuses paid to Incentive Plan Eligible Employees will be based upon bonus
formulas that tie bonuses to one or more objective performance standards.
Bonus formulas for Incentive Plan Eligible 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 Incentive Plan
Eligible 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 Incentive
Plan Eligible Employee, the Bonus Committee has no discretion to increase the
amount of a Incentive Plan Eligible Employee's bonus.
21
<PAGE>
REASONS FOR ADOPTION OF THE INCENTIVE PLAN
The Board believes the Incentive Plan will provide an incentive for superior
work and motivate Incentive Plan Eligible Employees toward even higher
achievement and business results. The Board also believes the Incentive Plan
will further tie the Incentive Plan Eligible Employees' goals and interests to
those of the Company and its stockholders, and will enable the Company to
attract and retain highly qualified senior employees.
REQUIRED VOTE
The affirmative vote of a majority of the shares of Common Stock represented
at the Annual Meeting is required to approve the adoption of the Incentive
Plan.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE INCENTIVE
PLAN.
AMENDMENT TO THE RENTAL SERVICE CORPORATION FIRST AMENDED AND
RESTATED EMPLOYEE QUALIFIED STOCK PURCHASE PLAN (PROXY ITEM 4)
On February 25, 1998, the Board adopted, subject to stockholder approval,
the Q.S.P. Plan Amendment. At the Annual Meeting, the stockholders are being
asked to approve the adoption of the Q.S.P. Plan Amendment. The Q.S.P. Plan
Amendment amends Section 4 of the Q.S.P. Plan to shorten to six months the
minimum period during which employees must be employed by the Company before
they are eligible to participate in the Q.S.P. Plan. Without the Q.S.P. Plan
Amendment, employees are ineligible to participate in the Q.S.P. Plan until
they have been employed by the Company for at least one year. The Q.S.P. Plan
Amendment amends Section 4 of the Q.S.P. Plan in its entirety to read as
follows:
"ELIGIBILITY. Each Employee of the Company who on the first day of any
Enrollment Period:
(a) has been employed by the Company for not less than six (6) months;
(b) is customarily employed by the Company for more than twenty (20)
hours per week; and
(c) is customarily employed by the Company for more than five (5) months
per calendar year, shall become an Eligible Employee on such day."
The Board has determined the Q.S.P. Plan Amendment is desirable because it
makes the eligibility requirements of the Q.S.P. Plan more consistent with
those of certain of the Company's other benefit plans, such as the Company's
401(k) Retirement Savings Plan. The Board also believes the Q.S.P. Plan
Amendment will enable the Company to attract and retain more experienced and
capable persons who can make significant contributions to the further growth
and success of the Company.
DESCRIPTION OF THE Q.S.P. PLAN
The following is a description of the material provisions of the Q.S.P.
Plan. The summary that follows is not intended to be complete, and reference
should be made to the Q.S.P. Plan for a complete statement of its terms and
provisions. Copies of the Q.S.P. Plan will be available at the Annual Meeting
and may also be obtained by making written request of the Company's Secretary.
In general, the Q.S.P. Plan authorizes employees of the Company and its
subsidiaries to purchase shares of Common Stock, through payroll deductions,
at a purchase price of 85% of the fair market value of such shares.
The Q.S.P. Plan authorizes the granting of purchase rights ("Options") to
eligible employees in six-month offering periods, pursuant to a plan intended
to qualify as an "employee stock purchase plan" under Section 423 of the Code.
The Q.S.P. Plan is not subject to the provisions of ERISA, and is not a
qualified plan under Section 401(a) of the Code. Proceeds received by the
Company from the sale of Common Stock pursuant to the exercise of Options
under the Q.S.P. Plan will be used for general corporate purposes.
22
<PAGE>
SECURITIES SUBJECT TO THE Q.S.P. PURCHASE PLAN
The Q.S.P. Plan provides that an aggregate of up to 250,000 shares of Common
Stock may be issued thereunder. The Q.S.P. Plan also provides for appropriate
adjustments in the number and kind of shares subject to the plan and to
outstanding Options in the event of a stock split, stock dividend or certain
other similar changes in Common Stock and in the event of a merger,
reorganization, consolidation or certain other types of recapitalizations of
the Company. The Company, acting through its CEO or his delegate (the
"Administrator"), shall make appropriate adjustments to the aggregate number
of shares of Common Stock subject to the Q.S.P. Plan, the number of shares of
Common Stock subject to outstanding Options and the price per share thereof if
there is any merger, consolidation, reorganization, recapitalization, stock
dividend (in excess of 2%), stock split or other change in the corporate
structure of the Company. If, however, the Company is not the surviving
corporation in any such merger or reorganization, every Option under the
Q.S.P. Plan shall terminate upon the consummation of such merger or
reorganization, unless the surviving corporation shall issue a new Option in
substitution thereof or assume the Option then existing under the Q.S.P. Plan.
Options terminating upon the consummation of a merger or reorganization shall
be exercisable prior to or concurrently with such consummation.
ELIGIBILITY TO PARTICIPATE
Prior to the effectiveness of the Q.S.P. Plan Amendment, each employee of
the Company who has been employed by the Company for not less than one year,
who is customarily employed by the Company for more than 20 hours per week and
is customarily employed by the Company for more than five months per calendar
year is eligible to participate in the Q.S.P. Plan. The Company presently has
approximately 1,500 employees who are eligible to participate in the Q.S.P.
Plan. If, however, the Q.S.P. Plan Amendment is adopted, each employee of the
Company who has been employed by the Company for not less than six months, who
is customarily employed by the Company for more than 20 hours per week and is
customarily employed by the Company for more than five months per calendar
year will be eligible to participate in the Q.S.P. Plan. The Company presently
has approximately 1,900 employees who would be eligible to participate in the
Q.S.P. Plan if the Q.S.P. Plan Amendment is adopted. Directors who are not
employees of the Company are not eligible to participate in the Q.S.P. Plan.
The Named Executive Officers are among those eligible to participate in the
Q.S.P. Plan.
No Option may be granted under the Q.S.P. Plan to an employee who
immediately after the granting of the Option would own stock (including stock
which the individual may purchase under outstanding options) possessing more
than 5% of the total voting power or value of all classes of stock of the
Company, or any parent or subsidiary corporation. In addition, no employee may
be granted an Option that would permit his rights to purchase stock under all
Code Section 423 employee stock purchase plans of the Company, or any parent
or subsidiary corporation to accrue at a rate which exceeds $25,000 of the
fair market value of such stock (as of the time the Option is granted) for
each calendar year in which such Option is outstanding.
ELECTION TO PARTICIPATE; GRANT AND EXERCISE OF OPTIONS
Each eligible employee participates in the Q.S.P. Plan by means of payroll
deductions. To start the appropriate deductions, an eligible employee submits
a completed and executed enrollment form to the Company during the two-week
period commencing one month prior to the first day of the first semi-annual
period or any subsequent semi-annual period ("Offering Period") and ending two
weeks prior to the first day of the Offering Period. Once an employee
indicates his or her interest in participating in the Q.S.P. Plan, the Company
reduces that employee's cash compensation through payroll deductions of an
amount, not to exceed 15% of base pay, specified by the employee. Such payroll
deductions are contributed to the Company upon the exercise of an employee's
Option. Under no circumstances shall an employee receive any interest on
payroll deductions credited to his or her account under the Q.S.P. Plan.
23
<PAGE>
Subject to limitations contained in the Q.S.P. Plan, participating employees
are granted non-transferable Options. Each participating employee's Option
will be exercised in semi-annual installments on the last day of each Offering
Period during which the eligible employee is participating in the Q.S.P. Plan.
The number of shares of Common Stock subject to each Option shall be equal to
the quotient of the total payroll deductions made for the eligible employee
during the Offering Period divided by the Option Price (as defined); provided,
however, that the number of shares of Common Stock subject to each Option
shall not exceed 1,500 shares.
Exercise of a semi-annual installment of an Option is automatic unless, at
least two weeks prior to the last day of such Offering Period, the employee
instructs the Company in writing that such Option installment is not to be
exercised or the employee files a new authorization card reducing his or her
percentage of payroll deduction to zero percent (0%). As soon as practicable
after receipt of such notice or such authorization card, the Company shall pay
to such eligible employee in cash in one lump sum the balance of payroll
deductions credited to such eligible employee's account under the Q.S.P. Plan,
without the payment of any interest thereon.
OPTION PRICE
The per share exercise price of each Option 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 Q.S.P. Plan or 85% of the fair market value of a share of Common Stock
on the date of exercise of an installment of the Option (the "Option Price").
For purposes of the Q.S.P. Plan, the fair market value of the shares of Common
Stock on any date is considered to be (i) the closing price of a share of
Common Stock on the principal exchange on which shares of the Common Stock are
then trading, if any, on such date, or if shares were not traded on such date,
then on the next preceding trading day during which a sale occurred; (ii) if
such Common Stock is not traded on an exchange, but is quoted on Nasdaq or a
successor quotation system, the last sales price (if such Common Stock is then
listed as a National Market issue under the Nasdaq National Market System) or
the mean of the closing representative bid and asked prices (in all other
cases) for the Common Stock of such date as reported by Nasdaq or a successor
quotation system; (iii) if such Common Stock is not publicly traded on an
exchange, and not quoted on Nasdaq or a successor quotation system, the mean
between the closing bid and asked prices for the Common Stock on such date as
determined in good faith by the Administrator; or (iv) if such Common Stock is
not publicly traded, the fair market price established by the Administrator
acting in good faith. The closing price of the Common Stock reported by the
NYSE on March [ ], 1998 was [$ ].
CESSATION OF PARTICIPATION
An employee shall cease to participate in the Q.S.P. Plan when (i) the
Administrator receives written instructions from the eligible employee to
terminate such employee's participation in the Q.S.P. Plan or to reduce his or
her payroll deductions to zero percent (0%), (ii) the eligible employee
resigns or is discharged from employment by the Company or any subsidiary
corporation, or has a leave of absence (other than leaves of absence meeting
certain criteria specified in the Q.S.P. Plan) from the Company or any
subsidiary corporation, or (iii) the employee dies. As soon as practicable
after cessation of participation, all funds credited to such employee's
account under the Q.S.P. Plan will be paid to such employee in cash in one
lump sum, without payment of any interest thereon.
An eligible employee shall not be eligible to participate in the Q.S.P. Plan
during the Offering Period which immediately follows the Offering Period
during which such employee ceased to participate in the Q.S.P. Plan.
RESTRICTIONS ON TRANSFER
Options granted under the Q.S.P. Plan are not transferable, other than by
will or the laws of descent and distribution. Each director, executive officer
or any person who beneficially owns 10% or more of the Common Stock is
required under federal securities laws not to sell his or her shares acquired
under the Q.S.P. Plan for at least six months following the date on which such
shares were acquired.
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<PAGE>
ADMINISTRATION, AMENDMENT AND TERMINATION OF PLAN
The Q.S.P. Plan is administered by the Company, acting through the
Administrator. All costs of administering the Q.S.P. Plan and of granting and
exercising Options under the Q.S.P. Plan are paid by the Company. The Q.S.P.
Plan provides for the indemnification of the Administrator for liability,
loss, costs, damages, attorneys' fees and other expenses the Administrator may
sustain or incur in connection with the administration of the Q.S.P. Plan,
except for liability, loss, costs, damages, attorneys' fees and other expenses
caused by the negligence of the Administrator or his agent.
Although the Company expects to continue the Q.S.P. Plan until all shares of
Common Stock reserved for issuance under the Q.S.P. Plan have been so issued,
the Board may terminate the Q.S.P. Plan at any time with respect to any shares
not then subject to Options under the Q.S.P. Plan and, except as indicated
below, may modify the Q.S.P. Plan from time to time.
The Board may not, without prior stockholder approval, amend the Q.S.P. Plan
so as to increase the maximum number of shares of Common Stock subject to the
Q.S.P. Plan, change the designation or class of employees eligible to receive
Options under the Q.S.P. Plan, materially increase the benefits accruing to
employees under the Q.S.P. Plan or amend the Q.S.P. Plan in any manner that
would cause the Q.S.P. Plan to cease to be an "employee stock purchase plan"
under Section 423 of the Code.
FEDERAL INCOME TAX CONSEQUENCES
The income tax consequences of the Q.S.P. Plan under current federal law are
summarized below. The discussion is intended to provide only general
information. State and local income tax consequences are not discussed. The
Q.S.P. Plan is intended to qualify as an "employee stock purchase plan," as
defined in Section 423 of the Code.
If an Option is granted to an employee under the Q.S.P. Plan, no taxable
income will result to such employee on the date the Option is granted or on
any date that a semi-annual installment of the Option is exercised. If the
employee does not dispose of the shares of Common Stock purchased upon any
exercise of the Option within two years after the date on which the Option was
granted or within one year after the transfer of the shares of such Common
Stock to the employee (the "Holding Period"), or the employee dies while
owning the shares, the employee will be taxed in the year in which the shares
are disposed of, or the year closing with the employee's death, as follows:
(a) The employee will be subject to ordinary income tax on an amount
equal to the lesser of (i) the excess, if any, of the fair market value of
the shares on the date on which they were disposed of over the amount paid
for the shares, or (ii) the excess, if any, of the fair market value of the
shares on the date the Option was granted over the Option Price; and
(b) Any further gain realized by the employee on the disposition of the
shares (after increasing the basis of these shares by the amount of
ordinary income realized as described in (a) above) will be taxed as
capital gain.
If the employee disposes of the shares of Common Stock purchased upon
exercise of the Option before the expiration of the Holding Period, the
employee will realize ordinary income, reportable for the year of the
disposition of such shares, to the extent of the excess of the fair market
value of such shares on the date on which the Option was exercised, over the
Option price for such shares. Any additional gain realized will be taxable as
capital gain. If such Common Stock is disposed of before the expiration of the
Holding Period, and the amount realized is less than the fair market value of
such Common Stock at the time of exercise, the employee will realize (i)
ordinary income to the extent of the excess of the fair market value of such
Common Stock on the date on which the Option was exercised, over the Option
price for such Common Stock and (ii) capital loss to the extent the fair
market value of such Common Stock on the exercise date exceeds the amount
realized on the sale. If the employee realizes ordinary income as a result of
a disposition before the expiration of the Holding Period, the amount of such
ordinary income would be deductible by the Company for Federal income tax
purposes provided such amount constitutes an ordinary and necessary business
expense.
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REQUIRED VOTE
The affirmative vote of a majority of the outstanding shares of Common Stock
is required to approve the Q.S.P. Plan Amendment.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE Q.S.P.
PLAN AMENDMENT.
AMENDMENT TO THE 1996 EQUITY PARTICIPATION PLAN OF RENTAL SERVICE CORPORATION
(PROXY ITEM 5)
On February 25, 1998, the Board adopted, subject to stockholder approval,
the 1996 Plan Amendment. At the Annual Meeting, the stockholders are being
asked to approve the adoption of the 1996 Plan Amendment. The 1996 Plan
Amendment amends Section 2.1(a) of the 1996 Plan to increase to 2,000,000 the
maximum number of shares of Common Stock subject to awards under the 1996
Plan. If the 1996 Plan Amendment does not become effective, the maximum number
of shares of Common Stock subject to awards under the 1996 Plan would remain
at 1,000,000. The 1996 Plan Amendment amends Section 2.1(a) of the 1996 Plan
in its entirety to read as follows:
"(a) The shares of stock subject to Options, awards of Restricted Stock,
Performance Awards, Dividend Equivalents, awards of Deferred Stock, Stock
Payments or Stock Appreciation Rights shall be Common Stock, initially
shares of the Company's Common Stock, par value $.01 per share. The
aggregate number of such shares which may be issued upon exercise of such
options or rights or upon any such awards under the Plan shall not exceed
two million (2,000,000). The shares of Common Stock issuable upon exercise
of such potions or rights or upon any such awards may be either previously
authorized but unissued shares or treasury shares."
The 1996 Plan currently provides that 1,000,000 shares of Common Stock are
authorized for issuance thereunder. As of February 28, 1998, 20,981 shares
remained available for future Awards under the 1996 Plan. Also on that date,
Awards held by approximately 150 officers, directors and key employees and
covering 979,019 shares were outstanding under the 1996 Plan, of which 275,224
were exercisable. The Board has determined it is advisable to continue to
utilize the 1996 Plan to provide stock-based incentive compensation to the
Company's key employees and consultants, thereby continuing to align the
interests of such employees and consultants with those of the stockholders.
Accordingly, the Board believes the 1996 Plan Amendment will increase its
ability to achieve such goals. The Board recommends the 1996 Plan Amendment be
adopted.
DESCRIPTION OF THE 1996 PLAN
The following is a description of the material provisions of the 1996 Plan.
The summary that follows is not intended to be complete, and reference should
be made to the 1996 Plan for a complete statement of its terms and provisions.
Copies of the 1996 Plan will be available at the Annual Meeting and may also
be obtained by making written request of the Company's Secretary.
The principal purposes of the 1996 Plan are to provide incentives for
officers, key employees and consultants of the Company and its subsidiaries
through the granting of Awards, thereby stimulating their personal and active
interest in the Company's development and financial success, and enticing them
to remain in the Company's employ. In addition to Awards made to officers, key
employees or consultants, the 1996 Plan provides for the granting of Director
Options to the Company's independent non-employee directors, as described in
further detail below and for the discretionary grant of additional options to
such non-employee directors by action of the Board.
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Prior to the adoption of the 1996 Plan Amendment, not more than 1,000,000
shares of Common Stock (or the equivalent in other equity securities) are
authorized for issuance under the 1996 Plan upon exercise of options, stock
appreciation rights ("SARs"), and other Awards, or upon vesting of restricted
or deferred stock Awards. If the 1996 Plan Amendment is adopted, up to
2,000,000 shares of Common Stock (or the equivalent in other equity
securities) will be available under the 1996 Plan. Furthermore, regardless of
whether the 1996 Plan Amendment is adopted, the maximum number of shares which
may be subject to options or SARs granted under the 1996 Plan to any
individual in any calendar year cannot exceed 200,000. As of February 28,
1998, a total of 979,019 shares were subject to outstanding Awards held by
approximately 150 officers, directors and key employees under the 1996 Plan,
and 20,981 shares remained available for the grant of new Awards under the
1996 Plan. On March , 1998, the closing price of Common Stock on the NYSE
was [$ ] per share.
The shares available under the 1996 Plan upon exercise of options, SARs and
other Awards, and for issuance as restricted or deferred stock Awards, may
either be previously authorized but unissued shares or treasury shares, and
may be equity securities of the Company issued or authorized to be issued in
the future, but excluding any preferred stock and any warrants, options or
other rights to purchase Common Stock. The Committee (or the Board with
respect to Director Options) has the discretion to make appropriate
adjustments in the number and kind of securities subject to the 1996 Plan, and
to outstanding Awards thereunder, to reflect dividends or other distributions;
a recapitalization, reclassification, stock split, reverse stock split, or
reorganization or consolidation of the Company; the split-up, spin-off,
combination, repurchase, liquidation or dissolution of the Company; the sale,
transfer, exchange or other disposition of all or substantially all of the
assets of the Company; or any other similar corporate transaction or event (an
"extraordinary corporate event"). If any portion of an option, SAR or other
Award terminates or lapses unexercised, or is canceled upon grant of a new
option, SAR or other Award (which may be at a higher or lower exercise price
than the option, SAR or other Award so canceled), the shares which were
subject to the unexercised portion of such option, SAR or other Award, will
continue to be available for issuance under the 1996 Plan.
ADMINISTRATION
The Committee will administer the 1996 Plan with respect to grants to
employees or consultants of the Company and the full Board will administer the
1996 Plan with respect to Director Options. The Committee will consist solely
of at least two members of the Board, each of whom is a "non-employee
director" for purposes of Rule 16b-3 under the Exchange Act ("Rule 16b-3")
and, with respect to options and SARs which are intended to constitute
performance-based compensation under Section 162(m) of the Code, an "outside
director" for purposes of Section 162(m) of the Code. Subject to the terms and
conditions of the 1996 Plan, the Committee 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. Similarly, the Board has discretion to
determine the terms and conditions of Director Options and to interpret and
administer the 1996 Plan with respect to Director Options, consistent with the
specific formula terms described in more detail below. The Committee (and the
Board) are also authorized to adopt, amend and rescind rules relating to the
administration of the 1996 Plan.
PAYMENT FOR SHARES
The exercise or purchase price for all options, SARs, restricted stock and
other Awards that provide a right to acquire Common Stock, together with any
applicable tax required to be withheld, must be paid in full in cash at the
time of exercise or purchase or may, with the approval of the Committee (or
the Board with respect to Director Options), be paid in whole or in part in
Common Stock owned by the recipient (or issuable upon exercise of the option)
valued at its fair market value on the date of exercise or through delivery of
other property which constitutes good and valuable consideration, through
delivery of a recourse promissory note bearing interest payable to the
Company, or through delivery of a notice that the optionee has placed a market
sell order with a broker with respect to shares of Common Stock then issuable
upon exercise of the option, and the broker
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has been directed to pay the net proceeds of the sale to the Company in
satisfaction of the exercise price, or by a combination of the foregoing. In
addition, the Committee (or the Board with respect to Director Options) may in
its discretion allow a delay in payment up to thirty (30) days from the date
the option, or portion thereof, is exercised.
AMENDMENT AND TERMINATION
Amendments of the 1996 Plan to increase the number of shares as to which
Awards may be made (except for adjustments resulting from stock splits and the
like, and mergers, consolidations and other corporate transactions), or to
modify 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, require
the approval of the Company's stockholders. In all other respects, the 1996
Plan can be wholly or partially amended or otherwise modified, suspended or
terminated at any time or from time to time by the Board or the Committee,
unless such action would otherwise require stockholder approval as a matter of
applicable law, regulation or rule. Amendments of the 1996 Plan will not,
without the consent of the participant, alter or impair any rights or
obligations under any Award previously awarded, unless the Award agreement
governing such Award itself otherwise expressly so provides. No termination
date is specified for the 1996 Plan.
ELIGIBILITY
Options, SARs, restricted stock and other Awards under the 1996 Plan may be
granted to individuals who are then officers or other employees of the Company
or any of its present or future subsidiaries and who are determined by the
Committee to be key employees. Such Awards also may be granted to consultants
of the Company selected by the Committee for participation in the 1996 Plan.
Approximately 150 officers and other employees are eligible to participate in
the 1996 Plan. More than one option, SAR, restricted stock Award or other
Award may be granted to an employee or consultant, but the aggregate fair
market value (determined at the time of grant) of shares with respect to which
an ISO is first exercisable by an optionee (i.e. "vests") during any calendar
year cannot exceed $100,000. In addition, non-employee directors of the
Company will be granted NQSOs (as defined herein) by the Board under the 1996
Plan. Seven directors are currently eligible to participate in the 1996 Plan.
AWARDS UNDER THE 1996 PLAN
The 1996 Plan provides that the Committee may grant or issue stock options,
SARs, restricted stock, deferred stock, dividend equivalents, performance
awards, stock payments and other stock related benefits, or any combination
thereof. Each Award will be set forth in a separate agreement with the person
receiving the Award and will indicate the type, terms and conditions of the
Award.
Nonqualified Stock Options ("NQSOs") will provide for the right to purchase
Common Stock at a specified price which, except with respect to NQSOs intended
to qualify as performance-based compensation under Section 162(m) of the Code,
may be less than fair market value on the date of grant (but not less than par
value), and usually will become exercisable (at the discretion of the
Committee) in one or more installments after the grant date, subject to the
participant's continued employment with the Company and/or subject to the
satisfaction of individual or Company performance targets established by the
Committee. NQSOs may be granted for any term specified by the Committee.
Director Options are NQSOs granted to non-employee directors of the Company
pursuant to a formula. Under the formula in the 1996 Plan, all persons who, as
of the effective date of the 1996 Plan, were non-employee directors, and any
person who, during the term of the 1996 Plan, is initially elected to the
Board and who is a non-employee director at the time of such initial election,
automatically have been or shall be granted an NQSO to purchase ten thousand
(10,000) shares of Common Stock (subject to adjustment as provided in the 1996
Plan) on the effective date of the 1996 Plan or the date of such initial
election, as applicable. During the term of the 1996 Plan, each then current
non-employee director shall automatically be granted an NQSO to
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purchase two thousand five hundred (2,500) shares of Common Stock at each
subsequent annual meeting at which he is reelected to the Board. Further
stockholder action is not required with respect to such option grants. In
addition, during the term of the 1996 Plan, the Board may from time to time,
in its absolute discretion, and subject to applicable limitations of the 1996
Plan, grant additional Director Options to the non-employee directors (or any
of them). The exercise price of the Director Options shall be 100% of the fair
market value of a share of Common Stock on the date of grant. The period
during which the right to exercise a Director Option in whole or in part vests
in the optionee will be set by the Board. No portion of a Director Option
shall be exercisable after the tenth anniversary of the date of grant. If the
Charter Amendment is approved, each non-employee director will receive an NQSO
to purchase 10,000 shares of Common Stock on his or her initial election and
an NQSO to purchase 2,500 shares of Common Stock at each annual meeting
subsequent to such initial election after which he or she continues to serve
on the Board.
Incentive Stock Options ("ISOs") will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained
in the Code. Among such restrictions, ISOs must have an exercise price not
less than the fair market value of a share of Common Stock on the date of
grant, may only be granted to employees, must expire within a specified period
of time following the optionee's termination of employment, and must be
exercised within the ten years after the date of grant; but may be
subsequently modified to disqualify them from treatment as ISOs. In the case
of an ISO granted to an individual who owns (or is deemed to own) at least 10%
of the total combined voting power of all classes of stock of the Company, the
1996 Plan provides that the exercise price must be at least 110% of the fair
market value of a share of Common Stock on the date of grant, and the ISO must
expire no later than the fifth anniversary of the date of its grant.
Restricted Stock may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Committee. Restricted stock, typically, may be repurchased by the Company
at the original purchase price if the conditions or restrictions are not met.
In general, restricted stock may not be sold, or otherwise transferred or
hypothecated, until restrictions are removed or expire. Purchasers of
restricted stock, unlike recipients of options, will have voting rights and
will receive dividends prior to the time when the restrictions lapse.
Deferred Stock may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Committee. Like restricted
stock, deferred stock may not be sold, or otherwise transferred or
hypothecated, until vesting conditions are removed or expire. Unlike
restricted stock, deferred stock will not be issued until the deferred stock
Award has vested, and recipients of deferred stock generally will have no
voting or dividend rights prior to the time when vesting conditions are
satisfied.
Stock Appreciation Rights may be granted in connection with stock options or
other Awards, or separately. SARs granted by the Committee in connection with
stock options or other awards typically will provide for payments to the
holder based upon increases in the price of the Common Stock over the exercise
price of the related option or other Awards, but alternatively may be based
upon criteria such as book value. Except as required by Section 162(m) of the
Code with respect to a SAR intended to qualify as performance-based
compensation as described in Section 162(m) of the Code, there are no
restrictions specified in the 1996 Plan on the exercise of SARs or the amount
of gain realizable therefrom, although restrictions may be imposed by the
Committee in the SAR agreements. The Committee may elect to pay SARs in cash
or in Common Stock or in a combination of both.
Dividend Equivalents represent the value of the dividends per share paid by
the Company, calculated with reference to the number of shares covered by the
stock options, SARs or other Awards held by the participant.
Performance Awards may be granted by the Committee on an individual or group
basis. Generally, these Awards will be based upon specific performance targets
and may be paid in cash, in Common Stock or in a combination of both.
Performance Awards may include "phantom" stock Awards that provide for
payments based upon increases in the price of the Common Stock over a
predetermined period. Performance Awards may
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also include bonuses which may be granted by the Committee on an individual or
group basis, and which may be payable in cash, in Common Stock or in a
combination of both.
Stock Payments may be authorized by the Committee in the form of shares of
Common Stock or an option or other right to purchase Common Stock as part of a
deferred compensation arrangement in lieu of all or any part of compensation,
including bonuses, that would otherwise be payable in cash to the key employee
or consultant.
MISCELLANEOUS PROVISIONS
The Committee (or Board with respect to Director Options) has discretion
under the 1996 Plan to provide that options and other rights to acquire Common
Stock will expire at specified times following, or become exercisable in full
upon, the occurrence of certain specified extraordinary corporate events; but
in such event the Committee may also give optionees and other grantees the
right to exercise their outstanding options or rights in full during some
period prior to such events, even though the options or other Awards have not
yet become fully exercisable, and the Committee may also provide that all
restrictions imposed on some or all shares of restricted stock and/or deferred
stock shall lapse, and some or all shares of restricted stock may cease to be
subject to the Company's right to repurchase after such event.
The 1996 Plan specifies that the Company may make loans to key employees to
enable them to exercise options, purchase shares or realize the benefits of
other Awards granted under the 1996 Plan. The terms and conditions of any such
loan are to be set by the Committee.
In consideration of the granting of an option, SAR or other Award, the
participant must agree, in the written agreement embodying such Award, to
remain in the employ of (or to consult for or to serve as a non-employee
director of, as applicable) the Company or any subsidiary of the Company for a
period of at least one year (or such shorter period as may be fixed in the
agreement embodying such Award or by action of the Committee (or the Board
with respect to Director Options) following grant of the option, SAR or other
Award) after the option, SAR or other Award is granted (or, in the case of
Director Options, until the next annual meeting of stockholders of the
Company).
The dates on which options or other Awards under the 1996 Plan first become
exercisable and on which they expire will be set forth in individual Award
agreements setting forth the terms of the Awards. Such agreements generally
will provide that options and other Awards expire upon termination of the
participant's status as an employee, consultant or director, although the
Committee (or the Board with respect to Director Options) may provide that
such options or other Awards continue to be exercisable following a
termination without cause, or following a Change in Control of the Company (as
defined in the 1996 Plan), or because of the grantee's retirement, death,
disability or otherwise. Similarly, restricted stock granted under the 1996
Plan which has not vested generally will be subject to repurchase by the
Company in the event of the grantee's termination of employment or
consultancy, although the Committee may make exceptions, based on the reason
for termination or on other factors.
No option, SAR or other Award granted under the 1996 Plan may be sold,
pledged, assigned or transferred in any manner other than by will or the laws
of descent and distribution, unless and until such rights or awards have been
exercised, or the shares underlying such rights or awards have been issued,
and all restrictions applicable to such shares have lapsed. During the
lifetime of the holder of any option or right, the option or right may be
exercised only by the holder.
As a condition to the issuance or delivery of stock or payment of other
compensation pursuant to the exercise or lapse of restrictions of any option
or other Award granted under the 1996 Plan, the Company requires participants
to discharge applicable withholding tax obligations. Shares held by or to be
issued to a participant may also be used to discharge tax withholding
obligations related to exercise of options or receipt of other Awards, subject
to the discretion of the Committee to disapprove such use. In addition, the
Committee may grant to employees a cash bonus in the amount of any tax related
to Awards.
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SECURITIES LAWS
The 1996 Plan is intended to conform to the extent necessary with all
provisions of the Securities Act of 1933, as amended, and the 1934 Act, and
any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. The 1996 Plan
will be administered, and options will be granted and may be exercised, only
in such a manner as to conform to such laws, rules and regulations. To the
extent permitted by applicable law, the 1996 Plan and options granted
thereunder shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The tax consequences of the 1996 Plan under current federal law are
summarized in the following discussion which deals with the general tax
principles applicable to the 1996 Plan, and is intended for general
information only. In addition, the tax consequences described below are
subject to the limitation of Section 162(m) of the Code ("Section 162(m)"), as
discussed in further detail below. Alternative minimum tax and state and local
income taxes are not discussed. Tax laws are complex and subject to change and
may vary depending on individual circumstances and from locality to locality.
The tax information summarized is not tax advice.
Nonqualified Stock Options. For federal income tax purposes, an optionee
generally will not recognize taxable income on the grant of an NQSO under the
1996 Plan, but will recognize ordinary income, and the Company generally will
be entitled to a deduction, upon the exercise of an NQSO. The amount of income
recognized (and the amount generally deductible by the Company) generally will
be equal to the excess, if any, of the fair market value of the shares at the
time of exercise over the aggregate exercise price paid for the shares,
regardless of whether the exercise price is paid in cash or in shares or other
property. An optionee's basis for the stock for purposes of determining his or
her gain or loss upon a subsequent disposition of the shares generally will be
the fair market value of the stock on the date of exercise of the NQSO, and
any subsequent gain or loss will generally be taxable as capital gain or loss.
Incentive Stock Options. An optionee generally will not recognize taxable
income upon either the grant or exercise of an ISO; however, the amount by
which the fair market value of the shares at the time of exercise exceeds the
exercise price will be an "item of tax preference" for the optionee.
Generally, upon the sale or other taxable disposition of the shares of Common
Stock acquired upon exercise of an ISO, the optionee will recognize income
taxable as capital gains in an amount equal to the excess, if any, of the
amount realized in such disposition over the option exercise price, provided
that no disposition of the shares has taken place within either (a) two years
from the date of grant of the ISO or (b) one year from the date of exercise.
If the shares of Common Stock are sold or otherwise disposed of before the end
of the one-year and two-year periods specified above, the difference between
the ISO exercise price and the fair market value of the shares on the date of
exercise generally will be taxable as ordinary income; the balance of the
amount realized from such disposition, if any, generally will be taxed as
capital gain. If the shares of Common Stock are disposed of before the
expiration of the one-year and two-year periods and the amount realized is
less than the fair market value of the shares at the date of exercise, the
optionee's ordinary income generally is limited to excess, if any, of the
amount realized in such disposition over the option exercise price paid. The
Company (or other employer corporation) generally will be entitled to a tax
deduction with respect to an ISO only to the extent the optionee has ordinary
income upon sale or other disposition of the shares of Common Stock.
Stock Appreciation Rights. No taxable income is generally recognized upon
the receipt of an SAR, but upon exercise of the SAR the fair market value of
the shares (or cash in lieu of shares) received generally will be taxable as
ordinary income to the recipient in the year of such exercise. The Company
generally will be entitled to a compensation deduction for the same amount
which the recipient recognizes as ordinary income.
Restricted Stock and Deferred Stock. An employee to whom restricted or
deferred stock is issued generally will not recognize taxable income upon such
issuance and the Company generally will not then be entitled to a
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deduction, unless, in the case of restricted stock, an election is made under
Section 83(b) of the Code. However, when restrictions on shares of restricted
stock lapse, such that the shares are no longer subject to a substantial risk
of forfeiture, the employee generally will recognize ordinary income and the
Company generally will be entitled to a deduction for an amount equal to the
excess of the fair market value of the shares at the date such restrictions
lapse over the purchase price therefor. Similarly, when deferred stock vests
and is issued to the employee, the employee generally will recognize ordinary
income and the Company generally will be entitled to a deduction for the
amount equal to the fair market value of the shares at the date of issuance.
If an election is made under Section 83(b) of the Code with respect to
qualifying restricted stock, the employee generally will recognize ordinary
income at the date of issuance equal to the excess, if any, of the fair market
value of the shares at that date over the purchase price therefor and the
Company will be entitled to a deduction for the same amount. The Code does not
permit a Section 83(b) election to be made with respect to deferred stock.
Dividend Equivalents. A recipient of a dividend equivalent award generally
will not recognize taxable income at the time of grant, and the Company will
not be entitled to a deduction at that time. When a dividend equivalent is
paid, the participant generally will recognize ordinary income, and the
Company will be entitled to a corresponding deduction.
Performance Awards. A participant who has been granted a performance award
generally will not recognize taxable income at the time of grant, and the
Company will not be entitled to a deduction at that time. When an award is
paid, whether in cash or Common Stock, the participant generally will
recognize ordinary income, and the Company will be entitled to a corresponding
deduction.
Stock Payments. A participant who receives a stock payment in lieu of a cash
payment that would otherwise have been made will generally be taxed as if the
cash payment has been received, and the Company generally will be entitled to
a deduction for the same amount.
Deferred Compensation. Participants who defer compensation generally will
recognize no income, gain or loss for federal income tax purposes when NQSOs
are granted in lieu of amounts otherwise payable, and the Company will not be
entitled to a deduction at that time. When and to the extent such NQSOs are
exercised, the rules regarding NQSOs outlined above will generally apply.
Section 162(m) Limitation. In general, under Section 162(m), income tax
deductions of publicly-held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises and
non-qualified benefits paid) for certain executive officers exceeds $1,000,000
(less the amount of any "excess parachute payments" as defined in Section 280G
of the Code) in any one year. However, under Section 162(m), the deduction
limit does not apply to certain "performance-based compensation" established
by an independent compensation committee which is adequately disclosed to, and
approved by, stockholders. In particular, stock options and SARs will satisfy
the "performance-based compensation" exception if the awards are made by a
qualifying compensation committee, the plan sets the maximum number of shares
that can be granted to any person within a specified period and the
compensation is based solely on an increase in the stock price after the grant
date (i.e., the option exercise price is equal to or greater than the fair
market value of the stock subject to the award on the grant date). Rights or
awards granted under the 1996 Plan, other than options and SARs, will not
qualify as "qualified performance-based compensation" for purposes of Section
162(m) unless such rights or awards are granted or vest upon preestablished
objective performance goals, the material terms of which are disclosed to and
approved by the stockholders of the Company. Thus, the Company expects that
such other rights or awards under the 1996 Plan will not constitute "qualified
performance-based compensation" for purposes of Section 162(m).
The Company has attempted to structure the 1996 Plan in such a manner that
the remuneration attributable to stock options and SARs granted thereunder
will not be subject to the $1,000,000 limitation. The Company has not,
however, requested a ruling from the IRS or an opinion of counsel regarding
this issue. This discussion will neither bind the IRS, nor preclude the IRS
from adopting a contrary position.
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REQUIRED VOTE
The affirmative vote of a majority of the shares of Common Stock represented
at the Annual Meeting is required to approve the 1996 Plan Amendment.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE 1996 PLAN
AMENDMENT.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS (PROXY ITEM 6)
The Board has, based on the recommendation of the Audit Committee appointed
Ernst & Young LLP, certified public accountants, as independent auditors for
the Company for 1998. The Company's stockholders are being asked to ratify
this selection at the Annual Meeting. Ernst & Young has served as the
independent auditors for the Company since 1992. Neither Ernst & Young, nor
any of its members, has any relationship with the Company or any of its
affiliates, except in the capacity as the Company's independent auditors. This
selection is being submitted for ratification at the Annual Meeting. If not
ratified, the selection will be reconsidered by the Board, although the Board
will not be required to select different independent auditors for the Company.
A representative from Ernst & Young will be present at the Annual Meeting.
He will have an opportunity to make a statement if he so desires, and will be
available to respond to appropriate questions.
REQUIRED VOTE
The affirmative vote of a majority of the shares of Common Stock represented
at the Annual Meeting is required to ratify the Board's appointment of Ernst &
Young as independent auditors for the Company.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF SUCH
APPOINTMENT.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
FOR 1999 ANNUAL MEETING
Any stockholder intending to submit to the Company a proposal for inclusion
in the Company's proxy materials relating to the annual meeting to be held in
1999, must submit such proposal so it is received by the Company no later than
November 27, 1998.
33
<PAGE>
ANNUAL REPORT
The Annual Report to Stockholders covering the Company's fiscal year ended
December 31, 1997 is being mailed to stockholders of record at the same time
this Proxy Statement is being mailed.
The Company will provide without charge to each person who is a beneficial
owner of Common Stock, on written request of such person, a copy of the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission (not including exhibits). Written requests for such copies should
be addressed to Investor Relations, Rental Service Corporation, 6929 East
Greenway Parkway, Suite 200, Scottsdale, Arizona 85254.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
/s/ Robert M. Wilson
Robert M. Wilson
Secretary
Scottsdale, Arizona
March , 1998
34
<PAGE>
ANNEX A
RENTAL SERVICE CORPORATION--MANAGEMENT INCENTIVE COMPENSATION PLAN
1. PURPOSE AND DESIGN.
This Management Incentive Compensation Plan (the "Incentive Plan") is
intended to provide an incentive for superior work and to motivate eligible
employees of Rental Service Corporation ("RSC," and together with its
subsidiaries, the "Company") and its subsidiaries 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 employees. The Incentive Plan is for the benefit of
Incentive Plan Eligible Employees (as defined below). The Incentive Plan is
designed to ensure the bonuses paid hereunder to Incentive Plan Eligible
Employees are deductible without limit under Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the regulations and interpretations
promulgated thereunder (the "Code").
2. ELIGIBLE EMPLOYEES.
The Bonus Committee (as described below) shall select certain key employees
who are or may be "covered employees" (as defined in Section 162(m)(3) of the
Code) (the "Incentive Plan Eligible Employees") to be eligible to receive
bonuses hereunder.
3. THE COMMITTEE.
The "Bonus Committee" shall consist of at least two members of the Board of
Directors of RSC who shall qualify as "outside directors" under Code Section
162(m). The committee shall have the sole discretion and authority to
administer and interpret such portion of the Incentive Plan.
4. BONUSES.
An Incentive Plan Eligible Employee may receive a bonus payment hereunder
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 Employee,
to store-level or regional operations: pre-tax income, operating income, cash
flow, EBITDA, earnings per share, return on equity, return on invested capital
or assets, cost reductions and savings, return on revenues, collection of
accounts receivable or productivity.
Any bonuses paid to Incentive Plan Eligible Employees shall be based upon
bonus formulas that tie such bonuses to one or more objective performance
standards. Bonus formulas for Incentive Plan Eligible Employees shall be
adopted in each performance period by the Bonus Committee no later than the
latest time permitted by Code Section 162(m). No bonuses shall be paid to
Incentive Plan Eligible 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). Although the Bonus
Committee may in its sole discretion reduce a bonus payable to an Incentive
Plan Eligible Employee, the Bonus Committee shall have no discretion to
increase the amount of an Incentive Plan Eligible Employee's bonus.
The maximum bonus payable to an Incentive Plan Eligible Employee shall not
exceed $1,000,000 with respect to any fiscal year of the Company.
The payment of a bonus to an Incentive Plan Eligible Employee with respect
to a performance period shall be conditioned upon the Incentive Plan Eligible
Employee's employment by the Company on the last day of the performance
period, provided, however, that the Bonus Committee may make exceptions to
this requirement, in its sole discretion, in the case of an Incentive Plan
Eligible Employee's retirement, death or disability.
A-1
<PAGE>
5. AMENDMENT AND TERMINATION.
RSC reserves the right to amend or terminate this Incentive Plan at any time
in its sole discretion. Any amendments to the Incentive Plan shall require
stockholder approval only to the extent required by Code Section 162(m).
6. STOCKHOLDER APPROVAL.
No bonuses shall be paid under this Incentive Plan to Incentive Plan
Eligible Employees unless and until the Company stockholders shall have
approved this Incentive Plan as required by Section 162(m) of the Code.
A-2
<PAGE>
PROXY
RENTAL SERVICE CORPORATION
ANNUAL MEETING OF STOCKHOLDERS APRIL 29, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Rental Service Corporation does hereby
nominate, constitute and appoint , the true and lawful
proxies, agents and attorneys of the undersigned, with full power of
substitution, to vote for the undersigned all of the common stock of said
corporation in the name of the undersigned on its books at the close of
business on March 16, 1998 at the Annual Meeting of Stockholders to be held at
the Phoenecian Hotel, 6000 East Camelback Road, Scottsdale, Arizona 85251 at
10:00 a.m. on April 29, 1998, or at any adjournment thereof, with all of the
power which would be possessed by the undersigned if personally present as
follows:
IF NO CONTRARY INSTRUCTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF MANAGEMENT'S EIGHT NOMINEES AS DIRECTORS, FOR APPROVAL OF THE
CHARTER AMENDMENT, FOR APPROVAL OF THE ADOPTION OF THE INCENTIVE PLAN, FOR
APPROVAL OF THE AMENDMENT TO THE Q.S.P. PLAN, FOR APPROVAL OF THE AMENDMENT TO
THE 1996 PLAN AND FOR RATIFICATION OF MANAGEMENT'S SELECTION OF INDEPENDENT
AUDITORS.
(See reverse side)
<PAGE>
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Please mark
[X] your votes
as in this
example
WITHHELD
FOR
INDIVIDUALS
WRITTEN
FOR WITHHELD BELOW
1. Election of Directors [_] [_] [_]
Martin R. Reid, William M. Barnum, Jr.,
James R. Buch, David P. Lanoha,
Christopher A. Laurence, Eric L. Mattson,
Britton H. Murdoch, John M. Sullivan
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
2. Approval of the Charter Amendment to provide FOR AGAINST ABSTAIN
for a classified Board of Directors. [_] [_] [_]
3. Approval of the adoption of the Management FOR AGAINST ABSTAIN
Incentive Compensation Bonus Plan. [_] [_] [_]
4. Approval of the adoption of the amendment FOR AGAINST ABSTAIN
to the Q.S.P. Plan to shorten the eligibility [_] [_] [_]
period to six months.
5. Approval of the amendment to the 1996 Plan to FOR AGAINST ABSTAIN
increase to 2,000,000 the number of shares of [_] [_] [_]
Common Stock available under the 1996 Plan.
6. Ratification of the selection of Ernst & Young FOR AGAINST ABSTAIN
LLP as the Company's independent auditors. [_] [_] [_]
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders dated March , 1998 and the Proxy Statement of the same date
furnished therewith.
___________________ ___________________
Signature(s) Date
___________________
Note: Please sign name exactly as your name (or names) appear on the stock
certificate. When signing as attorney, executor, administrator trustee or
guardian please give full title. If more than one trustee, all should sign.
All joint owners must sign.
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FOLD AND DETACH HERE
