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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-21237
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RENTAL SERVICE CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 33-0569350
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6929 E. Greenway Pkwy.,
Suite 200, Scottsdale, Arizona 85254
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (602) 905-3300
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Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, $.01 par value New York Stock Exchange
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9% Senior Subordinated Notes due 2008 New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting common stock held by non-
affiliates of the registrant was $513.7 million, based on the last reported
sales price on the New York Stock Exchange on February 26, 1999.
The number of outstanding shares of the registrant's common stock as of
February 26, 1999 was 24,123,392.
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RENTAL SERVICE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
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PART I
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ITEM 1. Business................................................................................ 1
ITEM 2. Properties.............................................................................. 12
ITEM 3. Legal Proceedings....................................................................... 12
ITEM 4. Submission of Matters to a Vote of Security Holders..................................... 12
PART II
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ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 13
ITEM 6. Selected Financial Data................................................................ 14
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 15
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk............................. 22
ITEM 8. Financial Statements and Supplementary Data............................................ 22
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure... 22
PART III
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ITEM 10. Directors and Executive Officers of the Registrant..................................... 23
ITEM 11. Executive Compensation................................................................. 27
ITEM 12. Security Ownership of Certain Beneficial Owners and Management......................... 33
ITEM 13. Certain Relationships and Related Transactions......................................... 34
PART IV
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ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 37
Signatures........................................................................................... 41
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PART I
ITEM 1. Business
Certain information contained in Item 1 and elsewhere in this Form 10-K,
including information with respect to the plans and strategies for our business,
especially our growth strategy, plans to raise additional capital and
prospective acquisitions, are forward-looking statements. Readers should
carefully consider the factors set forth under the caption "Business Risks" on
pages 9 to 12 for a discussion of important factors that could cause actual
results to differ materially from results referred to in the forward-looking
statements. Unless otherwise indicated, all information contained in Part I to
this Form 10-K is as of February 26, 1999.
Who We Are
Rental Service Corporation ("RSC") is a leader in the rapidly-growing
equipment rental industry. We serve the needs of a wide variety of industrial,
manufacturing, construction, government and homeowner markets through a network
of 245 rental locations in 27 states and Canada. We rent a broad selection of
equipment ranging from small items such as pumps, generators, welders and
electric hand tools to larger equipment such as backhoes, forklifts, air
compressors, scissor lifts, booms, aerial manlifts and skid-steer loaders. We
also sell maintenance, repair and operations supplies, small tools, contractor
supplies, parts and used rental equipment, and act as a distributor for new
equipment on behalf of certain national equipment manufacturers.
Since our formation in 1992, we have pursued an aggressive expansion strategy.
We have acquired 69 equipment rental businesses comprised of 204 total locations
and have opened 70 start-up locations. With a focus on operating rental
locations in underserved small- to medium-sized markets, we intend to continue
to expand our presence in existing markets and to capitalize on opportunities to
enter new geographic markets through a combination of acquisitions and start-up
locations. We also seek to increase revenues and profitability across our
locations through fleet expansion, improved asset utilization and targeted
marketing efforts. We believe we are well-positioned to capitalize on the
substantial consolidation opportunities in the equipment rental industry, and to
take advantage of the growing demand for rental equipment as businesses
increasingly outsource non-core operations.
In keeping with our growth strategy, we have recently signed a merger
agreement with NationsRent, Inc. (See "Recent Developments" on page 8). We
believe this merger will create a more competitive, national equipment rental
company than we could be individually, with a diversified national customer base
and synergistic overlap in key geographic regions. We also believe the
combination of RSC's and NationsRent's financial resources, management and
equipment will produce a stronger company able to capitalize on growth
opportunities and to better serve its expanding customer base.
Industry Overview
We believe the equipment rental industry benefits from the trend among
businesses to outsource non-core operations in order to reduce capital
investment and minimize the downtime, maintenance, repair and storage associated
with equipment ownership. Customers have traditionally rented equipment for
specific purposes such as supplementing capacity during peak periods and using
equipment in connection with special projects. Today, customers are increasingly
looking to rental operators to provide an ongoing comprehensive supply of
equipment enabling them to benefit from the economic advantages and convenience
of renting. Many of the businesses that rent equipment also purchase
complementary tools and supplies from distributors. We believe those customers
are interested in a one-stop solution consisting of both rental equipment and
ancillary parts and supplies.
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We believe the equipment rental industry offers substantial consolidation
opportunities for large, well capitalized companies such as ourselves. The
equipment rental industry is highly fragmented, primarily consisting of
relatively small entities serving discrete local market areas and a number of
multi-location regional or national firms. This fragmentation is demonstrated by
the following statistics derived from the Rental Equipment Register for 1997:
. The largest 100 equipment rental companies had total rental revenues of
approximately $4.2 billion, which accounts for only 20% of the
management-estimated $21 billion in industry rental revenues;
. no one company had a market share greater than 5%;
. the industry had approximately 17,000 participants; and
. there were only ten equipment rental companies having rental revenues in
excess of $100 million.
Traditionally, large equipment rental companies have focused their operations
on serving relatively large customers, primarily in medium to large metropolitan
markets, while generally serving smaller markets through delivery from distant
major markets without establishing a local presence. In smaller markets, the
primary source of rental equipment has traditionally been smaller, local
equipment rental businesses and equipment dealers with product offerings
typically limited in both depth and breadth.
Our Business Strategy
Our goal is to increase revenues and profitability by taking advantage of our
strong market position and by pursuing a business strategy including the
following key elements:
Small- to Medium-Sized Market Focus. We focus on operating rental locations in
underserved small- to medium-sized rental markets where we can capitalize on our
competitive advantages relative to the small, local equipment rental businesses
and equipment dealers who have traditionally served these markets. In addition,
we believe small- to medium-sized markets provide an extensive selection of
acquisition candidates and attractive start-up locations. We believe future
acquisitions and start-up locations will provide opportunities to achieve
greater geographic and customer diversification. Through our geographic
diversification, we believe we can more effectively manage economic fluctuations
than single-location businesses by transferring equipment to regions with higher
demand.
Cluster Strategy. Under our cluster strategy, we establish a comprehensive
pool of rental equipment at a central, readily-accessible "hub" location. We
surround the hub with smaller "satellite" locations 30 to 150 miles away. The
satellite locations draw on this centralized equipment pool to serve local
customers' needs. The hub locations also provide full-service rental fleet
maintenance and repair operations for the satellite locations. We believe this
strategy increases fleet utilization and allows us to bring the benefits of a
large, high-quality and diversified rental fleet to markets with populations as
small as 10,000 where a full-scale rental facility might not be justified.
Advanced Information Systems. We have made substantial investments in our
management information systems in order to improve asset utilization and
financial performance. Every rental location has on-line access to a centralized
computer system providing real-time transaction processing, extensive fleet
management tools and financial management reports. Use of these systems allows
us to improve our asset utilization by deploying assets to locations generating
higher returns and identifying under-performing assets for disposition. These
systems also allow an employee at any location to identify and reserve a
specific piece of equipment anywhere in a region, and schedule delivery
(generally within 24 hours) to a customer's job site.
Decentralized Management. Under our decentralized management structure, our
region vice presidents and district managers, who currently average over 20
years of rental industry experience, are responsible for management, customer
service, marketing strategies and business development in their regions. Each
region vice president and district manager is compensated through a stock option
program and cash bonus plan tied directly to the region's performance. A
corporate staff at our headquarters focuses on corporate planning, financial
reporting and analysis and overseeing the execution of our growth strategy. We
have also centralized our equipment purchasing and disposal functions in order
to maximize purchase discounts and sales prices for used rental equipment.
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Superior Customer Service. We believe we differentiate ourselves from many of
our competitors by providing responsive customer service, a broad selection of
high-quality rental equipment and "one-stop shopping" for a wide range of parts,
supplies, tools and equipment. Depending upon market needs, we also offer value-
added services to our customers such as a radio-dispatched transportation fleet
and 24 hours-a-day, seven days-a-week support services, including on-site
maintenance and repair. We believe our rapid response time in delivering,
servicing or replacing equipment at job sites generates customer loyalty. A
cornerstone to our customer service commitment is our extensive training system,
Rental Service University ("RSU"), which provides formal training to our
employees in the areas of customer service, strategy, finance, information
systems, fleet management, safety and risk management and human resources.
Our Growth Strategy
Our growth strategy is to continue to expand our presence in existing markets
and to capitalize on opportunities to enter new geographic markets through a
combination of acquisitions and start-up locations. We are systematic in our
selection of new markets for expansion and, together with Arthur D. Little,
Inc., have developed a proprietary model to guide future expansion efforts by
identifying and ranking desirable locations based on more than 25 demographic
characteristics found in our most successful geographic markets. We also seek to
increase revenues through fleet expansion, improved asset utilization and
targeted marketing efforts. We have also been increasing revenues across
existing locations by cross-selling both equipment rental services and ancillary
tools and supplies to our customers.
Acquisitions. Our acquisition efforts focus on acquiring stable, respected
businesses in markets we believe offer opportunities for additional growth. We
primarily target acquisitions of businesses in small- to medium-sized markets
where an existing owner has limited resources to expand or the owner's decision
to sell coincides with the decision to retire. We believe we can capitalize on
our competitive advantages relative to the small, local equipment rental
businesses and equipment dealers who have traditionally served these markets.
Immediately after completing an acquisition, we generally integrate the
operations of the acquired business into our management information systems,
consolidate our equipment purchasing and disposal functions and centralize our
fleet management. All of this is done while seeking to provide consistent, high-
quality service to the acquired business' customers. We have a proven track
record in completing and integrating acquisitions. Proprietors of smaller
businesses often place significant emphasis on our reputation in these areas. We
believe this reputation provides us access to additional acquisition
opportunities. Since our formation, we have acquired 69 businesses consisting of
204 total locations.
Start-Up Locations. We also enter targeted markets through the opening of
start-up locations where there is no quality business available for acquisition,
or where an attractive business cannot be acquired on terms acceptable to us.
Our decision to open a start-up location is based upon our review of demographic
information, business growth projections and the level of existing competition.
We enhance the flexibility of start-up locations by entering into real estate
leases with short initial terms and multiple option periods. In addition, we
typically minimize capital expenditures at a start-up location by redeploying
and sharing equipment with an existing hub. If a start-up location does not meet
expectations, we can easily redeploy the equipment to another location. Since we
opened our first start-up location in October 1994, we have opened 69 additional
start-up locations.
Internal Growth. We focus on achieving internal growth through an emphasis on
disciplined fleet expansion, improved asset utilization and targeted marketing
efforts. We intend to replace assets in, and increase the breadth and depth of,
our existing rental fleet through capital expenditures. In addition, our
information systems provide the data necessary to improve asset deployment based
upon such factors as price realization, time utilization and individual asset
return on investment. Through our national accounts marketing program, we target
large petrochemical, industrial and commercial customers. We offer these
customers in-plant maintenance services whereby we locate equipment at their
facility and assume complete responsibility for the maintenance of this
equipment. This program allows us to eliminate operating expenses such as
equipment transportation and delivery, and to improve asset utilization rates.
In addition, we continue to increase our supply business and our tool room
management and small tool trailer business through increased marketing efforts.
We have also created an industrial division, with a dedicated and specially
trained sales force focusing exclusively on industrial customers.
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Our Products
We believe we have one of the most comprehensive and well-maintained rental
fleets in the industry. We also sell parts, supplies and used rental equipment,
and act as a distributor for new equipment on behalf of certain national
equipment manufacturers.
Rental Equipment. We rent over 50 categories of equipment on a daily, weekly
or monthly basis. Our comprehensive rental fleet includes a broad selection of
equipment ranging from small items such as pumps, generators, welders, electric
hand tools and concrete finishing equipment to larger equipment such as air
compressors, dirt equipment, booms, aerial manlifts, forklifts, scissor lifts,
skid-steer loaders and backhoes. Each of our rental locations has access to a
product mix tailored to satisfy the needs and preferences of the local customer
base.
Sales of Parts, Supplies and Equipment. In addition to rental equipment, our
locations carry a wide range of parts and supplies. These include "convenience
consumables" used in conjunction with rental equipment, such as safety
equipment, diamond saw blades and sandpaper. The availability of these ancillary
products allows us to attract and retain customers by offering the convenience
of "one-stop shopping." We also offer our customers a one source catalog for a
variety of equipment, tools and supplies. In addition, we are a distributor for
new equipment on behalf of certain national equipment manufacturers, including:
. Black & Decker . Norton . Genie
. Sky-Jack . Honda . Sky Trak
. Ingersoll-Rand . Snorkel . JLG
. Stanley Proto . Lull . Terramite
. Multiquip . Wacker & Weldon Pumps
We also routinely sell used rental equipment in order to maintain an
economically competitive rental fleet and to adjust to fluctuations in the
demand for specific rental products. We have developed a proprietary algorithm
that is designed to determine the optimal timing for the sale and replacement of
equipment given, among other things, original purchase price, historical
maintenance expense, rental demand and prices in the used rental equipment
market. We are able to realize attractive prices on used equipment sales due to
our strong preventative maintenance program, our ability to use foreign, retail
and direct mail distribution channels to redirect disposals to markets where the
equipment is in highest demand, and our ability to negotiate attractive fee
arrangements with third-party auctioneers. In addition, we market our used
rental equipment via the Internet, and continually evaluate additional disposal
alternatives.
Our Fleet Management System
We believe our advanced information systems, combined with our cluster
strategy and ability to redeploy equipment among locations, allow us to better
manage our rental fleet and achieve higher equipment utilization rates than many
of our competitors. Under this strategy, an employee at any location can locate
a specific piece of equipment throughout the region, whether on rent (in which
case the estimated date available is provided), in transit, in the service bay
or ready for rent. Once identified, the equipment can be reserved for a customer
through the system and scheduled for delivery (generally within 24 hours) to the
job site or store location by our radio-dispatched transportation fleet. We are
able to further increase fleet utilization and moderate capital expenditures
through our "use-it-or-lose-it" policy. This policy assists us in deploying
equipment to areas where it can provide the highest return. Through our
information systems, we generate a monthly management report showing, for each
region, every rental asset having an unacceptable utilization rate for the most
recent 90-day period. Region managers have 30 days to correct the problem or the
asset may be redeployed to another region where demand exceeds supply, or sold,
depending on the age of the asset. Our information systems also track each
individual rental asset and automatically schedule preventative maintenance,
frequently in advance of that suggested by the manufacturer. As a result, we
believe we are able to enhance the reliability and extend the useful life of our
rental fleet, which allows us to obtain favorable prices when used rental
equipment is sold.
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Our Information Systems
Each rental location is networked with a commonly configured PC equipped with
electronic links to all other RSC locations and our central databases. We have
developed a comprehensive set of management information databases covering
financial performance, fleet utilization, sales and pricing. Our management can
access these databases 24 hours a day at all locations via the Internet to
analyze such items as:
. price trends by store, region, salesperson, end-user, equipment category
or customer;
. sales trends by store, customer, region or end-user;
. fleet utilization by individual asset or asset class;
. financial results; and
. performance of acquisitions and start-up locations.
All rental transactions are processed in real-time through our centralized
AS400 computer. This system can be accessed by an employee at the point of sale
to determine equipment availability. Local, regional and corporate management
can access this information to monitor current business activity, including
daily sales volume and fleet availability. We also have a proprietary tool
management software system that controls the issuance, return and management of
tools and equipment used by plant personnel and contractors. We believe the use
of advanced information technology will continue to create profit improvement
opportunities and improve our equipment utilization. We believe the Year 2000
will not be a material issue with respect to our information systems.
Our Customers
In 1998, we rented equipment to over 185,000 customers. No one customer
accounted for more than 1% of our total revenues. The top ten customers
represented less than 4% of our total revenues. We believe the loss of any one
customer would not have a material adverse effect on our business.
The composition of our customer base varies widely by location and is
determined by several factors, including the business composition of the local
economy. Our customer base consists of the following general categories:
. industrial including manufacturers, petrochemical facilities, large
chemical processing companies, paper mills and public utilities;
. construction including contractors;
. government; and
. homeowners.
We began operations outside of the United States in July 1998. During the
year ended December 31, 1998, we had total revenues of $2.3 million attributable
to our foreign operations, with pre-tax income of $0.5 million. Total assets of
our foreign operations were $15.2 million at December 31, 1998.
Our Sales and Marketing Strategy
We market our products and services through a field and store-based sales
force. This sales force attends RSU and other training in order to develop
extensive product knowledge and refine their customer service skills. The field-
based sales force calls regularly on contractors' job sites and industrial
facilities with the objective of building strong business relationships and
ensuring that customers' rental and supply needs are fulfilled. Our store-based
sales force handles telephone inquiries and assists customers at each rental
location to select the proper equipment and supplies to meet their needs. In
addition, through our national accounts program, we target large petrochemical,
industrial and commercial customers in order to develop national relationships
and increase awareness of our on-site industrial programs.
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We supplement our sales and marketing activities through participation in
industry trade shows and conferences. We also use direct mail marketing and
advertise in local industry publications and the yellow pages in the markets we
serve. In addition, we maintain a home page on the Internet
(http://www.rentalservice.com) describing our products and services, geographic
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locations and used rental equipment for sale.
Our Locations
We currently operate 245 rental locations in 27 states and one Canadian
province. We are also party to non-binding letters of intent to acquire six
equipment rental businesses with a combined eight locations in Canada (2),
Illinois (4), Iowa (1) and Kansas (1) for an aggregate purchase price of $12.6
million in cash (including the payoff of assumed debt). Each of these
acquisitions is subject to a number of closing conditions, including the
execution of definitive purchase agreements, the completion of due diligence
investigations and Board of Directors approval. In view of the fact that these
letters of intent are non-binding and we have not completed our due diligence
investigations, we cannot predict whether these letters of intent will lead to
definitive agreements, whether the terms of any definitive agreements will be
the same as the terms contemplated by the letters of intent or whether any of
these transactions will be consummated.
Our Competition
The equipment rental industry is highly fragmented and competitive. Our
competitors include:
. large national rental companies;
. regional competitors that operate in a few states;
. small, independent businesses with one or two rental locations;
. equipment manufacturers;
. equipment vendors and dealers who both sell and rent equipment directly
to customers; and
. parts and supplies distributors, including both large companies and
regional and independent competitors.
Some of our competitors have greater financial resources, are more
geographically diverse and have greater name recognition than us. We may
encounter increased competition from existing competitors or new market
entrants, such as equipment manufacturers, that may be significantly larger and
have greater financial and marketing resources than us. In addition, to the
extent existing or future competitors seek to gain or retain market share by
reducing prices, we may be required to lower our prices, thereby impacting our
operating results.
Existing or future competitors may also seek to compete with us for
acquisition candidates. This could have the effect of increasing the price for
acquisitions or reducing the number of suitable acquisition candidates. We
believe this competition has already increased the prices paid for businesses
acquired by us and our competitors. In addition, these competitors may also
compete with us for start-up locations, thereby limiting the number of
attractive locations for expansion. Competition in the rental or parts and
supplies sales business, and competition in making acquisitions, could have a
material adverse effect on us and the market price of our common stock.
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The equipment rental business is highly service-oriented. The success of an
individual rental operator is predicated on its customer handling and problem
solving abilities; the quality, condition and servicing of its equipment; and
the overall operation of its business. Other components of competition include
location, availability of equipment (both depth and breadth) and price. We
believe we compete in the markets we serve primarily on the basis of responsive
customer service, a broad selection of high-quality rental equipment and
supplies and competitive prices. Relative to smaller companies with only one or
two rental locations, we believe we benefit from several competitive advantages,
including:
. a comprehensive, modern and well maintained rental fleet;
. the ability to transfer equipment among rental locations to satisfy
customer demand;
. sophisticated management information systems;
. professional and experienced management;
. a diverse customer base and geographic locations;
. the ability to service national accounts;
. volume purchasing discounts; and
. national brand identity.
In addition, we believe national operators are less sensitive to localized
cyclical downturns and can justify significant investments in professional
management and information systems.
Government and Environmental Regulation
Our operations are subject to federal, state and local laws and regulations
governing, among other things, occupational health and safety and environmental
protection. Under these laws, an owner or lessee of real estate may be liable
for the costs of removal or remediation of hazardous substances located on such
property. These laws often impose liability without regard to whether the owner
or lessee knew of, or was responsible for, the presence of the hazardous
substances.
In connection with our acquisitions and start-up locations, we obtain Phase I
environmental assessment reports prepared by independent environmental
consultants. A Phase I assessment consists of a site visit, historical record
review, interviews and a report. A Phase I assessment is conducted for the
purpose of identifying potential environmental conditions associated with the
subject real estate. There can be no assurance, however, that acquired or leased
locations have been operated in compliance with environmental laws and
regulations or that future uses or conditions will not result in the imposition
of environmental liability upon us.
We dispense petroleum products from underground and above-ground storage tanks
located at certain of our rental locations. We maintain an environmental
compliance program that includes the implementation of required technical and
operational activities designed to minimize the potential for leaks and spills,
maintenance of records and the regular testing and monitoring of tank systems
for tightness. There can be no assurance, however, that these tank systems have
been or will at all times remain free from leaks or that the use of these tanks
has not or will not result in spills or other releases. We incur ongoing
expenses associated with the removal of older underground storage tanks and
other activities to come into compliance with environmental laws, and the
performance of appropriate remediation. We do not believe this removal and
remediation will have a material adverse effect on our operating results or
financial position.
We use hazardous materials such as solvents to clean and maintain our rental
fleet. We also generate and dispose of waste such as used motor oil, radiator
fluid and solvents, and we may be liable under federal, state and local laws for
environmental contamination at facilities where our waste is or has been
disposed. We believe we currently conduct our operations in material compliance
with all applicable laws and regulations. Our compliance with applicable
environmental laws has not had a material adverse effect on our business,
financial condition or results of operations to date.
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Trade Names
We currently do business under the name Rental Service Corporation. We believe
this brand name identity enables us to more effectively target national
accounts. In certain local markets, we also selectively continue to use the name
of an acquired business where there is strong local name recognition and
customer loyalty.
Our Employees
We currently have approximately 3,550 employees. Our employees generally are
not represented by a union or a collective bargaining agreement; however,
approximately 110 employees are represented by a union. We consider our labor
relations to be good.
Recent Developments
Merger with NationsRent
On January 20, 1999, we entered into an Agreement and Plan of Merger with
NationsRent, Inc., a Delaware corporation. The merger agreement provides,
subject to the terms and conditions set forth therein, for NationsRent to be
merged with and into RSC. Following the merger, NationsRent's subsidiaries will
become wholly owned subsidiaries of RSC. At the effective time of the merger,
(i) each outstanding share of NationsRent common stock will be converted into
0.355 of a share of RSC's common stock (the "Exchange Ratio") and (ii) all
outstanding options to purchase shares of NationsRent common stock will be
assumed by us and converted into options to purchase RSC common stock subject to
adjustment for the Exchange Ratio. The merger is expected to be accounted for as
a pooling of interests. The merger, which is subject to stockholder approvals
and other customary conditions, is expected to close during the second quarter
of 1999.
The Exchange Ratio is a fixed number and will not be adjusted in the event of
any increase or decrease in the price of either NationsRent's or RSC's common
stock. As a result, the value of the shares of RSC common stock issued in
connection with the merger could vary depending on fluctuations in the value of
RSC's or NationsRent's common stock. These fluctuations may be the result of
changes in the business or operations of RSC or NationsRent, market assessments
of the likelihood that the merger will be consummated, the timing of the merger,
regulatory considerations, general market and economic conditions and other
factors.
The merger also involves the integration of two companies that have previously
operated independently. We cannot assure that we will be able to combine
NationsRent's operations with ours without encountering difficulties. These
difficulties could include different operating practices or computer or other
information systems, or integrating personnel with different business
backgrounds and corporate cultures. We expect the merger to result in
significant operating efficiencies and to achieve pre-tax cost savings of
approximately $15 million in the first twelve months of combined operations.
However, we cannot assure you whether, and to what extent, the integration and
consolidation will achieve these cost savings and operating efficiencies.
Other Acquisitions and Start-ups
Subsequent to December 31, 1998, we have completed one acquisition of an
equipment rental business with two locations in North Carolina for a purchase
price of $3.3 million in cash (including the payoff of assumed debt), 5,000
shares of common stock and the assumption of certain liabilities. Additionally,
we have opened two new start-up locations in Illinois and Iowa.
We are also party to non-binding letters of intent to acquire six equipment
rental businesses for an aggregate purchase price of $12.6 million in cash
(including the payoff of assumed debt). These businesses have a combined eight
locations in Canada (2), Illinois (4), Iowa (1) and Kansas (1). Each of these
acquisitions is subject to a number of closing conditions, including the
execution of definitive purchase agreements, the completion of due diligence
investigations and Board of Directors approval.
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Business Risks
The following factors should be considered in addition to the other
information contained in this report when evaluating our business and us.
There are risks related to our growth strategy. A principal component of our
growth strategy is to expand through additional acquisitions and start-up
locations. Our future growth will depend on a number of factors, including our
ability to:
. identify acceptable acquisition candidates and suitable start-up
locations;
. complete acquisitions and obtain sites for start-up locations on
favorable terms;
. promptly and successfully integrate acquired businesses and start-up
locations with our existing operations;
. expand our customer base; and
. obtain financing to support our expansion.
We cannot assure you we will successfully expand or that any expansion will
result in profitability. The failure to effectively identify, evaluate and
integrate acquired businesses and start-up locations could adversely affect our
growth prospects. We expect our growth strategy will affect short-term cash flow
and net income as we increase our indebtedness and incur expenses to open new
locations, make acquisitions and expand our rental fleet. As a result, revenue
and operating results may fluctuate. We also cannot assure success in entering
new geographic markets, which may have different competitive conditions,
seasonality and demographic characteristics than our current markets.
As we expand through acquisitions and start-up locations, we expect to
increase the number of our employees, the scope of our operating and financial
systems and the geographic area of our operations. This growth will increase the
complexity of our operations and the level of responsibility for our management
personnel. We may not be able to attract and retain qualified management and
employees and our current operating and financial systems and controls may not
be adequate to support our expected growth.
Our future growth depends on obtaining additional capital. We expect that our
future indebtedness will contain restrictive debt covenants. Our ability to
remain competitive, sustain our growth and expand our operations through new
locations and acquisitions largely depends on our access to capital. We must
make ongoing capital expenditures to maintain the condition of our rental fleet
in order to remain competitive and provide our customers with high-quality
equipment. Historically, we have financed capital expenditures, acquisitions and
start-up locations primarily through the issuance of equity securities, secured
bank borrowings, the issuance of senior subordinated notes and internally
generated cash flow. To implement our growth strategy and meet our capital
needs, we plan to issue additional equity securities and incur additional
indebtedness in the future. This additional indebtedness would increase our
leverage, may make us more vulnerable to economic downturns and may limit our
ability to withstand competitive pressures. We cannot assure you that additional
capital, if and when required, will be available on acceptable terms, or at all.
If we cannot obtain sufficient additional capital in the future, we will have to
curtail growth or delay capital expenditures, which would have a material
adverse effect on our results of operations and the market price of our common
stock.
Our bank credit facility contains a number of covenants that restrict our
ability to dispose of assets or merge, incur debt, pay dividends, create liens,
make capital expenditures and make certain investments or acquisitions and
otherwise restrict corporate activities. This credit facility also contains
requirements that we maintain specified financial ratios, including maximum
total debt to EBITDA levels and minimum interest coverage amounts. Our ability
to finance future acquisitions, start-ups and internal growth is also limited by
the covenants contained in the indenture governing our senior subordinated
notes.
As a result of these covenants, our ability to respond to changing business
and economic conditions and to secure additional financing may be significantly
restricted. We may be prevented from engaging in transactions, including
acquisitions, that might be considered important to our growth strategy or
otherwise beneficial to us. Any breach of these covenants could cause a default
that could cause a substantial portion of our debt, including accrued interest
and other fees, to become immediately due and payable. We are not certain
whether we would have, or would be able to obtain, sufficient funds to be able
to make these accelerated payments.
9
<PAGE>
We will continue to have substantial indebtedness. Our ability to generate
cash in order to service our indebtedness depends on many factors beyond our
control. Our leverage is significant in relation to our equity. The level of our
indebtedness could have important consequences to us, including the following:
. our ability to obtain any necessary financing in the future for capital
expenditures, working capital, debt service requirements, acquisitions or
other purposes may be limited;
. a substantial portion of our cash flow from operations must be dedicated
to the payment of principal of, and interest on, our indebtedness and
other obligations;
. our level of indebtedness could limit our flexibility in planning for, or
reacting to changes in, our business;
. we will be more highly leveraged than some of our competitors;
. our high degree of indebtedness will make us more vulnerable to a default
and the consequences (such as a bankruptcy or workout) in the event of a
downturn in our business; and
. a substantial portion of our indebtedness accrues interest at variable
rates, which makes us vulnerable to future fluctuations in interest
rates.
The equipment rental industry is highly competitive. Our competitors include
large national rental companies, equipment manufacturers, regional corporations,
smaller independent businesses and equipment vendors and dealers who both sell
and rent equipment to customers. Some of our competitors have greater financial
resources, are more geographically diverse and have greater name recognition
than us. We may encounter increased competition from existing competitors or new
market entrants, such as equipment manufacturers, that may be significantly
larger and have greater financial and marketing resources than us. Competitors
may compete not only for customers, but also for acquisition candidates and
start-up locations that could have the effect of increasing prices for
acquisitions and limiting available expansion locations.
Fluctuation in revenue and operating results is likely to continue. Our
revenues and operating results vary from quarter to quarter, and we expect them
to continue to fluctuate in the future due to:
. general econcomic conditions in our markets;
. adverse weather conditions;
. the timing and cost of acquisitions and start-up locations;
. the effectiveness of integrating acquired businesses and start-up
locations;
. the timing of fleet expansion capital expenditures;
. the realization of targeted equipment utilization rates;
. seasonal rental and purchasing patterns of our customers; and
. price changes in response to competitive factors.
In addition, persistence of any of these factors over an extended period could
materially affect our revenues and operating results over a longer period. We
will incur various costs in establishing or integrating newly acquired locations
or start-ups, and the profitability of a new location is generally expected to
be lower in the initial period of its operation.
We must comply with various safety and environmental regulations. Our
operations are subject to federal, state and local laws and regulations
governing occupational health and safety and environmental protection. Under
these laws, an owner or lessee of real estate may be liable for the costs of
removal or remediation of hazardous substances located on such property. These
laws often impose such liability without regard to whether the owner or lessee
knew of, or was responsible for, the presence of the hazardous substances. Some
of our existing and former locations use, and have used, such substances and
currently generate, or have generated or disposed of, wastes that are, or may be
considered, hazardous or otherwise are subject to applicable environmental
requirements. We use
10
<PAGE>
hazardous materials such as solvents to clean and maintain our rental fleet. We
also generate and dispose waste such as used motor oil, radiator fluid and
solvents, and we may be liable under various federal, state and local laws for
environmental contamination at facilities where waste is or has been disposed by
us. In addition, we dispense petroleum products from underground and above-
ground storage tanks located at certain rental locations that we own or lease.
We also incur ongoing expenses associated with the removal of older underground
storage tanks and other activities to come into compliance with environmental
laws, and the performance of appropriate remediation. We cannot assure you that
environmental and safety requirements will not become more stringent or be
interpreted and applied more stringently in the future, or that we will not
indemnify other parties for adverse environmental conditions currently known to
us. Any future changes or interpretations, or the indemnification for adverse
environmental conditions, could result in additional environmental compliance or
remediation costs not currently anticipated by us, which could have a material
adverse effect on our business, financial condition or results of operations.
There may be liabilities associated with acquisitions. There may be
liabilities that we fail or are unable to discover in the course of performing
due diligence investigations on each business we may have acquired or may
acquire in the future. These liabilities could include those arising from
employee benefits contribution obligations of a prior owner or non-compliance
with applicable federal, state or local environmental requirements by prior
owners for which a successor owner may be responsible. We try to minimize these
risks by conducting due diligence as we deem appropriate under the
circumstances. However, we cannot assure you that we have identified or, in the
case of future acquisitions, will identify, all existing or potential risks, or
that indemnification obtained from a seller, if any, will be collectible or
sufficient to fully offset the possible liabilities associated with the business
acquired. Any liabilities, individually or in the aggregate, could have a
material adverse effect on our business, financial condition or results of
operations.
Loss of executive officers or directors could adversely affect us. Our future
success depends to a significant extent on the contributions of executive
officers and directors. The loss of the services of key employees or directors,
or the inability to attract additional qualified personnel, could have an
adverse effect on our business.
Some of our liabilities may not be covered by insurance. Our business exposes
us to possible claims for personal injury or death resulting from the use of
equipment we rent or sell and from injuries caused in motor vehicle accidents in
which delivery or service personnel are involved. We carry comprehensive
insurance subject to a deductible. We cannot assure that existing or future
claims will not exceed the level of our insurance, or that such insurance will
continue to be available on economically reasonable terms, if at all.
Our international operations expose us to additional risks. We recently began
operating in Canada. We are also considering operations elsewhere outside of the
United States in the future. These operations are subject to risks normally
associated with international operations, including currency conversion risks,
slower and more difficult accounts receivable collection, greater difficulty and
expense in administering business abroad and complying with foreign laws.
The Year 2000 issue may affect our computer systems. We are aware of the
issues associated with the programming code in existing computer and software
systems as the Year 2000 approaches. The Year 2000 problem is pervasive and
complex, and virtually every computer operation could be affected in some way by
the rollover of the two-digit year value to "00." The issue is whether systems
will properly recognize date sensitive information when the year changes to
2000. Systems that do not properly recognize such information could generate
erroneous data or cause complete system failures. We have received confirmation
from all of our current significant systems' vendors that each of their systems
will properly handle the rollover to the Year 2000. Although there can be no
assurance, we believe the potential Year 2000 problem will not have a material
effect on our business, financial condition or results of operations.
11
<PAGE>
Forward-looking statements may prove inaccurate. We have made forward-looking
statements in this report that are subject to risks and uncertainties. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
include the information concerning possible or assumed future results of
operations. Also, when we use words such as "believes," "expects," "anticipates"
or similar expressions, we are making forward-looking statements. Readers should
understand that the following important factors, in addition to those discussed
elsewhere in this report, could affect our future financial results, and could
cause actual results to differ materially from those expressed in our forward-
looking statements:
. the implementation of our growth strategy;
. the integration of acquisitions;
. the availability of additional capital;
. variations in stock prices and interest rates;
. competition and fluctuations in quarterly operating results; and
. other risks and uncertainties described in our other filings with the
SEC.
We make no commitment to disclose any revisions to forward-looking
statements, or any facts, events or circumstances after the date hereof that may
bear upon forward-looking statements.
ITEM 2. Properties
We currently operate 245 rental locations in 27 states and one Canadian
province, as follows:
. Alabama (15) . Iowa (7) . Ohio (1)
. Alberta, Canada (5) . Kansas (4) . Oklahoma (9)
. Arizona (9) . Louisiana (8) . Pennsylvania (2)
. Arkansas (14) . Maryland (4) . South Carolina (9)
. Colorado (8) . Minnesota (5) . Tennessee (11)
. Delaware (3) . Mississippi (11) . Texas (28)
. Florida (23) . Missouri (10) . Virginia (4)
. Georgia (23) . Nebraska (3) . Wisconsin (4)
. Illinois (13) . New Mexico (6)
. Indiana (1) . North Carolina (5)
Through the completion of the six acquisitions currently under non-binding
letters of intent, we expect to add eight locations in Canada (2), Illinois (4),
Iowa (1) and Kansas (1).
Our locations are generally situated in industrial, commercial or mixed-use
zones. They generally consist of a customer showroom, an equipment service area
and storage facilities. Substantially all of our locations are leased, with
terms expiring from 1999 to 2006, most with options to extend. In a number of
instances, our rental locations are leased from the former owners of businesses
we have acquired.
ITEM 3. Legal Proceedings
We are party to various litigation matters, in most cases involving ordinary
and routine claims incidental to our business. The ultimate legal and financial
liability with respect to pending litigation cannot be estimated with certainty,
but we believe, based on our examination of these matters, that the ultimate
liability will not have a material adverse effect on our business, financial
condition or results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
12
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock is traded on the New York Stock Exchange under the symbol
"RSV." The following table sets forth, for each period indicated, the high and
low sales prices for our common stock on the NYSE.
<TABLE>
<CAPTION>
Price
----------------------------
High Low
----------------------------
<S> <C> <C>
Year Ended December 31, 1998
4th quarter............................................. $26.06 $10.13
3rd quarter............................................. 37.44 17.75
2nd quarter............................................. 33.63 23.19
1st quarter............................................. 24.88 19.31
Year Ended December 31, 1997
4th quarter............................................. 28.19 22.25
3rd quarter............................................. 28.06 21.69
2nd quarter............................................. 26.50 17.50
1st quarter............................................. 28.00 18.00
</TABLE>
As of February 26, 1999, there were approximately 67 holders of record of our
common stock. We believe the number of beneficial owners is substantially
greater than the number of record holders because a large portion of our common
stock is held of record in broker "street names."
We have never declared or paid any cash dividends on our common stock. We do
not currently intend to declare or pay cash dividends on our common stock. We
anticipate all of our earnings and other cash resources, if any, will be
retained for the operation and expansion of our business and for general
corporate purposes. The payment of any future dividends will be at the
discretion of our Board of Directors and will depend upon, among other things,
our earnings, financial condition, results of operations, level of indebtedness,
capital requirements, general business conditions, any contractual restrictions
and other factors deemed relevant by the Board of Directors. We are effectively
restricted by the terms of our credit facilities from paying cash dividends on
our common stock. We may in the future enter into loan or other agreements, or
issue debt securities or preferred stock, that restrict the payment of cash
dividends on our common stock.
During the quarter ended December 31, 1998, in connection with a Restricted
Stock Agreement dated October 9, 1998, we issued 235,0000 shares of common stock
(subject to vesting requirements), to Martin R. Reid, our Chairman and Chief
Executive Officer, in consideration of Mr. Reid's past and continued employment.
Additionally, we issued 37,252 shares of common stock in connection with certain
acquisitions to John Markle (17,929 shares), Homer E. Graham (15,737 shares) and
Robert D. Bonnette (3,586 shares). None of these issuances of securities were
registered under the Securities Act of 1933.
Each issuance of securities described above was carried out in reliance on
the exemptions from registration contained in Section 4(2) of the Securities Act
of 1933 as transactions not involving any public offering. The recipients in
each case represented their intention to acquire the securities for investment
only and not with a view of distribution. All recipients had adequate access,
through employment or other relationships, to information about us.
13
<PAGE>
ITEM 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
Statement of Operations Data (1): 1994 1995 1996 1997 1998
--------- ------------ ---------- ----------- ----------
Revenues:
<S> <C> <C> <C> <C> <C>
Equipment rentals..................................... $27,775 $ 47,170 $ 94,218 $170,704 $404,185
Sales of parts, supplies and new equipment............ 10,800 14,621 21,919 70,957 130,823
Sales of used equipment............................... 3,240 4,126 12,217 19,602 43,466
------- -------- -------- -------- --------
Total revenues...................................... 41,815 65,917 128,354 261,263 578,474
Cost of revenues:
Cost of equipment rentals, excluding rental equipment
depreciation......................................... 16,284 27,854 55,202 87,552 199,773
Depreciation, rental equipment........................ 4,020 7,691 17,840 37,413 87,260
Cost of sales of parts, supplies and new equipment.... 7,978 10,439 15,582 54,739 100,875
Cost of sales of used equipment....................... 2,320 2,178 8,488 12,927 31,259
------- -------- -------- -------- --------
Total cost of revenues.............................. 30,602 48,162 97,112 192,631 419,167
------- -------- -------- -------- --------
Gross profit........................................... 11,213 17,755 31,242 68,632 159,307
Selling, general and administrative expense............ 4,747 6,421 12,254 20,996 37,230
Depreciation and amortization, excluding rental
equipment depreciation................................ 504 1,186 2,835 5,373 10,244
Amortization of intangibles............................ 2,078 718 2,379 3,907 10,333
------- -------- -------- -------- --------
Operating income....................................... 3,884 9,430 13,774 38,356 101,500
Interest expense, net.................................. 731 3,314 7,063 14,877 50,375
------- -------- -------- -------- --------
Income before income taxes and extraordinary items..... 3,153 6,116 6,711 23,479 51,125
Provision for income taxes............................. 1,177 2,401 2,722 10,330 21,933
------- -------- -------- -------- --------
Income before extraordinary items...................... 1,976 3,715 3,989 13,149 29,192
Extraordinary items (2)................................ -- 478 1,269 534 --
------- -------- -------- -------- --------
Net income............................................. 1,976 3,237 2,720 12,615 29,192
Redeemable preferred stock accretion................... 1,646 1,717 1,643 -- --
------- -------- -------- -------- --------
Net income available to common stockholders............ $ 330 $ 1,520 $ 1,077 $ 12,615 $ 29,192
======= ======== ======== ======== ========
Income before extraordinary items per common share..... $ .08 $ .50 $ .34 $ .96 $ 1.33
Income before extraordinary items per common share,
assuming dilution...................................... $ .08 $ .49 $ .33 $ .94 $ 1.32
<CAPTION>
As of December 31,
----------------------------------------------------------------------
1994 1995 1996 1997 1998
--------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Locations at end of period............................. 25 50 94 165 241
Number of acquisitions completed during period......... 1 5 11 22 24
Balance Sheet Data:
Net book value of rental equipment..................... $24,138 $ 52,818 $116,921 $314,696 $ 656,207
Total assets........................................... 48,098 137,832 218,933 699,326 1,352,576
Total debt............................................. 12,752 68,555 68,594 306,975 808,712
Redeemable preferred stock (net of treasury stock)..... 26,684 28,401 -- -- --
Common stockholders' equity (deficit).................. (1,474) 46 95,072 290,781 417,485
</TABLE>
(1) Our acquisitions have been accounted for as purchases and, accordingly, the
operations of the acquired businesses are included in the statements of
operations data from the date of effective control of each acquisition. See
Note 2 to our consolidated financial statements.
(2) The extraordinary items represent the losses on extinguishment of debt
related to various amendments to, or repayments of, our revolving bank
credit facility.
14
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of our consolidated financial condition
and results of operations should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this Form 10-K.
Unless otherwise indicated, all information contained in Item 7 to this Form 10-
K is as of February 26, 1999.
Overview
We are a leader in the rapidly growing equipment rental industry. Since our
formation, we have acquired 69 equipment rental businesses comprised of 204
total locations and have opened 70 start-up locations. We have also focused on
increasing our revenues and profitability through investments in fleet
expansion, the implementation of information systems designed to improve asset
utilization and targeted marketing efforts. As a result, we have increased our
total revenues from $128.4 million in the year ended December 31, 1996 to $578.5
million in the year ended December 31, 1998, an increase of 351%. Operating
income increased from $13.8 million to $101.5 million during the same period, an
increase of 637%.
We have historically financed our acquisitions, start-up locations and capital
expenditures primarily through the issuance of equity securities, secured bank
borrowings, the issuance of senior subordinated notes and internally generated
cash flow. Such financings have significantly increased our interest expense and
also resulted in the accretion of dividends on our redeemable preferred stock
prior to its redemption in September 1996. Because all of our acquisitions have
been accounted for under the purchase method of accounting, our goodwill and
other intangibles (including covenants not to compete) have significantly
increased, which has led to increasing levels of amortization expense. Following
the completion of an acquisition or the opening of a start-up location, we
typically incur expenses related to completing and integrating acquisitions and
opening start-up locations. These include training employees, installing or
converting information systems, facility set-up and marketing expenses. As a
result, the profitability of a new location is generally expected to be lower in
the initial period of its operation than in subsequent periods. Integration of
acquisitions is generally completed within the first three months, while we
generally expect start-up locations to achieve normalized profitability after
one year. We anticipate that as we continue to implement our growth strategy,
new locations will continue to impact our margins until they achieve normalized
profitability.
We are continually involved in the investigation and evaluation of potential
acquisitions and start-up locations. Acquisition transactions are typically
subject to numerous conditions, including due diligence investigations,
environmental review and negotiation of a definitive purchase agreement. In
evaluating acquisition targets, we consider, among other things, the target's
competitive market position, management team, growth position and the
demographic characteristics of the target market. At any time, we may have one
or more offers outstanding and may have executed one or more non-binding letters
of intent or binding acquisition agreements. We are currently party to non-
binding letters of intent to acquire six equipment rental businesses with a
combined eight locations in three states and Canada for an aggregate purchase
price of $12.6 million in cash (including the payoff of assumed debt). These
letters of intent are non-binding and we have not completed our related due
diligence investigations. As such, we cannot predict whether these letters of
intent will lead to definitive agreements, whether the terms of any definitive
agreements will be the same as the terms contemplated by the letters of intent
or whether any of these transactions will be consummated.
We are also party to a merger agreement with NationsRent. Pursuant to this
agreement, NationsRent will merge with us and each outstanding share of
NationsRent common stock will be converted into 0.355 of a share of our common
stock. The merger is expected to be accounted for as a pooling of interests. The
merger, which is subject to stockholder approvals and other customary
conditions, is expected to close during the second quarter of 1999.
Our capital expenditures have principally been discretionary expenditures to
finance the growth of our rental fleet. However, we must continually reinvest in
ongoing capital expenditures in order to acquire and maintain competitive, high-
quality equipment. We made capital expenditures of $86.8 million in 1996, $165.1
million in 1997 and $403.6 million in 1998. We depreciate rental equipment over
periods ranging from three to seven years (with a 10% salvage value), which has
resulted in rental equipment depreciation of $17.8 million in 1996, $37.4
million in 1997 and $87.3 million in 1998. Depreciation related to new rental
equipment periodically contributes to short-term margin pressure, since new
equipment does not immediately generate revenues at historical utilization
rates. In recent years, we have also made significant investments in our service
and delivery fleet and our information systems.
15
<PAGE>
1998 Compared to 1997
Revenues. Total revenues in 1998 increased 121% to $578.5 million from $261.3
million in 1997. This increase was primarily due to the growth related to our
significant investment in capital expenditures, the inclusion of revenues from
the acquisitions of 24 businesses (consisting of 64 locations) in 1998 and the
opening of 20 start-up locations since December 31, 1997. Rental equipment
revenues increased 137% to $404.2 million in 1998 from $170.7 million in 1997.
This increase was due to the larger rental fleet resulting from acquisitions and
capital expenditures. Sales of parts, supplies and new equipment increased 84%
to $130.8 million in 1998 from $71 million in 1997. This increase was due
primarily to the increased number of rental locations selling these items, the
acquisitions of businesses that were dealers for certain new equipment and the
acquisition of Industrial Air Tool ("IAT") (effective in our results of
operations from March 1, 1997). Sales of used equipment increased 122% to $43.5
million in 1998 from $19.6 million in 1997. This increase was due primarily to
the increased disposals resulting from our larger rental fleet and increased
customer demand for used rental equipment.
Gross Profit. Gross profit in 1998 increased to $159.3 million (27.5% of total
revenues) from $68.6 million (26.3% of total revenues) in 1997. This increase
was primarily attributable to our increased number of locations and larger
rental fleet. Gross margin on equipment rentals increased to 29% of equipment
rental revenues in 1998 from 26.8% in 1997. This increase was primarily due to
our continued focus on cost control and the greater profit flow-through achieved
from the larger rental fleet. Gross margin on sales of parts, supplies and new
equipment was 22.9% of sales in both 1997 and 1998. Gross margin on sales of
used equipment decreased to 28.1% of sales in 1998 from 34.1% in 1997. This
decrease was due primarily to increasing sales of relatively younger equipment
to meet customer demand. Generally, newer equipment is sold at lower margins
than more fully depreciated, older items.
Selling, General and Administrative Expense. Selling, general and
administrative expense in 1998 was $37.2 million (6.4% of total revenues)
compared to $21 million (8% of total revenues) in 1997. This increase was the
result of the greater number of locations and employees resulting from our
acquisitions and start-ups completed since December 31, 1997. The decreasing
percentage of total revenues resulted from economies of scale and our continued
focus on cost control.
Depreciation and Amortization, excluding rental equipment depreciation.
Depreciation and amortization in 1998 was $10.2 million (1.8% of total revenues)
compared to $5.4 million (2.1% of total revenues) in 1997. This increase was
primarily attributable to the larger fleet of service and delivery vehicles in
1998 versus 1997, which has grown as a result of our increased number of
locations and larger rental fleet.
Amortization of Intangibles. Amortization of intangibles in 1998 was $10.3
million (1.8% of total revenues) compared to $3.9 million (1.5% of total
revenues) in 1997. This increase was due to the additional goodwill and
covenants not-to-compete associated with acquisitions completed since December
31, 1997.
Interest Expense, net. Interest expense in 1998 was $50.4 million compared to
$14.9 million in 1997. This increase was the result of our increased average
debt outstanding in 1998 versus 1997 and from the issuance of our 9% Senior
Subordinated Notes due 2008 (the "Senior Subordinated Notes") at a higher rate
than our other debt. Our increased debt has resulted from acquisitions, capital
expenditures and start-up locations financed under our credit facilities and
from the issuance of the Senior Subordinated Notes. Interest expense will
continue to increase in subsequent periods to the extent we borrow under our
credit facilities, or otherwise, to fund acquisitions, capital expenditures and
start-up locations.
Provision for Income Taxes. Provision for income taxes was $21.9 million in
1998 compared to $10.3 million in 1997. Our effective tax rate was 42.9% for
1998 compared to 44% for 1997. The decrease in our effective tax rate was a
result of our increased profitability, which has lessened the impact of higher
levels of non-deductible items (primarily goodwill).
Extraordinary Items. In connection with the implementation of an amendment to
our revolving line of credit (the "Revolver") in January 1997, we wrote off the
related unamortized deferred financing costs and recorded a loss on
extinguishment of debt of $920,000. This write-off has been classified as an
extraordinary item, net of income taxes of $386,000, in the 1997 consolidated
statement of operations.
16
<PAGE>
1997 Compared to 1996
Revenues. Total revenues in 1997 increased 104% to $261.3 million from $128.4
million in 1996. This increase was primarily due to the inclusion of revenues
from the acquisitions of 22 businesses (consisting of 64 locations) and the
opening of 16 start-up locations since December 31, 1996. Also contributing to
the increased revenues was the larger rental fleet resulting from our
significant investment in capital expenditures. Equipment rental revenues
increased 81% to $170.7 million in 1997 from $94.2 million in 1996. This
increase was due to the larger rental fleet resulting from acquisitions and
capital expenditures. Sales of parts, supplies and new equipment increased 224%
to $71 million in 1997 from $21.9 million in 1996. This increase was due
primarily to the acquisition of IAT (effective in our results of operations from
March 1, 1997), the increased number of rental locations selling these items and
the 1997 acquisitions of businesses that were dealers for certain new equipment.
Sales of used equipment increased 60% to $19.6 million in 1997 from $12.2
million in 1996. This increase was due to the larger rental fleet and our
continuing strategy of selling older rental fleet items.
Gross Profit. Gross profit in 1997 increased to $68.6 million (26.3% of total
revenues) from $31.2 million (24.3% of total revenues) in 1996. Gross margin on
equipment rentals increased to 26.8% of equipment rental revenues in 1997 from
22.5% in 1996. This increase was primarily due to the improved gross profit
resulting from our focus on cost control. Gross margin on sales of parts,
supplies and new equipment decreased to 22.9% of sales in 1997 from 28.9% in
1996. This decrease was due primarily to the acquisition of IAT, and a change in
the product mix of parts, supplies and new equipment sales. Excluding the effect
of the acquisition of IAT, our gross margin on sales of parts, supplies and new
equipment would have been 26.2% in 1997. We believe the gross margin on sales of
parts, supplies and new equipment will likely remain at this lower level due to
the impact of IAT's product sales, which generally have had lower gross margins
than the parts, supplies and new equipment sold by us prior to the acquisition
of IAT. Gross margin on sales of used equipment increased to 34.1% of sales in
1997 from 30.5% in 1996. This increase was due primarily to a change in the mix
and age of the equipment being sold.
Selling, General and Administrative Expense. Selling, general and
administrative expense was $21 million (8% of total revenues) in 1997 compared
to $12.3 million (9.5% of total revenues) in 1996. This increase was the result
of the greater number of locations and employees resulting from our acquisitions
and start-ups.
Depreciation and Amortization, excluding rental equipment depreciation.
Depreciation and amortization was $5.4 million (2.1% of total revenues) in 1997
compared to $2.8 million (2.2% of total revenues) in 1996. This increase was
primarily attributable to the larger fleet of service and delivery vehicles in
1997 versus 1996, which has grown as a result of our increased number of
locations and larger rental fleet.
Amortization of Intangibles. Amortization of intangibles was $3.9 million
(1.5% of total revenues) in 1997 compared to $2.4 million (1.9% of total
revenues) in 1996. This increase was due to the additional goodwill and
covenants not-to-compete associated with acquisitions completed since December
31, 1996.
Interest Expense, net. Interest expense was $14.9 million in 1997 compared to
$7.1 million in 1996. This increase was the result of our increased average debt
outstanding in 1997 versus 1996. Our increased debt has resulted from
acquisitions, capital expenditures and start-up locations financed under our
credit facilities. Interest expense will continue to increase in subsequent
periods to the extent we borrow under our credit facilities, or otherwise, to
fund acquisitions, capital expenditures and start-up locations.
Provision for Income Taxes. Provision for income taxes was $10.3 million in
1997 compared to $2.7 million in 1996. Our effective tax rate was 44% for 1997
compared to 40.6% for 1996. The increase in our effective tax rate was a result
of increased levels of non-deductible items (primarily goodwill).
Extraordinary Items. In connection with the implementation of an amendment to
the Revolver in January 1997, we wrote off the related unamortized deferred
financing costs and recorded a loss on extinguishment of debt of $920,000. This
write-off has been classified as an extraordinary item, net of income taxes of
$386,000, in the 1997 consolidated statement of operations.
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Liquidity and Capital Resources
Our primary uses of cash have been the funding of capital expenditures,
acquisitions and start-up locations. We have historically financed these
activities primarily through the issuance of equity or debt securities, secured
bank borrowings and net cash provided by operating activities. We had cash and
cash equivalents of $8.9 million at December 31, 1997 and $3.5 million at
December 31, 1998.
Operating activities. Our operating activities provided net cash flow of $23.5
million in 1996, $46 million in 1997 and $67.5 million in 1998. The principal
causes for the variations in operating cash flow between years were higher net
income and increased depreciation and amortization, offset by higher accounts
receivable.
Investing activities. Net cash used in investing activities was $84.7 million
in 1996, $424.4 million in 1997 and $641.8 million in 1998. The increases
between years were attributable to a higher combined level of acquisitions and
capital expenditures. Acquisition spending totaled $27.3 million in 1996, $278.9
million in 1997 and $281.6 million in 1998. In addition, we made capital
expenditures of $86.8 million in 1996, $165.1 million in 1997 and $403.6 million
in 1998. Capital expenditures were primarily for purchases of rental equipment.
Included in investing activities were proceeds from the sale of used equipment
of $12.7 million in 1996, $19.6 million in 1997 and $43.5 million in 1998. Also
included in investing activities were proceeds from assets held for sale of
$16.7 million in 1996.
Financing activities. Net cash provided by financing activities was $61.3
million in 1996, $385.9 million in 1997 and $568.7 million in 1998. During 1998,
the net cash provided by financing activities was primarily from the sale of
3,018,872 shares of common stock in a public offering completed in August, from
the issuance of the Senior Subordinated Notes in May and from borrowings under
the Revolver. During 1997, the net cash provided by financing activities was
primarily from the sales of common stock in the public offerings completed in
June (3,000,000 shares) and December (4,345,224 shares) and from borrowings
under our credit facilities. During 1996, the net cash provided by financing
activities was primarily from the sale of 6,027,813 shares of common stock in
our initial public offering in September and from borrowings under the Revolver.
Through the application of the proceeds from our common stock offerings, we
improved our liquidity and capital resources by replacing a portion of our
secured debt, as well as the related interest and debt obligations, with common
stock. Specifically, we used these proceeds to reduce the outstanding
indebtedness under our Revolver to provide borrowing availability for general
corporate purposes, including acquisitions and discretionary capital
expenditures.
Prior to December 2, 1997, our principal source of liquidity was the Revolver,
which consisted of a revolving line of credit and availability of letters of
credit. From time to time, we have amended the Revolver to, among other things,
increase its availability, adjust the interest rate margins, extend its maturity
date and modify various covenants. On December 2, 1997, we amended and restated
the Revolver to increase our total available financing to $600 million. This
increase consisted of an increase in the availability under the Revolver to $500
million and the implementation of a new $100 million term loan (the "Term Loan,"
and together with the Revolver, the "Bank Facility").
On November 24, 1998, we amended the Bank Facility to, among other things, (i)
increase the availability under the Revolver to $650 million; (ii) increase the
interest rate margins for the Revolver by 0.50%; (iii) increase the allowed
levels of capital expenditures and investments to $335 million in 1998, $325
million in each of 1999 and 2000, $400 million in 2001, $525 million in 2002,
$625 million in 2003 and $725 million in 2004 (plus amounts reinvested from
asset sales); (iv) adjust certain financial and other covenants, including the
minimum interest coverage and maximum total debt to EBITDA ratios; (v) increase
the allowed level of acquisitions to $300 million plus the net cash proceeds
from any equity or permitted subordinated debt offerings completed during the
term of the Bank Facility; (vi) increase the commitment fee to 0.50% of the
unused commitment, with reductions available based on our achievement of
specified total debt to EBITDA ratios; and (vii) extend the maturity date of the
Revolver to November 24, 2003. Effective December 31, 1998, we further amended
the Bank Facility to increase the allowed level of investments and capital
expenditures for 1998 to $365 million (plus amounts reinvested from asset
sales).
The amended and restated Revolver contains provisions to periodically adjust
the prime and Eurodollar interest rate margins based on our achievement of
specified total debt to EBITDA ratios. The total amount of credit available
under the Revolver is limited to a borrowing base equal to the sum of (i) 85% of
eligible accounts
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<PAGE>
receivable of our domestic subsidiaries and (ii) 100% of the value (lower of net
book value or orderly liquidation value) of eligible rental equipment through
December 31, 1998; 90% of the value of eligible rental equipment from January 1,
1999 through December 31, 1999; 85% of the value of eligible rental equipment
from January 1, 2000 through December 31, 2000; and 80% of the value of eligible
rental equipment from January 1, 2001 through the expiration date of the
Revolver.
The Term Loan consists of a $100 million seven-year term loan facility, of
which $99 million is currently outstanding. It requires mandatory principal
payments of $1 million on each of its first six anniversaries (1998 - 2003),
with the remaining principal balance due at maturity (December 2, 2004).
Interest on the Term Loan is payable at either the prime rate plus 2.25% or the
Eurodollar rate plus 3.75% (at our option).
The Bank Facility has financial covenants for RSC regarding debt incurrence,
interest coverage, capital expenditures and investments (including
acquisitions), rental equipment utilization and minimum EBITDA levels. The Bank
Facility also contains covenants and provisions that restrict, among other
things, our ability to: (i) incur additional indebtedness; (ii) incur liens on
our property; (iii) enter into contingent obligations; (iv) make certain capital
expenditures and investments; (v) engage in certain sales of assets; (vi) merge
or consolidate with or acquire another person or engage in other fundamental
changes; (vii) enter into leases; (viii) engage in certain transactions with
affiliates; and (ix) declare or pay dividends. At December 31, 1998, we were in
compliance with all covenants of the Bank Facility.
Borrowings under the Bank Facility are secured by all of the personal property
of our domestic subsidiaries and a pledge of the capital stock and intercompany
debt of those subsidiaries. We are a guarantor of the obligations of our
domestic subsidiaries under the Bank Facility, and have granted liens on
substantially all of our assets (including the stock of our domestic
subsidiaries) to secure such guaranty. The Bank Facility also restricts us from
declaring or paying dividends on our common stock. In addition, our domestic
subsidiaries are guarantors of the obligations of the other subsidiaries under
the Bank Facility. The Bank Facility also includes a $2 million letter of credit
facility. A commitment fee equal to 0.50% of the unused commitment, excluding
the face amount of all outstanding and undrawn letters of credit, is also
payable monthly in arrears. The obligation of the lenders to make loans or issue
letters of credit under the Bank Facility is subject to certain customary
conditions.
At February 26, 1999, the principal amount outstanding under the Revolver was
$491.4 million, the average interest rate on such borrowings was 7.2%, and
$158.6 million was available for borrowing under the Revolver.
On August 21, 1998, Rental Service Corporation of Canada Ltd. ("RSC Canada"),
a wholly owned subsidiary of RSC, entered into a Cdn. $28 million revolving line
of credit with lenders (or affiliates) who are parties to the Bank Facility (the
"Canadian Credit Facility"). The total amount of credit available under the
Canadian Credit Facility is limited to a borrowing base equal to the sum of (i)
85% of eligible accounts receivable of RSC Canada and (ii) 85% of the value
(lower of net book value or orderly liquidation value) of eligible rental
equipment of RSC Canada. The Canadian Credit Facility contains provisions to
periodically adjust the prime and Eurodollar interest rate margins based on
RSC's achievement of specified total debt to EBITDA ratios. The Canadian Credit
Facility is secured by substantially all of the assets of RSC Canada, and any
subsidiary of RSC Canada. The Canadian Credit Facility is guaranteed by RSC,
with the guarantee being secured by the stock of RSC Canada. The Canadian Credit
Facility expires on December 2, 2002 and contains certain other terms
substantially similar to those contained in the Bank Facility. At December 31,
1998, we were in compliance with all covenants of the Canadian Credit Facility.
At February 26, 1999, there was $3.2 million outstanding under the Canadian
Credit Facility, with $3 million available for borrowing.
On May 13, 1998 we issued $200 million aggregate principal amount of 9% Senior
Subordinated Notes due 2008 in a private placement pursuant to Rule 144A. The
net proceeds of the offering were used to repay indebtedness under the Revolver
in order to provide borrowing availability for general corporate purposes,
including acquisitions. The Senior Subordinated Notes call for semi-annual
interest payments on May 15 and November 15 of each year (beginning November 15,
1998) and mature on May 15, 2008. The Senior Subordinated Notes are guaranteed
by substantially all of our current and future domestic subsidiaries, and
contain covenants restricting additional indebtedness, certain payments by us
and our subsidiaries, asset sales, liens, mergers and consolidations and
transactions with affiliates.
Acquisitions and Start-ups. As part of our growth strategy, we are continually
involved in the investigation and evaluation of potential acquisitions and
start-up locations. We are currently evaluating a number of acquisition
opportunities and start-up locations and may at any time be a party to one or
more non-binding letters of intent or
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acquisition agreements. At December 31, 1998, we operated 241 locations
throughout the United States and Canada. Since that time, we have completed one
acquisition of an equipment rental business with two locations and have opened
two new start-up locations. This brings our current number of locations to 245.
During 1998, we completed 24 acquisitions of equipment rental businesses with
a combined total of 64 locations in 20 states and Canada. These acquisitions
were completed for an aggregate purchase price of $281.6 million in cash
(including the payoff of assumed debt), 712,629 shares of common and the
assumption of certain liabilities. Additionally, up to 128,859 shares of common
stock may be paid for these acquisitions based on the achievement of certain
performance objectives by the acquired companies, of which 42,953 shares were
earned and payable at December 31, 1998.
During 1997, we completed 22 acquisitions of equipment rental businesses with
a combined total of 64 locations in 19 states. These acquisitions were completed
for an aggregate purchase price of $278.9 million in cash (including the payoff
of assumed debt), 1,299,709 shares of common stock (of which 111,319 shares will
be issued in future years) and the assumption certain liabilities. Additionally,
up to 197,738 shares of common stock may be paid for these acquisitions based on
the achievement of certain performance objectives by the acquired companies, of
which 65,913 shares were issued during 1998 and an additional 65,913 shares were
earned and payable at December 31, 1998.
During 1996, we completed eleven acquisitions of equipment rental businesses
with a combined total of 25 locations in seven states. These acquisitions were
completed for an aggregate purchase price of $27.3 million in cash (including
the payoff of assumed debt), and the assumption of certain liabilities.
During 1998, we opened 20 new start-up locations in 13 states. We also
consolidated eight of our locations with other locations serving the same
markets during 1998. During 1997, we opened 16 new start-up locations in ten
states. We also consolidated seven of our locations with other locations serving
the same markets and closed two under-performing stores during 1997. During
1996, we opened 19 new start-up locations in eight states.
Subsequent to December 31, 1998, we have completed one acquisition of an
equipment rental business with two locations in North Carolina for a purchase
price of $3.3 million in cash (including the payoff of assumed debt), 5,000
shares of common stock and the assumption of certain liabilities. Additionally,
we have opened two new start-up locations in Illinois and Iowa.
We are also party to non-binding letters of intent to acquire six equipment
rental businesses for an aggregate purchase price of $12.6 million in cash
(including the payoff of assumed debt). These businesses have a combined eight
locations in Canada (2), Illinois (4), Iowa (1) and Kansas (1). Each of these
acquisitions is subject to a number of closing conditions, including the
execution of definitive purchase agreements, the completion of due diligence
investigations and Board of Directors approval.
On January 20, 1999, we entered into a definitive merger agreement with
NationsRent. The merger agreement provides, subject to the terms and conditions
set forth therein, for NationsRent to be merged with and into RSC. Following
the merger, NationsRent's subsidiaries will become wholly owned subsidiaries of
RSC. At the effective time of the merger, (i) each outstanding share of
NationsRent common stock will be converted into 0.355 of a share of RSC's common
stock and (ii) all outstanding options to purchase shares of NationsRent common
stock will be assumed by us and converted into options to purchase RSC common
stock subject to adjustment for the exchange ratio.
General. Our liquidity and capital resources have been, and will continue to
be, significantly impacted by our growth strategy and the need to offer
customers a modern and well-maintained rental fleet. To pursue our growth
strategy, we must be able to complete acquisitions, open start-up locations and
make the capital expenditures necessary to expand and maintain our rental fleet.
We are presently obligated, under non-cancellable purchase commitments, to
purchase $177.6 million of equipment. These equipment purchases are expected to
be financed with cash flow from operations and through borrowings under the
Revolver.
We believe our cash flow from operations, together with availability under the
Revolver and vendor financing in appropriate cases, will be sufficient to
support our operations and capital liquidity requirements for at least the next
twelve months. However, if significant additional acquisition opportunities
arise, we may need to seek additional capital. These acquisitions and
discretionary capital expenditures could be financed through the incurrence of
additional indebtedness (including convertible debt) or the issuance of common
or preferred stock
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(which may be issued to third parties or to sellers of acquired businesses),
depending on market conditions. If this financing were not available, our growth
strategy could be hampered and our cash flow from operations reduced, thereby
constraining funds available for growth and acquisitions. Additional
indebtedness generally would increase our leverage and may make us more
vulnerable to economic downturns. It may also limit our ability to withstand
competitive pressures. There can be no assurance our business will generate
sufficient cash flow or that future borrowings or additional capital, if and
when required, will be available on terms acceptable to us, or at all.
Environmental
Our operations are subject to federal, state and local laws and regulations
governing, among other things, occupational health and safety and environmental
protection. Under these laws, an owner or lessee of real estate may be liable
for the costs of removal or remediation of hazardous substances located on such
property. We incur ongoing expenses associated with the removal of older
underground storage tanks and other activities to come into compliance with
environmental laws, and the performance of appropriate remediation. We have
accrued $213,000 at December 31, 1998 related to environmental remediation. The
actual costs of remediating these environmental conditions may be different than
that accrued by us due to the difficulty in estimating these costs and due to
potential changes in the status of legislation and state reimbursement programs.
We believe the impact of this remediation on our financial position and results
of operations will not be material.
Income Taxes
At December 31, 1998, we had net operating loss carryforwards for federal
income tax purposes of $39.1 million. These federal carryforwards expire in the
years 2005 through 2018. In addition, we had combined state net operating loss
carryforwards of $48.2 million. These state carryforwards expire in the years
1999 through 2018. $11.8 million of the federal and $3.6 million of the state
net operating loss carryforwards relate to certain of our acquisitions. The
acquired separate company net operating loss carryforwards are subject to
restrictions in accordance with Internal Revenue Code Section 382. The ultimate
utilization of these carryforwards is further limited based upon the future
profitability of the acquired entities. For financial reporting purposes, a
valuation allowance of $5 million at December 31, 1998 has been recognized to
offset the deferred tax asset related to the net operating loss carryforwards
obtained in connection with these acquisitions.
We also have alternative minimum tax credit carryforwards of $10.3 million for
federal income tax purposes and $200,000 for state income tax purposes that are
available to offset future regular income tax that is in excess of the
alternative minimum tax in a given year. $2.1 million of the federal and all of
the state alternative minimum tax credit carryforwards relate to certain of our
acquisitions. Limitations similar to those restricting the use of acquired
company net operating loss carryforwards also restrict the use of these acquired
company alternative minimum tax credit carryforwards. For financial reporting
purposes, a valuation allowance of $2.4 million at December 31, 1998 has been
recognized to offset the deferred tax asset related to the alternative minimum
tax credit carryforwards obtained in connection with these acquisitions.
Any tax benefit resulting from the utilization of the net operating loss or
alternative minimum tax credit carryforwards obtained in connection with our
acquisitions will be accounted for as a reduction of the purchase price of the
acquired entities in the periods they are realized.
Inflation and General Economic Conditions
We have never operated in a period of sustained inflation. Therefore, although
we cannot accurately anticipate the effect of inflation, we do not believe
inflation has had, or is likely in the foreseeable future to have, a material
impact on our business or results of operations. Our operating results may be
adversely affected by events or conditions in a particular region, such as
regional economic, weather and other factors. Current global economic conditions
could lead to a decline in the overall U.S. economy, which could result in a
slowdown in construction activities and a related decrease in equipment rentals.
In addition, our operating results may be adversely affected by increases in
interest rates that may lead to a decline in economic activity, while
simultaneously resulting in higher interest payments by us under our variable
rate credit facilities.
Year 2000
We are aware of the issues associated with the programming code in existing
computer and software systems as the Year 2000 approaches. The Year 2000 problem
is pervasive and complex, as virtually every computer operation could be
affected in some way by the rollover of the two-digit year value to "00". The
issue is whether
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systems will properly recognize date sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or cause complete system failures.
We have completed an initial evaluation of our internal systems and have
received confirmation from all of our current significant systems' vendors that
each of their systems will properly handle the rollover to the Year 2000. Our
systems are generally newer and have been originally designed to be Year 2000
compliant. The costs of developing the portions of our systems related to Year
2000 issues are therefore part of our total information systems costs and are
not separately tracked. Additionally, we are continuing to perform internal
testing of our systems with respect to Year 2000 issues. The testing completed
to-date has not resulted in any significant problems. We also plan to have
independent testing of our systems completed during the second quarter of 1999.
Although there can be no assurance, we believe the potential Year 2000 problem
will not have a material effect on our financial position or results of
operations.
We are also surveying our equipment vendors and other major service providers
to provide reasonable assurances as to their state of readiness related to the
Year 2000. Risk assessments and contingency plans, where required, are expected
to be finalized during the first half of 1999. To the extent vendors and service
providers do not provide satisfactory evidence that their products and services
are Year 2000 compliant, we will seek to obtain the necessary products and
services from alternative sources. There can be no assurance, however, that Year
2000 remediation by vendors and service providers will be completed on a timely
basis or that qualified replacement vendors and service providers will be
available. Any failure of third parties' systems could have a material adverse
impact on our computer systems and operations, however, we believe the impact of
any failure would be limited, as there are multiple vendors for the types of
equipment we purchase. Additionally, Year 2000 problems involving third parties
may have a negative impact on the general economy or on the ability of
businesses to receive essential services (i.e., telecommunications, utilities,
banking services, etc.). Any such occurrence could have a material adverse
effect on our business and financial condition.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk is limited to interest rate risk associated with
our variable rate credit facilities and foreign currency exchange rate risk
associated with our Canadian operations. We do not currently use, nor have we
historically used, derivative financial instruments to manage or reduce market
risk.
At December 31, 1998, we had $503.8 million outstanding under our Revolver at
an interest rate of 7.8%. Additionally, we had $3.4 million outstanding under
our Canadian Credit Facility at an interest rate of 8.75%. Interest rates on
these credit facilities have remained relatively stable over the past year, and
we anticipate these rates will only moderately fluctuate over the next year.
The functional currency for our Canadian operations is the Canadian dollar. As
such, there is potential exposure to our future earnings to changes in exchange
rates. Given the level of income we derived from our Canadian operations
($489,000 in 1998), we consider this exposure to be minimal. A 10% change in
exchange rates would not have a significant impact on our future earnings.
ITEM 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required here are set forth as
indicated in Item 14, "Exhibits, Financial Statement Schedules and Reports on
Form 8-K," and are incorporated herein by reference.
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
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PART III
ITEM 10. Directors and Executive Officers of the Registrant
The table below sets forth certain information with respect to the directors
and executive officers of RSC:
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
Martin R. Reid..................... 56 Chairman of the Board and Chief Executive Officer
Robert M. Wilson................... 41 Executive Vice President, Chief Financial Officer, Secretary and
Treasurer
Ronald Halchishak.................. 51 Senior Vice President of Operations
David G. Ledlow.................... 40 Senior Vice President of Operations
Douglas A. Waugaman................ 40 Senior Vice President of Operations
John Markle........................ 43 Senior Vice President of Strategy and Chief Information Officer
David B. Harrington................ 45 Senior Vice President of Human Resources
Milfred E. Howard.................. 51 Senior Vice President of Sales and Marketing
William M. Barnum, Jr.............. 44 Director
James R. Buch...................... 45 Director
David P. Lanoha.................... 49 Director
Christopher A. Laurence............ 31 Director
Eric L. Mattson.................... 47 Director
Britton H. Murdoch................. 41 Director
John M. Sullivan................... 63 Director
</TABLE>
Martin R. Reid was elected as a director and Chief Executive Officer of RSC in
June 1994. He became Chairman of the Board in October 1995. From October 1993 to
February 1998, he served as a director of Tuboscope Vetco International
Corporation, a provider of oilfield-related inspection and coating services. He
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, he was Chief Executive Officer of Eastman
Christensen Co., a provider of oil and gas drilling systems. He was also Vice
Chairman of Eastman Christensen Co. from August 1989 to June 1990. He is also a
director of HDA Parts System, Inc.
Robert M. Wilson joined RSC in April 1997 as Senior Vice President, Chief
Financial Officer, Secretary and Treasurer. In November 1998, he was promoted to
the position of Executive Vice President, Chief Financial Officer, Secretary and
Treasurer. From October 1994 until joining RSC, he served as Senior Vice
President of Operations, Finance and Administration for Shade/Allied Inc. From
September 1989 through October 1994, he served in various positions at Simon
Engineering plc, including Vice President of Finance for the United States
holding company and President of Simon LGI. He is a Certified Public Accountant,
and has public accounting experience with Arthur Andersen and Co.
Ronald Halchishak joined RSC in October 1991 as Vice President of Purchasing
and Director of Safety. He 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 RSC, he 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 RSC in conjunction with our acquisition of Walker Jones
Equipment, Inc. in 1992. He had been employed by Walker Jones since 1982,
serving most recently as its Vice President of Marketing. He was promoted to
Regional Vice President of Operations of RSC in February 1993, and to Senior
Vice President of Operations in December 1996.
Douglas A. Waugaman has served as a Senior Vice President of Operations of RSC
since April 1997. From January 1994 through April 1997, he served as Vice
President, Chief Financial Officer, Secretary and Treasurer of RSC. From June
1993 until joining RSC, he served as Operations Manager for Plastiglide
Manufacturing Corporation, a subsidiary of Illinois Tool Works. From September
1991 until June 1993, he was Vice President of Finance for Knapp Communications
Corporation, a magazine publisher. From September 1989 until September 1991, he
was Controller for Plastiglide Manufacturing Corporation. He is a Certified
Public Accountant, and has public accounting experience with Arthur Andersen and
Co.
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John Markle was promoted to the position of Senior Vice President of Strategy
and Chief Information Officer of RSC in November 1998. From January 1998 until
this promotion, he served as a Senior Vice President of Operations of RSC. He
joined RSC in conjunction with the acquisition of Center Rentals & Sales in
December 1997. Prior to joining RSC, he served as President of Center since
1989. Prior to joining Center, he spent ten years with Power Rental.
David B. Harrington joined RSC in June 1997 as Senior Vice President of Human
Resources. Prior to joining RSC, he worked for 19 years at General Electric in
various positions, including the most recent six years as Senior Vice President
of Human Resources for GE Capital Technology Management Services.
Milfred E. Howard has served as Senior Vice President of Sales and Marketing
of RSC since August 1998. From June 1997 through July 1998, he served as the
Vice President of Sales for our industrial division. Prior to joining RSC, he
served as Vice President of Sales for Hertz Equipment Rental Corporation.
William M. Barnum, Jr. has served as a director of RSC since our formation in
1992. He served as Chairman of the Board from June 1993 through October 1995. He
is a general partner of Brentwood Buyout Partners, L.P. ("BBP"), the general
partner of Brentwood RSC Partners, L.P., a stockholder of RSC. He was an
associate at Morgan Stanley & Co. Incorporated from October 1981 until joining
Brentwood Associates, an affiliate of Brentwood RSC Partners, in July 1984. He
is also a director of Quiksilver, Inc. and several privately held companies.
James R. Buch has served as a director of RSC since October 1995. From October
1990 through April 1996, he served as President and Chief Executive Officer of
Evans Rents, Inc. From April 1997 through December 1998, he served as the Chief
Executive Officer of Classroom Connect, Inc. Previously, he served as Director
of U.S. Operations for Brittania Security Group.
David P. Lanoha has served as a director of RSC since January 1998. He
initially joined RSC as a Senior Vice President of Operations in conjunction
with the acquisition of Center Rentals & Sales in December 1997. He served in
various capacities at Center, most recently as Chairman of the Board (from
October 1989 to December 1997) and President (from May 1984 to October 1989).
Christopher A. Laurence has served as a director of RSC since October 1995. He
is a general partner of Brentwood Associates and a member of Brentwood Private
Equity LLC. Prior to joining Brentwood Associates in 1991, he was an analyst at
Morgan Stanley & Co. Incorporated. He is also a director of HDA Parts System,
Inc.
Eric L. Mattson has served as a director of RSC since December 1996. He is,
and has been, Senior Vice President and Chief Financial Officer of Baker Hughes
Incorporated ("BHI") since July 1993. For more than five years prior to 1993, he
was Vice President and Treasurer of BHI. Mr. Mattson is also a director of
Tuboscope.
Britton H. Murdoch has served as a director of RSC since January 1997. Since
July 1997, he has been a Managing Director and Principal of V-Span, Inc., a
privately held company. He also served as Chief Financial Officer of Internet
Capital Group, LLP, a privately held company, from 1997 until June 1998. He is
currently the Advisory Board Venture Partner for Internet Capital Group. From
1990 to 1996, he was Vice President and Chief Financial Officer of Airgas, Inc.,
an industrial gas distribution and manufacturing company. From 1987 to 1990, he
was Vice President of Corporate Development of Airgas. He is also a director of
Founders' Bank, a subsidiary of Susquehanna Bancshares, Inc.
John M. Sullivan has served as a director of RSC since July 1997. He is
presently a director of The Scotts Company, Bell Sports Corp. and Silver Cinemas
International, Inc. From October 1987 to January 1993, he was Chairman of the
Board and Chief Executive Officer of Prince Holdings, Inc. Prior to that, and
since September 1984, he was President of Prince Holdings and Vice President of
Chesebrough-Pond's, Inc.
Our Board of Directors presently consists of eight members, including four
independent directors. Directors of RSC serve until their successors are elected
and qualified or until the director resigns or is removed. Officers of RSC serve
at the discretion of the Board of Directors. There are no family relationships
among the executive officers or directors of RSC.
24
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers, directors and persons
who own more than ten percent of a registered class of our equity securities to
file reports of ownership and changes in ownership with the SEC, and to furnish
us with copies of those reports. To our knowledge, based solely on our review of
the copies of those reports and written representations we have received, we
believe all filings have been made in a timely manner, except that John Markle
filed one Form 4 late.
Committees of the Board of Directors
The Board of Directors 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 RSC's internal
accounting controls. The Audit Committee consists of Messrs. Buch, Mattson and
Lanoha. The Audit Committee met two times during 1998.
The Compensation Committee was established on December 5, 1996 to establish
remuneration levels for our executive officers and to implement our stock option
plans and any other incentive programs. The Compensation Committee consists of
Messrs. Murdoch and Sullivan. The Compensation Committee met three times during
1998.
The Acquisition Committee was established on September 30, 1997 to approve
acquisitions in which the consideration to be paid by RSC 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 of Directors.
The Nominating Committee consists of Messrs. Barnum, Mattson and Murdoch.
Compensation Committee Interlocks and Insider Participation
Prior to December 5, 1996, we had no compensation committee or other committee
of the Board performing similar functions. Accordingly, decisions concerning
compensation of our executive officers were made by the entire Board. Other than
Mr. Reid, none of our officers or employees participated in deliberations
concerning such compensation matters.
Mr. Reid was an executive officer of Tuboscope until April 1996. Until
February 1998, he served on the Executive Committee of the Board of Directors of
Tuboscope, which is responsible for Tuboscope's compensation policies. Mr.
Mattson is also a director of Tuboscope.
Compensation of Directors
We reimburse our directors for their out-of-pocket expenses incurred in
connection with attending meetings of the Board. In addition to reimbursement
for out-of-pocket expenses, all non-employee members of the Board receive
$10,000 per year (payable $2,500 per quarter) as compensation for serving on the
Board, plus $1,500 for attendance at each Board meeting and $500 for attendance
at each committee meeting. Each committee chairman receives an additional $1,500
per year. All non-employee directors also receive non-qualified stock options
under one of our stock option plans, as described in Item 11 to this Form 10-K.
25
<PAGE>
Limitations on Liability and Indemnification Matters
Our certificate of incorporation provides that our directors will not be
personally liable to us or our stockholders for monetary damages for any breach
of fiduciary duty as a director, except in certain cases where liability is
mandated by Delaware corporate law. The provision has no effect on any non-
monetary remedies that may be available to us or our stockholders, nor does it
relieve us or our directors from compliance with federal or state securities
laws. Our bylaws generally provide that we shall indemnify, to the fullest
extent permitted by law, any person who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed action, suit,
investigation, administrative hearing or any other proceeding (each, a
"Proceeding") by reason of the fact that he is or was a director or officer of
RSC, or is or was serving at our request as a director, officer, employee or
agent of another entity, against expenses (including attorneys' fees) and
losses, claims, liabilities, judgments, fines and amounts paid in settlement
actually incurred by such person in connection with such Proceeding. In
addition, we have obtained director and officer liability insurance that insures
our directors and officers against certain liabilities.
26
<PAGE>
ITEM 11. Executive Compensation
Summary Compensation Table. The following table provides summary information
concerning compensation paid or accrued by us to or on behalf of our Chief
Executive Officer and each of our four other most highly compensated executive
officers (collectively, the "Named Executive Officers") for all services
rendered in all capacities to us during the years ended December 31, 1998, 1997
and 1996:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------------- --------------------------
All Restricted Securities
Other Stock Underlying
Name and Principal Position Year Salary ($) Bonus ($)(1) Compensation ($) Awards ($) Options (#)
--------------------------- ---- ---------- ------------ ---------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Martin R. Reid
Chairman and Chief Executive Officer......... 1998 516,704 500,000 10,500(2) 3,466,057(3) 173,411(4)
1997 339,361 300,000 10,122(2) -- 200,000(4)
1996 294,231 84,375 5,641(2) -- --
Robert M. Wilson
Executive Vice President, Chief Financial
Officer, Secretary and Treasurer............. 1998 180,796 103,185 4,209(2) -- 16,000
1997 99,300 -- 75,287(5) -- 75,000
1996 -- -- -- -- --
Ronald Halchishak
Senior Vice President of Operations.......... 1998 173,193 123,058 2,128(2) -- 16,000
1997 148,260 75,000 1,408(2) -- --
1996 150,000 100,000 910(2) -- 71,250
David G. Ledlow
Senior Vice President of Operations.......... 1998 154,274 120,000 522(2) -- 16,000
1997 137,132 75,000 16,754(2) -- --
1996 117,692 36,709 4,200(2) -- 71,250
Douglas A. Waugaman
Senior Vice President of Operations.......... 1998 179,216 149,960 1,887(2) -- 16,000
1997 166,531 200,000 2,121(2) -- 100,000
1996 155,923 42,900 7,149(2) -- --
</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 1998 have not yet been finalized.
(2) Consists of one or more of the following: (i) an automobile allowance, (ii)
relocation expenses reimbursed by us, and (iii) insurance premiums paid by
us for life insurance and disability policies covering the officer.
(3) At December 31, 1998, Mr. Reid held 261,589 shares of restricted stock with
an aggregate market value of $4.1 million (based on the market price of our
common stock as reported on the NYSE on December 31, 1998). This restricted
stock is subject to vesting in equal installments over four years from the
respective dates of grant; however, the vesting may be accelerated under
certain circumstances, including a change of control.
(4) In January 1998, Mr. Reid entered into an employment agreement with us. In
connection with this agreement, Mr. Reid's 200,000 then-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, or upon a change of control). On February 25,
1998, Mr. Reid surrendered to us options to purchase 57,000 shares of
common stock. These surrendered options are not included in this table. On
April 29, 1998, Mr. Reid was granted stock options to purchase 40,411
shares of common stock, vesting in equal installments over four years (or
earlier if certain performance criteria are met, or upon a change of
control).
(5) Consists of relocation expenses reimbursed by us ($70,309), an automobile
allowance and insurance premiums paid by us for life insurance and
disability policies covering Mr. Wilson.
27
<PAGE>
Stock Options Granted in Fiscal 1998. The following table sets forth
information concerning individual grants of stock options made by us during the
year ended December 31, 1998 to each of the Named Executive Officers.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Individual Grants Annual Rates of
--------------------------------------------------------------------- Stock Price
Number of Percent of Total Appreciation for
Securities Options Granted Exercise or Option Term
Underlying Options to Employees Base Price Expiration ----------------------
Granted (#)(1) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
-------------------- --------------------- -------------- ------------ ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Martin R. Reid
Chairman and Chief Executive
Officer............................ 190,000(2) 32.9% $20.19 1/14/08 $ 2,412 $ 6,113
40,411 7.0 28.56 4/29/08 726 1,840
Robert M. Wilson
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer.......................... 13,656 2.4 22.88 2/25/08 196 498
1,344 .2 26.38 4/15/08 22 56
1,000 .2 28.56 4/29/08 18 46
Douglas A. Waugaman
Senior Vice President of
Operations......................... 13,656 2.4 22.88 2/25/08 196 498
1,344 .2 26.38 4/15/08 22 56
1,000 .2 28.56 4/29/08 18 46
Ronald Halchishak
Senior Vice President of
Operations......................... 13,656 2.4 22.88 2/25/08 196 498
1,344 .2 26.38 4/15/08 22 56
1,000 .2 28.56 4/29/08 18 46
David G. Ledlow
Senior Vice President of
Operations......................... 13,656 2.4 22.88 2/25/08 196 498
1,344 .2 26.38 4/15/08 22 56
1,000 .2 28.56 4/29/08 18 46
</TABLE>
(1) All options granted vest equally over four years from the date of grant;
however, those granted to Mr. Reid may vest earlier if certain performance
criteria are met or upon a change of control.
(2) Includes options to purchase 57,000 shares of common stock surrendered to us
by the chairman on February 25, 1998.
28
<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, 1998 by each of the Named Executive Officers and the year-end
value of unexercised options.
Aggregated Option Exercises in the Last Fiscal Year
And Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised "In-the-Money" Options
Shares Options at Fiscal Year-End at Fiscal Year-End(1)
Acquired Value -------------------------- -------------------------
on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
<S> -------------- ----------- ----------- ------------- ----------- ------------
Martin R. Reid <C> <C> <C> <C> <C> <C>
Chairman and Chief
Executive Officer..................... -- $ -- 200,000 173,411 $ -- $ --
Robert M. Wilson
Senior Vice President, Chief
Financial Officer, Secretary and
Treasurer............................. -- -- 18,750 72,250 -- --
Douglas A. Waugaman
Senior Vice President of
Operations............................. -- -- 25,000 91,000 -- --
Ronald Halchishak
Senior Vice President of
Operations............................. 11,150 247,387 37,510 49,750 11,988 5,916
David G. Ledlow
Senior Vice President of
Operations............................. 6,006 150,090 37,500 49,750 11,831 5,916
</TABLE>
(1) Options are "in-the-money" at the fiscal year end if the fair market value
(based on the closing price of our common stock on the NYSE on December
31, 1998 of $15.69 per share) of the underlying securities on such date
exceeds the exercise or base price of the option.
401(k) Plan
We maintain a 401(k) Retirement Savings Plan to provide retirement and other
benefits to our employees and to permit our employees a means to save for their
retirement. The 401(k) Plan is intended to be a tax-qualified plan under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Our employees become eligible to participate in the 401(k) Plan, and to have
salary deferral contributions made on their behalf, after they complete six
months of service and attain the age of 18.
Subject to legal limitations, participants may elect, by salary reduction, to
have 401(k) Plan contributions of 2% to 16% of their compensation made to their
accounts. Under the 401(k) Plan, we may make discretionary profit sharing
contributions on behalf of participants who have completed 1,000 hours of
service during the plan year or six months of continuous employment and are
employed on the last day of the plan year (or have retired after attaining age
65, died or incurred a disability in a plan year), based on compensation. We
made discretionary contributions of $150,000 in 1996, $436,000 in 1997 and
$990,000 in 1998 under the 401(k) Plan.
Participants in the 401(k) Plan always have a 100% vested and nonforfeitable
interest in the value of their contributions. Participants become vested in our
profit sharing and matching contributions based on a graded five year vesting
schedule (or upon a participant's retirement after attaining age 65, death or
disability, if earlier). Participants are entitled to receive the vested amounts
in their accounts in a single lump-sum payment on death, disability, retirement
or termination of employment. In certain circumstances, participants may receive
loans and hardship withdrawals from their 401(k) Plan accounts.
29
<PAGE>
Equity Participation Plans
We currently maintain two plans, the Stock Option Plan for Key Employees (the
"1995 Plan") and the 1996 Equity Participation Plan (the "1996 Plan"), pursuant
to which specified employees or directors may obtain options or other awards
enabling them to participate in our equity. Our Board adopted the 1996 Plan on
December 5, 1996, and it was approved by our stockholders on February 5, 1997.
The principal purposes of the 1996 Plan are to provide incentives for our
officers, directors, key employees and consultants through the granting of
options, restricted stock and other awards, thereby stimulating their personal
and active interest in our development and financial success, and inducing them
to remain in our service. In addition to awards made to officers, key employees
or consultants, the 1996 Plan provides for the granting of options ("Director
Options") to our non-employee directors pursuant to a formula. The 1995 Plan is
maintained for the benefit of certain of our employees for similar purposes.
The 1995 Plan provides that the Board, or a committee appointed by the Board
(in either case, the "1995 Plan Committee"), may grant non-transferable
incentive stock options ("ISOs") and non-qualified stock options ("NQSOs") to
key employees. The 1995 Plan Committee has the full authority and discretion,
subject to the terms of the 1995 Plan, to determine those individuals who are
eligible to be granted options and the amount and type of these 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, 1999, none of these shares were available for
future stock option grants.
The 1996 Plan is administered by the Compensation Committee, or a subcommittee
thereof (the "Committee"), with respect to grants to our employees or
consultants 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 is set forth in a separate written agreement with the person receiving the
Award. Under the 1996 Plan, not more than 2,000,000 shares of common stock (or
the equivalent in other equity securities) are authorized for issuance upon
exercise or vesting of any Awards. As of February 28, 1999, 167,735 shares of
common stock were available for future Awards. Furthermore, the maximum number
of shares that 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 RSC or any of our present or future subsidiaries
who are determined by the Committee to be key employees and (ii) consultants of
RSC selected by the Committee for participation in the 1996 Plan. Approximately
200 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 to the Board 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.
Management Incentive Compensation Plan
We maintain an annual bonus plan (the "Management Incentive Compensation
Plan") under which the chief executive officer and certain other executives
("Covered Employees") are eligible to receive bonus payments. The Management
Incentive Compensation Plan is intended to provide an incentive for superior
work, to motivate Covered Employees toward even higher achievement and business
results, to tie their goals and interests to ours and our stockholders and to
enable us to attract and retain highly qualified senior employees.
The Management Incentive Compensation Plan is administered by a committee
consisting of at least two members of the Board of Directors who qualify as
"outside directors" under Code Section 162(m) (the "Bonus Committee"). The Bonus
Committee currently consists of the members of the Compensation Committee. The
Bonus Committee has the sole discretion and authority to administer and
interpret the Management Incentive Compensation Plan.
30
<PAGE>
A Covered Employee may receive a bonus payment based upon the attainment of
performance objectives established by the Bonus Committee and related to one or
more of the following corporate business criteria, which may be limited, where
applicable with respect to any Covered Employee, to store-level or regional
operations: pre-tax income, operating income, cash flow, earnings per share,
EBITDA, return on equity, return on invested capital or assets, cost reductions
and savings, return on revenues, collection of accounts receivable or
productivity. The actual amount of future bonus payments under the Management
Incentive Compensation Plan is not presently determinable. However, the
Management Incentive Compensation Plan provides that the maximum bonus for a
Covered Employee shall not exceed $1,000,000 with respect to any fiscal year.
The Management Incentive Compensation Plan is designed to ensure the annual
bonuses paid to Covered Employees are deductible by us, without limit under Code
Section 162(m). Code Section 162(m) places a limit of $1,000,000 on the amount
of compensation that may be deducted in any tax year, however, certain
performance-based compensation is not subject to the deduction limit. The
Management Incentive Compensation Plan is designed to provide this type of
performance-based compensation.
Bonuses paid to Covered Employees are based upon bonus formulas that tie
bonuses to one or more objective performance standards. Bonus formulas for
Covered Employees will be adopted in each performance period by the Bonus
Committee no later than the latest time permitted by Code Section 162(m). No
bonuses will be paid to Covered Employees unless and until the Bonus Committee
makes a certification in writing with respect to the attainment of the objective
performance standards as required by Code Section 162(m). The Bonus Committee
may in its sole discretion reduce a bonus payable to a Covered Employee,
however, the Bonus Committee has no discretion to increase the amount of a
Covered Employee's bonus. The Bonus Committee has the discretion to apply or not
apply the foregoing provisions to bonuses paid to eligible employees who have
not been designated as Covered Employees.
Executive Incentive Bonus Plan
We maintain a management bonus plan for key corporate employees. The purpose
of this bonus plan is to offer incentives to our key management so as to (i)
reward them for achieving financial goals and (ii) further the alignment of
their interests with those of our stockholders. Bonuses under this plan are
based on our achievement of specified 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, we maintain 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 our financial goals in their individual
market. Bonuses under the Operations Bonus Plan are based on the degree to which
region or individual location operating profit objectives are met and generally
range from 20% to 75% of the participant's base salary if financial targets are
achieved. If financial targets are exceeded, participants may receive an
additional bonus based on incremental regional or store profit.
Bonuses under the Operations Bonus Plan are paid semi-annually. The first
payment is made after finalization of the first six months results, and
represents 50% of the bonus earned for that six months. The remainder of the
bonus earned in the first six months is paid at year end. The second payment is
calculated after our year-end audited financial statements are finalized, and
represents the total bonus earned less the amount paid for the first six-month
period.
Executive Deferred Compensation Plan and Survivor Protection Program
In January 1998, the Board approved the Executive Deferred Compensation Plan
(the "EDCP") and Survivor Protection Program (the "SPP"), pursuant to which our
senior executives may defer portions of their cash compensation and senior
executives and certain other members of our senior management received life
insurance policies.
Our senior executives may defer the receipt of a portion of their cash
compensation pursuant to the EDCP, whereby amounts, while deferred, earn
interest at a rate of (i) for the first five years of the program, the greater
of 10% or the average long-term bond yield and (ii) after the first five years
of the program, the average of the long-term bond yield. In addition, an annual
deferral incentive rate will be determined each year, beginning with the third
year of the program, which rate will be added to the rates described in the
previous sentence. Participants will
31
<PAGE>
receive payments under the EDCP upon the later of retirement or upon reaching
age 55 with at least seven years of service to RSC. If we terminate a
participant's employment, that 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.
These policies are owned by the trust.
Pursuant to the SPP, we have purchased life insurance policies for the benefit
of the survivors of our senior executives and certain other members of our
senior management. The amount of the benefit under the SPP is three times annual
base salary (less $100,000) for senior executives and two times base salary
(less $100,000) for other senior management participants, with a maximum benefit
of $500,000 for both groups. In addition, a bonus is 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, with eligibility to begin upon the earlier of (i) the participant
reaching age 62 or (ii) the participant reaching age 55 with at least seven
years of service to RSC.
Employee Qualified Stock Purchase Plan
In 1997, we adopted the Employee Qualified Stock Purchase Plan (the "QSP
Plan"). In general, the QSP Plan authorizes our employees to purchase shares of
our common stock, through payroll deductions, at a purchase price of 85% of the
fair market value of such shares. The QSP Plan is intended to help us attract
and retain experienced and capable persons who can make significant
contributions to our further growth and success and to align further their
interests with those of our stockholders.
The QSP Plan provides for the issuance of up to 250,000 shares of common
stock. The QSP Plan also provides for appropriate adjustments in the number and
kind of shares subject to the plan and to outstanding purchase rights in the
event of a stock split, stock dividend or certain other similar changes in our
common stock and in the event of a merger, reorganization, consolidation or
certain other types of recapitalizations.
Each employee who has been employed by us for not less than six months and who
is customarily employed for more than 20 hours per week and more than five
months per calendar year is eligible to participate in the QSP Plan. We
presently have approximately 2,800 employees who are eligible to participate in
the QSP Plan.
The per share exercise price of each purchase right shall be an amount equal
to the lesser of 85% of the fair market value of a share of common stock on the
first day of the offering period in which the eligible employee began
participating in the QSP Plan or 85% of the fair market value of a share of
common stock on the date of exercise of an installment of the purchase right.
The QSP Plan commenced on July 1, 1997. As of February 28, 1999, 203,562 shares
of common stock remain available under the QSP Plan.
32
<PAGE>
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of our common stock outstanding as of February 28, 1999 by (a) each
person known by us to beneficially own 5% or more of any class of our voting
securities; (b) each of our directors and executive officers; and (c) all of our
directors and executive officers as a group. Except as otherwise indicated, each
stockholder listed below has informed us that he has (i) sole voting and
investment power with respect to his shares, except to the extent that authority
is shared by spouses under applicable law, and (ii) record and beneficial
ownership with respect to those shares.
<TABLE>
<CAPTION>
Beneficial Ownership
As of
February 28, 1999 (1)
----------------------------------------
Name of Beneficial Owner Shares Percent
- ------------------------------------------------------------------------------------ ------------------ ------------------
<S> <C> <C>
Capital Research and Management Company (2)......................................... 1,600,000 6.5%
Pilgrim Baxter & Associates, Ltd. (3)............................................... 1,384,000 5.6
Martin R. Reid (4)(5)(6)............................................................ 538,545 2.2
Robert M. Wilson (4)(6)............................................................. 24,653 *
Ronald Halchishak (4)(6)............................................................ 58,340 *
David G. Ledlow (4)(6).............................................................. 49,761 *
Douglas A. Waugaman (4)(6).......................................................... 112,469 *
John Markle (4)(6).................................................................. 62,906 *
Milfred E. Howard (4)(6)............................................................ 7,616 *
David B. Harrington (4)(6).......................................................... 8,382 *
William M. Barnum, Jr. (4)(7)....................................................... 455,317 1.9
James R. Buch (4)(6)................................................................ 6,525 *
David P. Lanoha (4)(8).............................................................. 149,855 *
Christopher A. Laurence (4)(7)...................................................... 7,261 *
Eric L. Mattson (4)(9).............................................................. 5,625 *
Britton H. Murdoch (4)(10).......................................................... 7,625 *
John M. Sullivan (4)(6)............................................................. 3,125 *
All directors and executive officers as a group (15 individuals).................... 1,498,005 6.1
</TABLE>
___________
* Beneficial ownership does not exceed 1% of our outstanding common stock.
(1) A person is deemed as of any date to have "beneficial ownership" of any
security that person has a right to acquire within 60 days after that 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 that stockholder, but are not deemed
to be outstanding as to any other person.
(2) Based on a Schedule 13G for the year ended December 31, 1998, which was
filed on February 8, 1999. In that Schedule 13G, Capital Research and
Management Company ("Capital Research") reported that it beneficially owned
a total of 1,600,000 shares. Of those shares, it had sole investment
discretion with respect to all of the shares and had voting authority with
respect to none of the shares. The address of Capital Research is 333 S.
Hope Street, Los Angeles, California 90071.
(3) Based on a Schedule 13G for the year ended December 31, 1998, which was
filed on February 5, 1999. In that Schedule 13G, Pilgrim Baxter &
Associates, Ltd. ("Pilgrim Baxter") reported that it beneficially owned a
total of 1,384,000 shares. Of those shares, it had sole investment
discretion with respect to all of the shares and had voting authority with
respect to 965,800 of the shares. The address of Pilgrim Baxter is 825
Duportail Road, Wayne, Pennsylvania 19087.
(4) 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.
Reid--330,058 shares; Mr. Wilson--118,250 shares; Mr. Halchishak--70,750
shares; Mr. Ledlow--70,750 shares; Mr. Waugaman --112,000 shares; Mr.
Markle--67,771 shares; Mr. Harrington--40,143 shares; Mr. Howard--47,848
shares; Mr. Barnum--6,875 shares; Mr. Buch--5,975 shares; Mr. Lanoha--9,375
shares; Mr. Laurence--6,875 shares; Mr. Mattson--6,875 shares; Mr. Murdoch--
6,875 shares; and Mr. Sullivan--9,375 shares.
(5) Includes shares subject to vesting that may be repurchased by us if they
fail to vest.
33
<PAGE>
(6) The address of this person is c/o Rental Service Corporation, 6929 E.
Greenway Parkway, Suite 200, Scottsdale, Arizona 85254.
(7) Mr. Barnum, a director of RSC, is a general partner of BBP, the general
partner of Brentwood RSC Partners, which owns 417,972 shares of our common
stock. Accordingly, Mr. Barnum may be deemed to be the beneficial owner of
the shares owned by BBP and for purposes of this table they are included.
Mr. Barnum disclaims beneficial ownership of these shares. The address of
Brentwood RSC Partners, Mr. Barnum and Mr. Laurence is 11150 Santa Monica
Boulevard, Suite 1200, Los Angeles, California 90025.
(8) The address of this person is c/o Rental Service Corporation, 11250 East
40th Avenue, Denver, Colorado 60239.
(9) The address of this person is c/o Baker Hughes Incorporated, 3900 Essex
Lane, Suite 1200, Houston, Texas 77027.
(10) The address of this person is c/o V-Span, 1100 First Avenue, Suite 400,
King of Prussia, Pennsylvania 19406.
ITEM 13. Certain Relationships and Related Transactions
Agreements with Martin R. Reid
RSC and Martin R. Reid are parties to an employment agreement pursuant to
which Mr. Reid is employed as Chairman of the Board and Chief Executive Officer.
The 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 employment agreement provides for a base
salary of no less than $500,000. Mr. Reid is also eligible to receive a yearly
bonus of up to $500,000, if specified 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 that
is approved by the Board, but in no event earlier than one year from the grant
of such options. In addition, the vesting of the restricted stock may be
accelerated under certain circumstances, including a change of control. On
February 25, 1998, Mr. Reid surrendered to RSC options to purchase 57,000 shares
of common stock in order to ensure the number of shares of common stock
available for issuance pursuant to the 1996 Plan was sufficient to allow certain
grants of stock options to other officers. On April 29, 1998, Mr. Reid was
granted options to purchase 40,411 shares of common stock and 16,589 shares of
restricted stock. These options and restricted stock are subject to the same
vesting as those granted in January 1998.
The employment agreement may be terminated by Mr. Reid or RSC 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
of the Board and devote at least 50% of his time to RSC. 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 of the Board (a "Step Down"), Mr. Reid will
remain an RSC employee at a base salary not in excess of $125,000, depending on
the time he devotes.
Except where there has been a change of control, if Mr. Reid's active
employment in all capacities is terminated by RSC without "cause" (as defined in
the employment agreement), Mr. Reid will be entitled to receive severance pay
equal to his then-current base salary through the remaining term of the
employment agreement plus the maximum bonus opportunity available if he had
continued in the position from which he was terminated. Additionally, Mr. Reid
will be entitled to immediate vesting of all his unvested options and restricted
stock. In addition, for the remainder of the term of the employment agreement,
Mr. Reid will be treated as an active employee for purposes of all benefits and
the exercise of his options, and Mr. Reid will be entitled to health insurance
coverage until age 65. No severance pay or benefit continuation will be
available if Mr. Reid is terminated for "cause" or if he resigns, other than due
to a breach of the employment agreement by us or at the Board's request as a
Resignation or Step Down.
34
<PAGE>
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. We must also continue to provide Mr. Reid with 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 us. In addition, Mr. Reid will either be fully vested in his
account under the 401(k) Plan upon the change of control or receive payment
equal to the unvested portion of that account. We 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 us, whether as an owner, director,
officer, employee, consultant or otherwise, subject to limited investments in
public companies and a pre-existing loan to a family member.
Upon Mr. Reid's death or disability, all of his unvested options and
restricted stock will vest, and he or his estate will receive his unpaid base
salary through the date of such death or disability plus a pro rata portion of
his maximum bonus opportunity for that year.
In connection with the signing of the employment agreement in January 1998, we
accelerated the vesting of Mr. Reid's 200,000 then-outstanding options to
purchase common stock and those options became immediately exercisable.
On October 9, 1998, we issued Mr. Reid 235,000 shares of restricted stock. The
restricted stock is subject to vesting in equal installments over four years;
however, the vesting may be accelerated under certain circumstances, including a
change of control. We also entered into an agreement to loan Mr. Reid the amount
of any tax liability resulting from the grant (up to $1.4 million). The loan
accrues interest at a rate equal to the current rate on the Revolver, with
principal and interest due upon 100% vesting of the restricted stock and in
certain other circumstances. The loan is secured by the restricted stock and
will be forgiven based on the market price of our common stock reaching certain
levels, and in certain other circumstances if the vesting of the restricted
stock is accelerated. At February 28, 1999, Mr. Reid owed us $1.4 million,
including accrued interest, under this loan agreement.
On January 4, 1999, Mr. Reid was granted options to purchase 200,000 shares of
common stock, vesting in equal installments over four years.
Other Arrangements
From time to time, BBP has received investment banking fees from us in
connection with our acquisitions. Investment banking fees paid to BBP totaled
$388,000 in 1996, $1.1 million in 1997 and $0 in 1998. Our obligation to pay
these investment banking fees to BBP terminated upon the completion of our
initial public offering. However, we, at our discretion, may utilize BBP's
investment banking services under the same fee arrangement. Mr. Barnum, a
general partner of BBP, who also serves as a director of RSC, does not receive
additional compensation from BBP for service as a director.
In connection with the acquisition of Center Rentals & Sales in December 1997,
we entered into leases for certain of Center's facilities with David P. Lanoha,
a director of RSC, 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. We
believe the terms of these leases are no less favorable than those that could be
obtained from unaffiliated third parties. Prior to the acquisition, these
locations had been leased by Center from Mr. Lanoha and his affiliates. The
previous leases were terminated in connection with the acquisition of Center.
We have entered into a severance agreement with each of Messrs. Halchishak,
Harrington, Howard, Ledlow, Waugaman and Wilson providing for certain benefits
upon termination of employment either by us without cause or by the executive
officer due to a reduction in base salary and benefits (other than across the
board salary cuts for employees at the executive officer's level or changes in
benefits). These benefits include a lump sum severance
35
<PAGE>
payment equal to 100% of the 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
the executive officer immediately prior to termination for a twelve (12) month
period. In addition, all stock options granted prior to 1996, all stock options
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 the executive officer.
As consideration for these benefits, each of Messrs. Halchishak, Harrington,
Howard, Ledlow 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 RSC or hire or offer employment to any of our
employees. Mr. Waugaman agreed that during the term of the severance agreement
and for three (3) months after termination of employment for any reason he would
not solicit any customers of RSC or hire or offer employment to any of our
employees. The severance agreements with Messrs. Halchishak and Ledlow will
continue in effect through December 31, 2001, that with Mr. Wilson will continue
in effect through April 14, 2000, those with Mr. Messrs. Harrington and Howard
will continue in effect through May 30, 2000 and that with Mr. Waugaman will
continue in effect through June 30, 2001.
We have also entered into an executive severance agreement ("1998 Severance
Agreements") with each of Messrs. Halchishak, Harrington, Ledlow, Waugaman and
Wilson. The agreements provide that upon a change of control (as defined in the
1998 Severance Agreements), the executive officers will be entitled to certain
benefits upon the subsequent termination of employment within two years
following the change of control, unless the termination is due to death or
disability or if the termination is by us for "cause" or by the officer other
than for "good reason" (each as defined in the 1998 Severance Agreements). The
benefits under the agreements include, in lieu of any other severance obligation
of RSC, severance payments equal to 200% of the executive officer's base salary,
plus an additional lump sum payment equal to the maximum bonus for the current
year plus the following two years, plus certain "gross-up" payments if any of
the other payments would be subject to "golden parachute" excise taxes. The
benefits also include continuation of health and life insurance for 18 months
following termination (unless earlier provided by another employer) and vesting
of all 401(k) plan accounts. In addition, all stock options accelerate and
become immediately vested and exercisable, and all restricted stock immediately
vests. The agreements also provide that, for twelve months following a
termination that gives rise to the benefits under the agreements, the executive
officers will not compete with us. The 1998 Severance Agreements are, except as
specifically provided therein, in addition to the severance agreements described
above.
Future Transactions
We have adopted a policy that we will not enter into any material transaction
in which an RSC director or officer has a direct or indirect financial interest,
unless the transaction is determined by our Board to be fair to us or is
approved by a majority of our disinterested directors or by our stockholders, as
provided for under Delaware corporate law. In addition, our debt instruments
generally prohibit us from entering into any affiliate transaction on other than
arm's length terms.
36
<PAGE>
PART IV
<TABLE>
<CAPTION>
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<S> <C> <C>
(a) (1) Consolidated Financial Statements
Report of Independent Auditors..................................................................................... F-1
Consolidated Balance Sheets - December 31, 1997 and 1998........................................................... F-2
Consolidated Statements of Operations - Years ended December 31, 1996, 1997 and 1998............................... F-3
Consolidated Statements of Redeemable Preferred Stock and Common Stockholders'
Equity - Years ended December 31, 1996, 1997 and 1998........................................................... F-4
Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1997 and 1998............................... F-6
Notes to Consolidated Financial Statements......................................................................... F-7
(2) Financial Statement Schedules
Report of Independent Auditors on Financial Statement Schedules.................................................... S-1
Schedule I - Condensed Financial Information of Registrant......................................................... S-2
Schedule II - Valuation and Qualifying Accounts.................................................................... S-7
Other schedules are omitted because of the absence of conditions under which they are required
or because the required information is included in the Consolidated Financial Statements or
Notes thereto.
(3) Information with respect to this item is contained in Item 14(c) hereof and is incorporated herein by reference.
(b) Reports on Form 8-K
</TABLE>
1) We filed a Current Report on Form 8-K, dated December 7, 1998,
announcing the Fourth Amendment to our Second Amended and Restated
Credit Agreement.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
- --------------- -----------------------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company. (1)
3.2 Certificate of Amendment of Certificate of Incorporation. (2)
3.3 Form of Amended and Restated Bylaws of the Company. (3)
10.1 Second Amended and Restated Credit Agreement, dated as of December 2, 1997. (2)
10.2 First Amendment to Second Amended and Restated Credit Agreement, dated as of May 13, 1998. (4)
10.3 Second Amendment to Second Amended and Restated Credit Agreement, dated as of July 20, 1998. (5)
10.4 Third Amendment to Second Amended and Restated Credit Agreement, dated as of September 29, 1998. (6)
10.5 Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of November 24, 1998. (7)
*10.6 Fifth Amendment to Second Amended and Restated Credit Agreement, dated as of February 10, 1999.
10.7 Indenture dated as of May 13, 1998 by and between Rental Service Corporation, the Subsidiary
Guarantors and Norwest Bank Minnesota, National Association, as trustee for the 9% Senior
Subordinated Notes due 2008. (4)
</TABLE>
37
<PAGE>
(c) Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit Number Description
- --------------- ---------------------------------------------------------------------------------------------
<S> <C>
10.8 Registration Rights Agreement dated as of May 13, 1998 by and among Rental Service
Corporation and the persons named therein relating to the 9% Senior Subordinated Notes due
2008. (4)
10.9 Credit Agreement among Rental Service Corporation of Canada Ltd. as Borrower, BT Bank of
Canada and The Bank of Nova Scotia, as Lenders, and BT Bank of Canada, as Agent, dated as of
August 21, 1998 (the "Canadian Credit Agreement"). (6)
10.10 First Amendment to the Canadian Credit Agreement, dated as of September 29, 1998. (6)
10.11 Stockholders' Agreement dated as of January 4, 1996 by and among the parties listed on the
signature page thereto and Rental Service Corporation. (1)
10.12 Stock Option Plan for Key Employees. (1)
10.13 Form of Incentive Stock Option Agreement for Directors. (1)
10.14 Form of Incentive Stock Option Agreement for Region Managers. (1)
10.15 Form of Amended Incentive Stock Option Agreement for Region Managers. (1)
10.16 Form of Amended Incentive Stock Option Agreement for Corporate Office Personnel. (1)
10.17 Form of Incentive Stock Option Agreement for Other Corporate and District Personnel. (1)
10.18 Form of Amendment to Amended Incentive Stock Option Agreement for Region Managers. (1)
10.19 Form of Amendment to Amended Incentive Stock Option Agreement for Region Managers. (1)
10.20 Form of Amendment to Amended Incentive Stock Option Agreement for Region Managers. (1)
10.21 Form of Amendment to Amended Incentive Stock Option Agreement for Corporate Office
Personnel. (1)
10.22 1996 Equity Participation Plan of Rental Service Corporation. (8)
10.23 Amendment to the 1996 Equity Participation Plan of Rental Service Corporation, dated as of
April 29, 1998. (9)
10.24 Form of Incentive Stock Option Agreement for Employees. (10)
10.25 Form of Non-Qualified Stock Option Agreement for Directors. (10)
10.26 Employee Qualified Stock Purchase Plan of Rental Service Corporation. (11)
10.27 Amendment to the First Amended and Restated Employee Qualified Stock Purchase Plan of Rental
Service Corporation, dated as of April 29, 1998. (6)
10.28 Second Amendment to the First Amended and Restated Employee Qualified Stock Purchase Plan of
Rental Service Corporation, dated September 14, 1998. (6)
10.29 Form of Indemnification Agreement. (1)
10.30 Management Incentive Compensation Plan. (12)
*10.31 Executive Deferred Compensation Plan.
*10.32 Form of Survivor Protection Program Agreement between Rental Service Corporation and certain
executive officers.
10.33 Employment Agreement dated January 14, 1998 between Rental Service Corporation and Martin R.
Reid. (13)
10.34 Restricted Stock Agreement dated January 14, 1998 between Rental Service Corporation and
Martin R. Reid. (4)
10.35 Restricted Stock Agreement dated April 29, 1998 between Rental Service Corporation and
Martin R. Reid. (5)
10.36 Restricted Stock Agreement dated October 9, 1998 between Rental Service Corporation and
Martin R. Reid, including the related Promissory Note and Pledge Agreement. (6)
*10.37 Form of 1997 Executive Severence Agreement between Rental Service Corporation and certain
executive officers.
10.38 Form of 1998 Executive Severance agreement between Rental Service Corporation and certain
executive officers. (5)
10.39 Stock Purchase Agreement by and among Andy G. Gessner; Larry R. Bush; Stacy K. Bush; Larry
R. Bush; Trustee of the Stacy K. Bush Trust and Roy B. Bush as "Sellers," Acme Dixie Inc.,
as "Buyer," Rental Service Corporation as "Parent" and Comtect, Inc. and Comtect, Inc.'s
subsidiaries as the "Company," dated March 14, 1997. (14)
10.40 Asset Purchase Agreement by and among Brute Equipment Co. d/b/a "Foxx Hy-Reach
Company" as "Seller," Rental Service Corporation, Walker Jones Equipment Company as
"Buyer" and Thomas H. Foster, dated April 25, 1997. (14)
10.41 Asset Purchase Agreement by and among Central States Equipment, Inc. and Equipment Lessors,
Inc. as "Sellers," Walker Jones Equipment Company as "Buyer" and the stockholders of
Sellers, dated April 26, 1997. (14)
</TABLE>
38
<PAGE>
(c) Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit Number Description
- --------------- ----------------------------------------------------------------------------------------------
<S> <C>
10.42 Stock Purchase Agreement by and among David P. Lanoha and The Lanoha Charitable
Remainder Trust and National Christian Charitable Foundation and Richard F. Lanoha Family
Trust as "Sellers," RSC Acquisition Corp. as "Buyer," Rental Service Corporation as
"Parent" and Rent-It-Center, Inc. d/b/a Center Rental and Sales, Inc. as the "Company,"
dated October 6, 1997. (15)
10.43 Asset Purchase Agreement by and among David P. Lanoha as "Seller," RSC Acquisition Corp.
as "Buyer," Rental Service Corporation as "Parent" and Lanoha Leasing Limited Liability
Company as the "Company," dated October 6, 1997. (15)
10.44 Asset Purchase Agreement by and among David P. Lanoha as "Seller," RSC Acquisition Corp.
as "Buyer," Rental Service Corporation as "Parent" and Zuni Rental Enterprises L.L.C. as
the "Company," dated October 6, 1997. (15)
10.45 Asset Purchase Agreement by and among David P. Lanoha as "Seller," RSC Acquisition Corp.
as "Buyer," Rental Service Corporation as "Parent" and Center Rental & Sales/Omaha, LLC
as the "Company," dated October 6, 1997. (15)
10.46 Stock Purchase Agreement by and among Leonard A. Siems, Marvin W. Abbott and the Trustees
(as defined) as "Sellers," RSC Alabama, Inc. as "Buyer," Rental Service Corporation as
"Parent" and Siems Rental & Sales Co., Inc. as the "Company," dated October 31, 1997. (15)
10.47 Asset Purchase Agreement by and among JDW Enterprises, Inc. d/b/a "Valley Rentals" as
"Seller," Rental Service Corporation, RSC Center, Inc. as "Buyer" and Jerald and Elfriede
Adams, Dan and Mary Evans, and Warren and Linda Youel, dated December 30, 1997. (16)
10.48 Stock Purchase Agreement by and among James S. Peterson as "Seller," Walker Jones Equipment,
Inc. as "Buyer," Rental Service Corporation as "Parent" and James S. Peterson Enterprises,
Inc. as the "Company," dated April 1, 1998. (13)
10.49 Stock Purchase Agreement by and among Mark S. Mosak and Thomas A. Mosak as "Sellers," Walker
Jones Equipment, Inc. as "Buyer," Rental Service Corporation as "Parent" and T&M Rental, Inc.
as the "Company," dated April 2, 1998. (13)
10.50 Stock Purchase Agreement by and among Jerry O. Grayson, Michael A. Mathon and Becker Partners
as "Sellers," Becker St. Paul Corporation and Kathleen Becker as "Partners," Walker Jones
Equipment, Inc. as "Buyer," and M. J. Struckel & Company, Inc. as the "Company," dated July
29, 1998. (17)
*21.1 Subsidiaries of Rental Service Corporation.
*23.1 Consent of Ernst & Young LLP.
*27.1 Financial Data Schedule.
</TABLE>
__________
* Filed herewith.
(1) Filed as an Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-05949, effective September 18, 1996), and
incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-40707, effective December 16, 1997), and incorporated
herein by reference.
(3) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
January 28, 1999, and incorporated herein by reference.
(4) Filed as an Exhibit to the Company's Registration Statement on Form S-4
(Registration No. 333-56653, effective August 20, 1998), and incorporated
herein by reference.
(5) Filed as an Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-59519, effective August 13, 1998), and incorporated
herein by reference.
(6) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
three months ended September 30, 1998, and incorporated herein by
reference.
(7) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
December 7, 1998, and incorporated herein by reference.
39
<PAGE>
(c) Exhibits (continued)
<TABLE>
<S> <C>
(8) Filed as an Exhibit to the Company's Registration Statement on Form S-8
(Registration No. 333-22403, dated February 26, 1997), and incorporated
herein by reference.
(9) Filed as an Exhibit to the Company's Registration Statement on Form S-8
(Registration No. 333-59679, dated July 23, 1998), and incorporated herein
by reference.
(10) Filed as an Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-26753, effective May 29, 1997), and incorporated
herein by reference.
(11) Filed with the Company's Proxy Statement on Schedule 14A filed March 26,
1997, and incorporated herein by reference.
(12) Filed with the Company's Proxy Statement on Schedule 14A filed March 30,
1998, and incorporated herein by reference.
(13) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1998, and incorporated herein by reference.
(14) Filed as an Exhibit to the Company's Current Report on Form 8-K dated April
14, 1997, and incorporated herein by reference.
(15) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
three months ended September 30, 1997, and incorporated herein by
reference.
(16) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
February 18, 1998, and incorporated herein by reference.
(17) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
three months ended June 30, 1998, and incorporated herein by reference.
(d) None are required to be filed with this report.
</TABLE>
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RENTAL SERVICE CORPORATION
By: /s/ Robert M. Wilson
-------------------------------------------
Robert M. Wilson
Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
Date: March 1, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------- ------------------------------ -----------------
<S> <C> <C>
Chairman of the Board and
/s/ Martin R. Reid Chief Executive Officer March 1, 1999
- ---------------------------------- (Principal Executive Officer)
Martin R. Reid
Executive Vice President, Chief
/s/ Robert M. Wilson Financial Officer, Secretary March 1, 1999
- ---------------------------------- and Treasurer (Principal
Robert M. Wilson Financial
and Accounting Officer)
/s/ William M. Barnum, Jr. Director March 1, 1999
- ----------------------------------
William M. Barnum, Jr.
/s/ James R. Buch Director March 1, 1999
- ----------------------------------
James R. Buch
/s/ David P. Lanoha Director March 1, 1999
- ----------------------------------
David P. Lanoha
/s/ Christopher A. Laurence Director March 1, 1999
- ----------------------------------
Christopher A. Laurence
/s/ Eric L. Mattson Director March 1, 1999
- ----------------------------------
Eric L. Mattson
/s/ Britton H. Murdoch Director March 1, 1999
- ----------------------------------
Britton H. Murdoch
/s/ John M. Sullivan Director March 1, 1999
- ----------------------------------
John M. Sullivan
</TABLE>
41
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Rental Service Corporation
We have audited the accompanying consolidated balance sheets of Rental Service
Corporation as of December 31, 1997 and 1998, and the related consolidated
statements of operations, redeemable preferred stock and common stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Rental Service Corporation at December 31, 1997 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
February 10, 1999
F-1
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1998
---------- ----------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents...................................................... $ 8,932 $ 3,466
Accounts receivable, net of allowance for doubtful accounts of $2,925 and
$4,857 at December 31, 1997 and 1998, respectively (Note 6)................... 62,028 124,230
Parts and supplies inventories, net of reserve for obsolescence of $2,181 and
$1,009 at December 31, 1997 and 1998, respectively............................ 31,714 47,216
Deferred taxes (Note 11)....................................................... 15,241 28,736
Rental equipment, principally machinery, at cost, net of accumulated
depreciation of $54,506 and $132,395 at December 31, 1997 and
1998, respectively (Note 6)................................................... 314,696 656,207
Operating property and equipment, at cost, net (Note 4)........................ 35,799 67,629
Intangible assets, net (Note 5)................................................ 220,166 401,239
Other assets, net.............................................................. 10,750 23,853
--------- -----------
$ 699,326 $ 1,352,576
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable............................................................... $ 34,911 $ 24,721
Payroll and other accrued expenses............................................. 31,937 31,581
Accrued interest payable....................................................... 2,179 4,605
Income taxes payable (Note 11)................................................. 1,686 476
Deferred taxes (Note 11)....................................................... 30,857 64,996
Bank debt and long term obligations (Note 6)................................... 306,975 808,712
--------- -----------
Total liabilities.......................................................... 408,545 935,091
Commitments and contingencies (Notes 6 and 9)
Stockholders' equity (Note 7):
Preferred stock, $.01 par value:
Authorized shares--500,000
Issued and outstanding shares--none.......................................... -- --
Common stock, $.01 par value:
Authorized shares--40,000,000
Issued and outstanding shares--19,833,437 and 24,089,645 at
December 31, 1997 and 1998, respectively................................... 198 241
Additional paid-in capital.................................................... 270,927 373,646
Common stock issuable--284,108 and 220,185 shares at December 31, 1997
and 1998, respectively..................................................... 6,000 3,988
Deferred compensation expense................................................. -- (3,162)
Currency translation loss..................................................... -- (76)
Retained earnings............................................................. 13,656 42,848
--------- -----------
Total stockholders' equity................................................. 290,781 417,485
--------- -----------
$ 699,326 $ 1,352,576
========= ===========
</TABLE>
See accompanying notes.
F-2
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1996 1997 1998
-------- -------- --------
Revenues:
<S> <C> <C> <C>
Equipment rentals...................................... $ 94,218 $170,704 $404,185
Sales of parts, supplies and new equipment............. 21,919 70,957 130,823
Sales of used equipment................................ 12,217 19,602 43,466
-------- -------- --------
Total revenues..................................... 128,354 261,263 578,474
Cost of revenues:
Cost of equipment rentals, excluding rental
equipment depreciation............................... 55,202 87,552 199,773
Depreciation, rental equipment......................... 17,840 37,413 87,260
Cost of sales of parts, supplies and new equipment..... 15,582 54,739 100,875
Cost of sales of used equipment........................ 8,488 12,927 31,259
-------- -------- --------
Total cost of revenues............................. 97,112 192,631 419,167
-------- -------- --------
Gross profit............................................. 31,242 68,632 159,307
Selling, general and administrative expense.............. 12,254 20,996 37,230
Depreciation and amortization, excluding rental
equipment depreciation................................. 2,835 5,373 10,244
Amortization of intangibles.............................. 2,379 3,907 10,333
-------- -------- --------
Operating income......................................... 13,774 38,356 101,500
Interest expense, net.................................... 7,063 14,877 50,375
-------- -------- --------
Income before income taxes and extraordinary items....... 6,711 23,479 51,125
Provision for income taxes (Note 11)..................... 2,722 10,330 21,933
-------- -------- --------
Income before extraordinary items........................ 3,989 13,149 29,192
Extraordinary items, loss on extinguishment of debt,
less applicable income tax benefit of $822 and $386
in 1996 and 1997, respectively (Note 6)................ 1,269 534 --
-------- -------- --------
Net income............................................... 2,720 12,615 29,192
Redeemable preferred stock accretion..................... 1,643 -- --
-------- -------- --------
Net income available to common stockholders.............. $ 1,077 $ 12,615 $ 29,192
======== ======== ========
Earnings per common share (Note 3):
Income before extraordinary items...................... $ .34 $ .96 $1.33
Extraordinary items.................................... (.18) (.04) --
-------- -------- --------
Net income............................................. $ .16 $ .92 $1.33
======== ======== ========
Weighted average common shares........................... 6,876 13,653 21,880
======== ======== ========
Earnings per common share, assuming dilution (Note 3):
Income before extraordinary items...................... $ .33 $ .94 $1.32
Extraordinary items.................................... (.18) (.03) --
-------- -------- --------
Net income............................................. $ .15 $ .91 $1.32
======== ======== ========
Weighted average common shares, assuming dilution........ 7,180 13,927 22,191
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stockholders' Equity
Redeemable ----------------------------------------------------------
Preferred Stock Common Stock Additional Common
------------------------- ------------------------- Paid-in Stock
Shares Amount Shares Amount Capital Issuable
-------- -------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... 244,805 $ 28,401 4,247,730 $ 42 $ 40 $ --
Issuance of redeemable preferred
stock............................ 75,000 7,500 -- -- -- --
Issuance of common stock for
cash, net of issuance costs
of $8,723........................ -- -- 7,094,358 71 95,152 --
Exercise of stock options......... -- -- 34,290 1 -- --
Redemption of redeemable
preferred stock.................. (319,805) (37,874) -- -- -- --
Preferred stock adjustment........ -- 330 -- -- (330) --
Repurchase of common stock
warrants......................... -- -- -- -- (945) --
Redeemable preferred stock
accretion........................ -- 1,643 -- -- -- --
Net income........................ -- -- -- -- -- --
-------- -------- ---------- ----- -------- -----
Balance at December 31, 1996....... -- -- 11,376,378 114 93,917 --
Issuance of common stock for
cash, net of issuance costs
of $9,937........................ -- -- 7,345,224 73 153,901 --
Issuance of common stock in
connection with acquisitions..... -- -- 1,081,514 11 22,788 --
Common stock issuable in
connection with acquisitions..... -- -- -- -- -- 6,000
Exercise of stock options......... -- -- 30,321 -- 85 --
Tax benefit of stock options...... -- -- -- -- 236 --
Net income........................ -- -- -- -- -- --
-------- -------- ---------- ----- -------- -----
Balance at December 31, 1997....... -- -- 19,833,437 198 270,927 6,000
</TABLE>
<TABLE>
<CAPTION>
Common Stockholders' Equity
-------------------------------------------------------------
Defered Currency Retained
Compensation Translation Earnings
Expense Loss (Deficit) Total
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1995....... $ -- $ -- $ (36) $ 46
Issuance of redeemable preferred
stock............................ -- -- -- --
Issuance of common stock for
cash, net of issuance costs
of $8,723........................ -- -- -- 95,223
Exercise of stock options......... -- -- -- 1
Redemption of redeemable
preferred stock.................. -- -- -- --
Preferred stock adjustment........ -- -- -- (330)
Repurchase of common stock
warrants......................... -- -- -- (945)
Redeemable preferred stock
accretion........................ -- -- (1,643) (1,643)
Net income........................ -- -- 2,720 2,720
------ ------- ------- --------
Balance at December 31, 1996....... -- -- 1,041 95,072
Issuance of common stock for
cash, net of issuance costs
of $9,937........................ -- -- -- 153,974
Issuance of common stock in
connection with acquisitions..... -- -- -- 22,799
Common stock issuable in
connection with acquisitions..... -- -- -- 6,000
Exercise of stock options......... -- -- -- 85
Tax benefit of stock options...... -- -- -- 236
Net income........................ -- -- 12,615 12,615
------ ------- ------- --------
Balance at December 31, 1997....... -- -- 13,656 290,781
</TABLE>
See accompanying notes.
F-4
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY -- (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stockholders' Equity
Redeemable ----------------------------------------------------------------------
Preferred Stock Common Stock Additional Common Deferred
-------------------- ----------------------- Paid-in Stock Compensation
Shares Amount Shares Amount Capital Issuable Expense
-------- -------- ---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for
cash, net of issuance costs
of $4,644........................ -- $ -- 3,018,872 $ 30 $ 77,779 $ -- $ --
Issuance of common stock in
connection with acquisitions..... -- -- 712,629 7 16,493 -- --
Issuance of common stock
issuable in connection with
acquisitions..................... -- -- 172,789 2 3,717 (3,719) --
Common stock issuable in
connection with acquisitions..... -- -- -- -- -- 1,707 --
Issuance of restricted stock...... -- -- 261,589 3 3,464 -- (3,467)
Amortization of deferred
compensation expense............. -- -- -- -- -- -- 305
Exercise of stock options......... -- -- 69,447 1 568 -- --
Tax benefit of stock options...... -- -- -- -- 265 -- --
Issuance of common stock in
connection with the QSP Plan..... -- -- 20,882 -- 433 -- --
Currency translation loss......... -- -- -- -- -- -- --
Net income........................ -- -- -- -- -- -- --
----- ------- ---------- ----- --------- -------- --------
Balance at December 31, 1998....... -- $ -- 24,089,645 $ 241 $ 373,646 $ 3,988 $ (3,162)
===== ======= =========== ===== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
Currency Retained
Translation Earnings
Loss (Deficit) Total
---------- ----------- ---------
<S> <C> <C> <C>
Issuance of common stock for
cash, net of issuance costs
of $4,644........................ $ -- $ -- $ 77,809
Issuance of common stock in
connection with acquisitions..... -- -- 16,500
Issuance of common stock
issuable in connection with
acquisitions..................... -- -- --
Common stock issuable in
connection with acquisitions..... -- -- 1,707
Issuance of restricted stock...... -- -- --
Amortization of deferred
compensation expense............. -- -- 305
Exercise of stock options......... -- -- 569
Tax benefit of stock options...... -- -- 265
Issuance of common stock in
connection with the QSP Plan..... -- -- 433
Currency translation loss......... (76) -- (76)
Net income........................ -- 29,192 29,192
----- -------- ---------
Balance at December 31, 1998....... $ (76) $ 42,848 $ 417,485
===== ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1996 1997 1998
-------------- -------------- --------------
Operating activities (In thousands)
<S> <C> <C> <C>
Net income.......................................................... $ 2,720 $ 12,615 $ 29,192
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization..................................... 23,054 46,693 107,837
Extraordinary item................................................ 1,269 534 --
Interest paid in kind............................................. 1,706 -- --
Provision for losses on accounts receivable....................... 1,692 2,596 4,429
Deferred taxes.................................................... 1,713 7,217 18,028
Amortization of deferred compensation expense..................... -- -- 305
Currency translation loss......................................... -- -- (76)
Gain on sale of used equipment.................................... (3,729) (6,675) (12,207)
Changes in operating assets and liabilities, net of effect of
business acquisitions:
Accounts receivable............................................. (5,725) (20,923) (48,070)
Other assets.................................................... (2,887) 2,562 3,801
Parts and supplies inventories.................................. (2,444) (8,826) (11,437)
Accounts payable................................................ 10,077 9,712 (11,097)
Payroll and other accrued expenses.............................. (3,523) (2,776) (14,372)
Accrued interest payable........................................ (257) 1,665 2,425
Income taxes payable............................................ (172) 1,591 (1,209)
-------------- -------------- --------------
Net cash provided by operating activities........................... 23,494 45,985 67,549
Investing activities
Acquisitions of rental operations, net of cash acquired (Note 2).... (27,270) (278,883) (281,574)
Cash purchases of rental equipment and operating property
and equipment...................................................... (86,842) (165,123) (403,645)
Proceeds from sale of used equipment................................ 12,695 19,602 43,466
Proceeds from assets held for sale.................................. 16,668 -- --
-------------- -------------- --------------
Net cash used in investing activities............................... (84,749) (424,404) (641,753)
Financing activities
Proceeds from bank debt............................................. 225,335 628,478 1,077,538
Payments on bank debt............................................... (213,511) (489,870) (776,873)
Payments of debt issuance costs..................................... (984) (6,402) (8,850)
Proceeds from long term obligations................................. -- 100,000 200,000
Payments on long term obligations................................... (13,493) (366) (1,888)
Proceeds from issuance of redeemable preferred stock................ 7,500 -- --
Redemption of redeemable preferred stock............................ (37,874) -- --
Proceeds from issuance common stock, net of issuance costs.......... 95,223 153,974 77,809
Proceeds from exercise of stock options............................. 1 85 569
Proceeds from QSP Plan offerings.................................... -- -- 433
Repurchase of common stock warrants................................. (945) -- --
-------------- -------------- --------------
Net cash provided by financing activities........................... 61,252 385,899 568,738
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents................ (3) 7,480 (5,466)
Cash and cash equivalents at beginning of year...................... 1,455 1,452 8,932
-------------- -------------- --------------
Cash and cash equivalents at end of year............................ $ 1,452 $ 8,932 $ 3,466
============== ============== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest.............................................. $ 5,614 $ 13,212 $ 47,949
Cash paid for income taxes.......................................... 1,850 279 7,007
</TABLE>
See accompanying notes.
F-6
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Accounting Policies
Basis of Presentation
Rental Service Corporation ("RSC" or the "Company"), a Delaware Corporation,
operates in a single industry segment: the short-term rental of equipment,
including ancillary sales of parts, supplies and equipment, through a network of
rental locations throughout the United States. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the accompanying consolidated balance sheets are presented on an
unclassified basis.
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All material
intercompany accounts and transactions have been eliminated.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Certain amounts in the prior year financial statements have been reclassified
to conform with the current year financial statement presentation.
Revenue Recognition
Equipment rental revenue is recorded as earned under the operating method.
Equipment rentals in the consolidated statements of operations includes revenues
earned on equipment rentals, fuel sales and rental equipment delivery fees.
Revenue from the sale of parts, supplies and new equipment and revenue from the
sale of used equipment is recorded at the time of delivery to or pick-up by the
customer.
Credit Policy
Most of the Company's business is on a credit basis. The Company extends
credit to its commercial customers based on evaluations of their financial
condition and generally no collateral is required, although in many cases
mechanics' liens are filed to protect the Company's interests. Invoices are
generated when a piece of rental equipment is returned by the customer or in any
event after 21 days. The Company has diversified its customer base by operating
rental locations in 27 states and Canada. The Company maintains reserves it
believes are adequate for potential credit losses.
Parts and Supplies Inventories
Parts and supplies inventories consist principally of parts, commodity type
supplies and small- to medium-sized equipment for sale. All inventories are
valued at the lower of cost (first-in, first-out) or market.
Depreciation and Amortization
Rental equipment and operating property and equipment are being depreciated
using the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Rental equipment............................ 3-7 years
Operating property and equipment............ 3-36 years
Leasehold improvements...................... Term of lease
</TABLE>
Rental equipment and operating property and equipment is depreciated to a
salvage value of 10% of cost. Amortization of assets under capital leases is
included in depreciation expense.
F-7
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Intangible Assets
Intangible assets are recorded at cost and are amortized using the straight-
line method over their estimated useful lives; usually one to three years for
covenants not to compete and 30 to 40 years for goodwill. The recoverability of
goodwill attributable to the Company's acquisitions is analyzed annually based
on actual and projected levels of profitability and cash flows of the locations
acquired on an undiscounted basis.
Income Taxes
The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes. Under the liability method, deferred taxes are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. Recognition of deferred tax
assets is limited to amounts considered by management to be more likely than not
of realization in future periods.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Advertising Expense
The cost of advertising is expensed as incurred. The Company incurred $1.1
million, $1.1 million, and $2.7 million in advertising costs during the years
ended December 31, 1996, 1997 and 1998, respectively.
Debt Costs
Deferred financing costs are amortized using the straight-line method over the
lives of the related debt. Recorded deferred financing costs are written off in
connection with refinancings if there are substantive changes in the terms of
the related debt.
Stock Based Compensation
The Company grants stock options for a fixed number of shares with an exercise
price equal to the fair value of the shares at the date of grant. The Company
accounts for employee stock option grants in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and, accordingly,
recognizes no compensation expense for stock option grants.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable.
The Company maintains cash and cash equivalents with various financial
institutions located throughout the country in order to limit exposure to any
one institution. The Company performs periodic evaluations of the relative
credit standing of those financial institutions considered in the Company's
investment strategy.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers.
F-8
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Fair Values of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents, accounts receivable, accounts payable and accrued liabilities
approximate fair value because of the immediate or short-term maturity of these
financial instruments. The fair value of long-term debt is determined using
current applicable interest rates as of the balance sheet date and approximates
the carrying value of such debt because the underlying instruments are at
variable rates that are repriced frequently. The fair value of the Senior
Subordinated Notes approximates carrying value based on the Company's estimate
of the current market for similar debt.
Earnings Per Share
Earnings per share is calculated in accordance with the requirements of SFAS
No. 128, Earnings Per Share, as well as Staff Accounting Bulletin No. 98 (issued
by the Securities and Exchange Commission in February 1998), which amends the
determination of and accounting for "cheap stock" in periods prior to an initial
public offering. The effect of dilutive securities is computed using the
treasury stock method.
Foreign Currency Translation
For the Company's foreign operations, the local currency is the functional
currency. All assets and liabilities are translated at period-end exchange rates
and all income statement amounts are translated at an average of month-end
rates. Adjustments resulting from this translation are recorded as a separate
component of stockholders' equity.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 established new standards for the reporting
and display of comprehensive income and its components. Comprehensive income
includes certain non-owner changes in equity that are currently excluded from
net income (i.e., foreign currency translation adjustments). The adoption of
SFAS No. 130 had no impact on the Company's net income or stockholder's equity.
Comprehensive income has not been presented, as it does not materially differ
from net income.
Segment Information
Effective January 1, 1998, the Company adopted SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information. SFAS No. 131 superseded
SFAS No. 14, Finanical Reporting for Segments of a Business Enterprise. SFAS No.
131 establishes a new method by which companies will report operating segment
information. This method is based on the manner in which management organizes
the segments within a company for making operating decisions and assessing
performance. SFAS No. 131 also establishes standards for related disclosures
about products and services, geographic areas and major customers. The adoption
of SFAS No. 131 did not affect the Company's consolidated financial position,
results of operations or financial statement disclosures, as the Company
operates only one business segment.
For the year ended December 31, 1998, the Company had total revenues of $2.3
million attributable to its foreign operations. Total assets of the Company's
foreign operations were $15.2 million at December 31, 1998.
For the year ended December 31, 1996, the Company's largest customer accounted
for less than 4% of its total revenues. For each of the years ended December 31,
1997 and 1998, the Company's largest customer accounted for less than 1% of its
total revenues.
F-9
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Business Acquisitions
A principal component of the Company's business strategy is to continue to
grow through acquisitions that augment its present operations as well as provide
entry into new geographic markets. In keeping with this strategy, the Company
has made numerous acquisitions of rental operations. These acquisitions have
been accounted for as purchases and, accordingly, the acquired tangible and
identifiable intangible assets and liabilities have been recorded at their
estimated fair values at the dates of acquisition with any excess purchase price
reflected as goodwill in the accompanying consolidated financial statements.
Purchase accounting values for all acquisitions are assigned on a preliminary
basis, and are subject to adjustment when final information as to the fair
values of the net assets acquired is available. The operations of the acquired
businesses are included in the consolidated statements of operations from the
date of effective control of each such acquisition.
The following table sets forth, for the periods indicated, the net assets
acquired, liabilities assumed, common stock issued or issuable and cash purchase
price for these acquisitions.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1996 1997 1998
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Assets acquired...................................... $ 20,316 $142,043 $127,680
Goodwill and covenants not to compete................ 12,221 189,206 191,297
Less: common stock issued or issuable................ -- (28,799) (18,208)
Less: liabilities assumed............................ (5,267) (23,567) (19,195)
-------- -------- --------
Cash purchase price.................................. $ 27,270 $278,883 $281,574
======== ======== ========
Number of acquisitions............................... 11 22 24
</TABLE>
The following table sets forth the unaudited pro forma results of
operations for each year in which acquisitions occurred, and for the immediately
preceding year, as if the acquisitions were consummated at the beginning of the
immediately preceding year (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1996 1997 1998
-------- -------- --------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Total revenues....................................... $320,897 $507,382 $627,403
Income before and extraordinary items................ 2,256 12,406 29,282
Net income........................................... 987 11,872 29,282
Earnings (loss) per common share:
Income before and extraordinary items............... .07 .81 1.33
Net income (loss)................................... (.08) .77 1.33
Earnings (loss) per common share, assuming dilution:
Income before extraordinary items................... .07 .79 1.31
Net income (loss)................................... (.08) .76 1.31
</TABLE>
On December 2, 1997, the Company acquired all of the outstanding stock of
Rent-It-Center, Inc. d/b/a Center Rentals and Sales and substantially all of the
assets of certain affiliated entities (collectively, "Center") for $116.9
million in cash (including the payoff of $16 million of assumed debt), 482,315
shares of common stock (of which 64,544 shares will be issued over seven years,
subject to earlier issuance within three years if certain performance objectives
are achieved (21,515 of these shares were issued during 1998) and the assumption
of certain liabilities. Center was an independent equipment rental company that
also sold a variety of equipment ranging from small tools to heavy equipment,
including related commodity supplies. Center operated in Colorado, New Mexico,
Texas,
F-10
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Kansas, Missouri and Nebraska. Center's balance sheet was consolidated
with the Company's as of December 2, 1997. This acquisition resulted in $90.6
million in goodwill, which is being amortized over 40 years. Pursuant to the
acquisition agreements, the Company assumed effective control of Center's
operations on November 1, 1997 and has included Center's revenues, costs and
expenses from such date in its consolidated statements of operations, net of
related imputed purchase price adjustments.
During the year ended December 31, 1997, the Company completed 21 additional
acquisitions of equipment rental businesses for an aggregate purchase price of
$162 million in cash (including the payoff of assumed debt), 817,394 shares of
common stock (of which 68,290 shares will be issued in future years) and the
assumption of certain liabilities. Additionally, up to 197,738 shares of common
stock may be paid for these acquisitions based on the achievement of certain
performance objectives by the acquired companies, of which 65,913 shares were
issued during 1998 and an additional 65,913 shares were earned and payable at
December 31, 1998. Such contingent shares are valued and recorded at the date
such contingencies are resolved.
On February 3, 1998, the Company acquired substantially all of the assets of
JDW Enterprises, Inc. d/b/a Valley Rentals ("Valley") for $93.6 million in cash
and 435,602 shares of common stock. Valley was an independent equipment rental
company operating in Arizona and New Mexico. This acquisition resulted in $57
million in goodwill, which is being amortized over 40 years.
During the year ended December 31, 1998, the Company completed 23 additional
acquisitions of equipment rental businesses for an aggregate purchase price of
$188 million in cash (including the payoff of assumed debt), 277,027 shares of
commmon stock and the assumption of certain liabilities. Additionally, up to
128,859 shares of common stock may be paid for these acquisitions based on the
achievement of certain performance objectives by the acquired companies, of
which 42,953 shares were earned and payable at December 31, 1998. Such
contingent shares are valued and recorded at the date such contingencies are
resolved.
The common stock issuable in the accompanying consolidated balance sheets is
associated with the common stock relating to certain of the Company's
acquisitions that vests over future time periods, and the common stock relating
to certain of the Company's acquisitions that was earned and payable at the end
of the respective years based on the achievement of performance objectives.
During 1998, 172,789 shares of the common stock issuable were paid to the
sellers of these acquired businesses.
F-11
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3. Earnings Per Share
The following table sets forth the computation of earnings per share and
earnings per share, assuming dilution:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1996 1997 1998
-------- -------- --------
Numerator: (In thousands)
<S> <C> <C> <C>
Income before extraordinary items.................................... $ 3,989 $13,149 $29,192
Redeemable preferred stock accretion................................. (1,643) -- --
------- ------- -------
Income before extraordinary items available to common
stockholders....................................................... $ 2,346 $13,149 $29,192
======= ======= =======
Net income........................................................... $ 2,720 $12,615 $29,192
Redeemable preferred stock accretion................................. (1,643) -- --
------- ------- -------
Net income available to common stockholders.......................... $ 1,077 $12,615 $29,192
======= ======= =======
Denominator:
Weighted average shares outstanding.................................. 7,021 13,638 21,785
Common stock issuable in connection with acquisitions................ -- 89 171
Unvested restricted stock outstanding................................ (145) (74) (76)
------- ------- -------
Denominator for earnings per share..................................... 6,876 13,653 21,880
Effect of dilutive securities:
Add-back of unvested restricted stock outstanding.................... 145 74 76
Common stock options................................................. 120 182 199
Common stock issuable in connection with acquisitions based on
the achievement of performance objectives.......................... -- 16 27
Common stock to be issued in connection with the QSP Plan............ -- 2 9
Common stock warrants................................................ 39 -- --
------- ------- -------
Dilutive potential common shares................................... 304 274 311
------- ------- -------
Denominator for earnings per share, assuming dilution.................. 7,180 13,927 22,191
======= ======= =======
</TABLE>
In accordance with SFAS No. 128, weighted average common shares excludes
the effects of the potential issuance of all shares contingent on the
achievement of performance objectives, until the related objectives have been
achieved.
4. Operating Property and Equipment
Operating property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1998
-------- --------
(In thousands)
<S> <C> <C>
Vehicles, machinery and equipment................................. $30,539 $63,050
Leasehold improvements............................................ 4,391 7,945
Furniture, fixtures and computer equipment........................ 8,269 14,527
Land and building................................................. 2,277 3,238
-------- --------
Total........................................................... 45,476 88,760
Less: accumulated depreciation and amortization................... 9,677 21,131
-------- --------
$35,799 $67,629
======== ========
</TABLE>
F-12
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
5. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1998
--------- ---------
(In thousands)
<S> <C> <C>
Covenants not to compete................................................. $ 3,201 $ 2,353
Goodwill................................................................. 223,052 414,084
--------- ---------
Total.................................................................. 226,253 416,437
Less: accumulated amortization........................................... 6,087 15,198
--------- ---------
$ 220,166 $ 401,239
========= =========
</TABLE>
The Company has entered into non compete agreements with the former owners
of certain acquired businesses. The agreements are generally for terms of one to
three years and prohibit the former owners from competing with the Company in
the business of renting equipment in certain counties located in the area of the
acquired business.
6. Bank Debt and Long Term Obligations
Bank debt and long term obligations consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1998
--------- ---------
(In thousands)
<S> <C> <C>
$650 million revolving line of credit (the "Revolver") with banks;
interest at the prime rate plus 0.75%, due monthly, or the Eurodollar
rate plus 2.25%, due on demand, at the Company's option; principal
due November 24, 2003. The interest rate in effect at December 31,
1997 and 1998 was 7.8%................................................. $ 206,475 $ 503,775
$100 million term loan (the "Term Loan") with banks; interest at
the prime rate plus 2.25%, due monthly, or the Eurodollar rate
plus 3.75%, due on demand, at the Company's option; principal
due in annual installments of $1 million in each of 1998 through
2003, with the remaining principal balance due on December 2,
2004. The interest rates in effect at December 31, 1997 and 1998
were 8.5% and 9.3%, respectively....................................... 100,000 99,000
Cdn. $28 million revolving line of credit (the "Canadian Credit
Facility") with banks; interest at the Canadian prime rate plus 2%,
due monthly, or the Eurodollar rate plus 1.5%, due on demand, at
the Company's option; principal due December 2, 2002. The
interest rate in effect at December 31, 1998 was 8.75%................. -- 3,365
$200 million 9% Senior Subordinated Notes due 2008 (the"Senior
Subordinated Notes"); interest due semi-annually each May 15 and
November 15, beginning November 15, 1998............................... -- 200,000
Other.................................................................... 500 2,572
--------- ---------
$ 306,975 $ 808,712
========= =========
</TABLE>
On December 2, 1997, the Company amended and restated the Revolver to
increase its total available financing to $600 million. This increase consisted
of an increase in the availability under the Revolver to $500 million and the
implementation of the new $100 million Term Loan (together with the Revolver,
the "Bank Facility").
On November 24, 1998, the Company amended the Bank Facility to, among other
things, (i) increase the availability under the Revolver to $650 million; (ii)
increase the interest rate margins for the Revolver by 0.50%; (iii) increase the
allowed levels of capital expenditures and investments to $335 million in 1998,
$325 million in
F-13
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
each of 1999 and 2000, $400 million in 2001, $525 million in 2002, $625 million
in 2003 and $725 million in 2004 (plus amounts reinvested from asset sales);
(iv) adjust certain financial and other covenants, including the minimum
interest coverage and maximum total debt to EBITDA ratios; (v) increase the
allowed level of acquisitions to $300 million plus the net cash proceeds from
any equity or permitted subordinated debt offerings completed during the
remaining term of the Bank Facility; (vi) increase the commitment fee to 0.50%
of the unused commitment, with reductions available based on the achievement of
specified total debt to EBITDA ratios; and (vii) extend the maturity date of the
Revolver to November 24, 2003. Effective December 31, 1998, the Company further
amended the Bank Facility to increase the allowed level of investments and
capital expenditures for 1998 to $365 million (plus amounts reinvested from
asset sales).
The amended and restated Revolver contains provisions to periodically adjust
the prime and Eurodollar interest rate margins, and the commitment fee, based on
the Company's achievement of specified total debt to EBITDA ratios. The total
amount of credit available under the Revolver is limited to a borrowing base
equal to the sum of (i) 85% of eligible accounts receivable of the Company's
domestic subsidiaries and (ii) 100% of the value (lower of net book value or
orderly liquidation value) of eligible rental equipment through December 31,
1998; 90% of the value of eligible rental equipment from January 1, 1999 through
December 31, 1999; 85% of the value of eligible rental equipment from January 1,
2000 through December 31, 2000; and 80% of the value of eligible rental
equipment from January 1, 2001 through the expiration date of the Revolver.
The Term Loan consists of a $100 million seven-year term loan facility, which
requires mandatory principal payments of $1 million on each of its first six
anniversaries, with the remaining principal balance due at maturity. The Term
Loan matures on December 2, 2004. Interest on the Term Loan is payable at either
the prime rate plus 2.25% or the Eurodollar rate plus 3.75% (at the Company's
option).
The Bank Facility has financial covenants for RSC regarding debt incurrence,
interest coverage, capital expenditures and investments (including
acquisitions), rental equipment utilization and minimum EBITDA levels. The Bank
Facility also contains covenants and provisions that restrict, among other
things, the ability of the Company and its subsidiaries to: (i) incur additional
indebtedness; (ii) incur liens on their property, (iii) enter into contingent
obligations; (iv) make certain capital expenditures and investments; (v) engage
in certain sales of assets; (vi) merge or consolidate with or acquire another
person or engage in other fundamental changes; (vii) enter into leases; (viii)
engage in certain transactions with affiliates; and (ix) declare or pay
dividends. At December 31, 1998, the Company was in compliance with all
covenants of the Bank Facility.
Borrowings under the Bank Facility are secured by all of the personal property
of the Company's domestic subsidiaries and a pledge of the capital stock and
intercompany debt of those subsidiaries. RSC is a guarantor of the obligations
of its domestic subsidiaries under the Bank Facility, and has granted liens on
substantially all of its assets (including the stock of its domestic
subsidiaries) to secure such guaranty. The Bank Facility also restricts the
Company from declaring or paying dividends on its common stock. In addition, the
Company's domestic subsidiaries are guarantors of the obligations of the other
subsidiaries under the Bank Facility. The Bank Facility includes a $2 million
letter of credit facility. A commitment fee equal to 0.50% of the unused
commitment, excluding the face amount of all outstanding and undrawn letters of
credit, is also payable monthly in arrears. The obligation of the lenders to
make loans or issue letters of credit under the Bank Facility is subject to
certain customary conditions.
The amounts outstanding under the Revolver at December 31, 1997 and 1998 were
$206.5 million and $503.8 million, respectively, with $138 million and $146.2
million, respectively, available based on the borrowing base.
In connection with an amendment to the Revolver in January 1997, the Company
wrote-off the related unamortized deferred financing costs and recorded a loss
on extinguishment of debt of $920,000, net of income taxes of $386,000, which
has been classified as an extraordinary item in the accompanying consolidated
statements of operations for the year ended December 31, 1997.
In connection with the implementation of an amendment to the Revolver in
September 1996, the Company wrote off the related deferred financing costs and
recorded a loss on extinguishment of debt of $2.5 million which
F-14
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
has been classified as an extraordinary item, net of income taxes of $964,000,
in the accompanying consolidated statements of operations for the year ended
December 31, 1996.
On August 21, 1998, Rental Service Corporation of Canada Ltd. ("RSC
Canada"), a wholly owned subsidiary of RSC, entered into the Canadian Credit
Facility with lenders (or affiliates) who are parties to the Bank Facility. The
total amount of credit available under the Canadian Credit Facility is limited
to a borrowing base equal to the sum of (i) 85% of eligible accounts receivable
of RSC Canada and (ii) 85% of the value (lower of net book value or orderly
liquidation value) of eligible rental equipment of RSC Canada. The Canadian
Credit Facility contains provisions to periodically adjust the prime and
Eurodollar interest rate margins based on RSC's achievement of specified total
debt to EBITDA ratios. The Canadian Credit Facility is secured by substantially
all of the assets of RSC Canada, and any subsidiary of RSC Canada, and is
guaranteed by RSC, with the guarantee being secured by the stock of RSC Canada.
The Canadian Credit Facility expires on December 2, 2002 and contains certain
other terms substantially similar to those contained in the Bank Facility. At
December 31, 1998, the Company was in compliance with all covenants of the
Canadian Credit Facility.
On May 13, 1998, the Company issued the Senior Subordinated Notes in a
private placement pursuant to Rule 144A. The Senior Subordinated Notes call for
semi-annual interest payments at the 9% rate on May 15 and November 15 of each
year (beginning November 15, 1998) and mature on May 15, 2008. The Senior
Subordinated Notes are guaranteed by substantially all of the Company's current
and future domestic subsidiaries, and contain covenants restricting additional
indebtedness, certain payments by the Company and its subsidiaries, asset sales,
liens, mergers and consolidations and transactions with affiliates.
The aggregate annual maturities of bank debt and long term obligations as
of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Canadian Senior
Term Credit Subordinated
Revolver Loan Facility Notes Other Total
--------- -------- -------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
1999......................... $ -- $ 1,000 $ -- $ -- $ 624 $ 1,624
2000......................... -- 1,000 -- -- 624 1,624
2001......................... -- 1,000 -- -- 624 1,624
2002......................... -- 1,000 3,365 -- 530 4,895
2003......................... 503,775 1,000 -- -- 38 504,813
Thereafter................... -- 94,000 -- 200,000 132 294,132
--------- -------- ------- --------- ------- ---------
$ 503,775 $ 99,000 $ 3,365 $ 200,000 $ 2,572 $ 808,712
========= ======== ======= ========= ======= =========
</TABLE>
7. Preferred Stock and Common Stockholders' Equity
Preferred Stock
The Company's Board of Directors, without approval of the holders of the
common stock, is authorized to fix the number of shares of any series of
preferred stock and to designate for issuance up to 500,000 shares of preferred
stock, par value $.01 per share, in such number of series and with such rights,
preferences, privileges and restrictions (including without limitations voting
rights) as the Board of Directors may from time to time determine.
The Company had outstanding at December 31, 1995, 244,805 shares of a
series of cumulative redeemable preferred stock (the "Redeemable Preferred
Stock"). On September 24, 1996, the Company utilized proceeds from its initial
public offering to redeem all outstanding shares of this preferred stock,
including accumulated dividends, for $37.9 million. The Redeemable Preferred
Stock was cumulative at a rate of 6% per annum, computed on a quarterly basis.
F-15
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Restricted Stock Grants
On October 9, 1998, the Company issued its current chairman 235,000 shares of
restricted stock. The restricted stock is subject to vesting in equal
installments over four years, however, the vesting may be accelerated under
certain circumstances, including a change of control. The restricted stock was
valued at the fair market value of the Company's common stock on the date of
grant, and the resulting deferred compensation expense is being amortized over
the vesting period. Additionally, the Company entered into an agreement to loan
the chairman the amount of any tax liability resulting from the grant (up to
$1.4 million). The loan accrues interest at a rate equal to the current rate on
the Company's Revolver, with principal and interest due upon 100% vesting of the
restricted stock and in certain other circumstances. The loan is secured by the
restricted stock and will be forgiven based on the market price of the Company's
common stock reaching certain levels, and in certain other circumstances if the
vesting of the restricted stock is accelerated. At December 31, 1998, the
chairman owed the Company $1.4 million, including accrued interest, under this
loan agreement.
Stock Option Plans
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, Accounting
for Stock-Based Compensation, requires the use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
On July 25, 1995, the Company's Board of Directors adopted a Stock Option Plan
(the "1995 Plan") whereby officers, directors, and key employees may be granted
options to purchase common stock at a price set by the option committee not to
be less than 100% of the fair market value of such shares on the date such
option is granted, further, not to exceed 110% of the fair market price on the
date such option is granted. The aggregate number of shares that may be issued
upon exercise of options under the 1995 Plan may not exceed 324,000. Generally,
the stock options granted under the 1995 Plan will expire ten years from the
date such options were granted. The options currently outstanding under the 1995
Plan generally become exercisable in various amounts over either a four or five
year period; however, the vesting for certain portions of the options may be
accelerated if the employee and the Company achieve certain performance targets,
as determined by the option committee. At December 31, 1998, no shares were
available for future stock option grants under the 1995 Plan.
On February 5, 1997, the Company's stockholders approved, and the Company
adopted, the 1996 Equity Participation Plan of Rental Service Corporation (the
"1996 Plan"). The 1996 Plan authorized the issuance of not more than 1,000,000
shares of common stock (or the equivalent in other equity securities) upon the
exercise of options, stock appreciation rights and other awards, or upon vesting
of restricted or deferred stock awards ("Awards"). On April 29, 1998, the
Company's stockholders approved a proposal to increase the number of shares of
common stock authorized for issuance under the 1996 Plan to 2,000,000. Under the
1996 Plan, Awards may be granted to officers, non-employee directors, key
employees and consultants of the Company at a price not to be less than 100% of
the fair market price on the date an award is granted. Generally, the stock
options granted under the 1996 Plan will expire ten years from the date such
options were granted. The options currently outstanding under the 1996 Plan
generally become exercisable in equal installments over a four-year period from
the date of grant. At December 31, 1998, 850,706 shares of common stock were
available for future Awards under the 1996 Plan.
On January 14, 1998, the Company granted its current chairman 190,000 stock
options and 10,000 shares of restricted stock under the 1996 Plan. The options
and restricted stock are subject to vesting in equal installments over four
years, however, the options may vest earlier if certain performance criteria are
met. In addition, the vesting of the restricted stock may be accelerated under
certain circumstances, including a change of control. The options were granted
at an exercise price equal to the fair market value of the Company's common
stock on the date of grant. The restricted stock was valued at the fair market
value of the Company's common stock on the date of grant, and the resulting
deferred compensation expense is being amortized over the vesting period. On
February 25, 1998, the chairman surrendered to the Company options to purchase
57,000 shares of common stock in order to
F-16
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
ensure the number of shares of common stock available for issuance pursuant to
the 1996 Plan was sufficient to allow certain grants of stock options to other
officers.
On April 29, 1998, the Company granted the chairman 40,411 stock options
and 16,589 shares of restricted stock under the 1996 Plan. The options and
restricted stock are subject to vesting in equal installments over four years,
however, the options may vest earlier if certain performance criteria are met.
In addition, the vesting of the restricted stock may be accelerated under
certain circumstances, including a change of control. The options were granted
at an exercise price equal to the fair market value of the Company's common
stock on the date of grant. The restricted stock was valued at the fair market
value of the Company's common stock on the date of grant, and the resulting
deferred compensation expense is being amortized over the vesting period.
A summary of the Company's stock option activity, and related information,
for the years ended December 31, 1996, 1997 and 1998 follows:
<TABLE>
<CAPTION>
Outstanding Options
-------------------------------------------------------
Weighted
Average
Shares Exercise Exercise
Available Number Price Price
for Options of Shares per Share per Share
----------- ----------- --------------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1995........... 194,310 129,690 $ .01 $ .01
Grants--1995 Plan...................... (209,190) 209,190 7.03 - 21.00 17.12
Exercises--1995 Plan................... -- (34,290) .01 .01
Forfeitures--1995 Plan................. 16,740 (16,740) .01 .01
Cancellations--1995 Plan............... -- (12,510) .01 .01
----------- ----------- -------
Balance at December 31, 1996........... 1,860 275,340 .01 - 21.00 13.01
Authorized Shares--1996 Plan........... 1,000,000 -- -- --
Grants--1996 Plan...................... (717,913) 717,913 18.00 - 26.88 20.66
Exercises--1995 Plan................... -- (30,321) .01 - 14.11 2.82
Forfeitures--1996 Plan................. 80,580 (80,580) 18.00 - 20.25 18.72
Cancellations--1995 Plan............... -- (5,400) 14.11 14.11
----------- ----------- -------
Balance at December 31, 1997........... 364,527 876,952 .01 - 26.88 19.09
Authorized Shares--1996 Plan........... 1,000,000 -- -- --
Grants--1995 Plan...................... (1,860) 1,860 22.88 22.88
Grants--1996 Plan...................... (594,847) 594,847 17.38 - 36.44 22.96
Restricted Stock Grants--1996 Plan..... (26,589) 26,589 .01 .01
Exercises--1995 Plan................... -- (42,485) .01 - 14.11 1.86
Exercises--1996 Plan................... -- (26,962) 18.00 - 20.25 18.16
Forfeitures--1996 Plan................. 109,475 (109,475) 19.44 - 28.56 21.81
Cancellations--1995 Plan............... -- (7,503) .01 - 14.11 8.04
----------- ----------- -------
Balance at December 31, 1998........... 850,706 1,313,823 $ .01 - 36.44 $ 20.88
=========== =========== =======
</TABLE>
F-17
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Options outstanding at December 31, 1998 have exercise prices ranging from
$.01 to $36.44 per share, with a weighted average exercise price of $20.88 per
share, as outlined in the following table:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Number of Exercise Remaining Number of Exercise
Options Price Contractual Options Price
Range of Exercise Prices Outstanding per Share Life Exercisable per Share
- -------------------------------------------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$.01........................................ 36,172 $ .01 8.51 6,299 $ .01
$ 7.03 - $14.11............................. 60,048 12.65 7.20 30,602 13.28
$17.38 - $20.25............................. 641,898 19.89 8.42 270,597 20.07
$20.50 - $24.75............................. 380,738 22.13 8.78 62,500 21.15
$25.63 - $28.81............................. 162,967 26.98 8.98 22,167 25.92
$33.00 - $36.44............................. 32,000 33.69 9.57 -- --
--------- ------- ---- ------- -------
Totals................................. 1,313,823 $ 20.88 8.57 392,165 $ 19.72
========= ======= ==== ======= =======
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1996, 1997 and 1998 was $10.23, $9.23 and $13.08, respectively.
Employee Stock Purchase Plan
On April 28, 1997, the Company's stockholders approved, and the Company
adopted, the Employee Qualified Stock Purchase Plan of Rental Service
Corporation (the "QSP Plan"). Under the QSP Plan, the Company has reserved
250,000 shares of common stock for sale to employees. The QSP Plan allows
eligible employees to purchase shares of common stock at the lesser of 85% of
the fair market value of such shares at the beginning or end of each semiannual
offering period. Purchases are limited to 15% of an employee's eligible
compensation, subject to a maximum purchase of 1,500 shares in any semiannual
offering period. The QSP Plan commenced on July 1, 1997. At December 31, 1998,
229,118 shares of common stock remain available under the QSP Plan.
Pro Forma Information
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 1996,
1997 and 1998: risk-free interest rates of 6.28%, 5.71% and 4.54%, respectively;
a dividend yield of 0%; volatility factors of the expected market price of the
Company's common stock of .641, .415 and .588, respectively; and a weighted
average expected life of the option of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options having no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of the Company's employee stock options.
F-18
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1996 1997 1998
-------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Pro forma net income.......................................... $ 2,597 $ 10,964 $ 27,446
Pro forma net income per share................................ .14 .80 1.25
Pro forma net income per share, assuming dilution............. .13 .79 1.24
</TABLE>
The effects of applying SFAS 123 are not likely to be representative of the
effects on reported net income for future years.
8. Employee Benefit Plans
The Company maintains a Section 401(k) employee savings plan (the "Savings
Plan") covering substantially all full-time employees upon completion of at
least six months of continuous employment. The Savings Plan is a defined
contribution plan and provides for the Company to make discretionary
contributions as deemed appropriate by the administrative committee. During the
years ended December 31, 1996, 1997 and 1998, the Company made discretionary
contributions totaling $150,000, $436,000 and $990,000, respectively.
9. Commitments and Contingencies
Operating Leases
The Company leases certain operating premises and equipment under operating
leases. Substantially all of the property leases require the Company to pay
maintenance, insurance, taxes and certain other expenses in addition to the
stated rentals. Certain of the real property leases provide for escalation of
future rental payments based upon increases in the consumer price index. Rental
expense under such operating leases totaled $3.1 million, $5.4 million and $11.7
million for the years ended December 31, 1996, 1997 and 1998, respectively.
Future minimum lease payments, by year and in the aggregate, for non-cancelable
operating leases with initial or remaining terms of one year or more are as
follows at December 31, 1998 (in thousands):
<TABLE>
<S> <C>
1999................................................................ $ 13,067
2000................................................................ 11,389
2001................................................................ 9,419
2002................................................................ 6,830
2003................................................................ 2,693
Thereafter.......................................................... 4,209
--------
$ 47,607
========
</TABLE>
Purchase Obligations
At December 31, 1998, the Company was obligated, under non-cancelable
purchase commitments, to purchase $21.5 million of equipment.
Risk Management
The Company currently has an insurance deductible of $5,000 per occurrence
for physical damage or loss to its rental equipment, and is self-insured for
physical damage or loss to its vehicles. Presently, the Company has an insurance
deductible of $50,000 per occurrence for claims related to general and vehicle
liability. The general and vehicle policy includes per occurrence and annual
aggregate liability limits of $2 million, and $1 million, respectively, with
excess umbrella coverage up to $100 million.
F-19
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Environmental
The Company and its operations are subject to federal, state and local
laws and regulations governing, among other things, occupational health and
safety and environmental protection. Under these laws, an owner or lessee of
real estate may be liable for the costs of removal or remediation of hazardous
substances located on such property. The Company incurs ongoing expenses
associated with the removal of underground storage tanks and the performance of
appropriate remediation. The Company has accrued $652,000 and $213,000 at
December 31, 1997 and 1998, respectively, related to environmental remediation.
The actual costs of remediating these environmental conditions may be different
than that accrued by the Company due to the difficulty in estimating such costs
and due to potential changes in the status of legislation and state
reimbursement programs. The Company does not believe such removal and
remediation will have a material adverse effect on its consolidated financial
position, results of operations or cash flows.
Legal Proceedings
The Company and its subsidiaries are parties to various litigation
matters, in most cases involving ordinary and routine claims incidental to its
business. The ultimate legal and financial liability with respect to such
pending litigation cannot be estimated with certainty, but the Company believes,
based on its examination of such matters, such ultimate liability will not have
a material adverse effect on its business, or its consolidated financial
position, results of operations or cash flows.
10. Related Party Transactions
One of the stockholders of the Company received an investment banking fee
(pursuant to a formula) from the Company in connection with certain of the
Company's acquisitions. Such fees paid to the stockholder during the years ended
December 31, 1996, 1997 and 1998 totaled $388,000, $1.1 million and $0,
respectively. The stockholder also received a monitoring fee, which equaled 1%
of the aggregate amount of debt and equity interest of or by the stockholder in
the Company. Such fees paid to the stockholder during the years ended December
31, 1996, 1997 and 1998 totaled $235,000, $0 and $0, respectively, and are
included in selling, general and administrative expense. The Company's
obligation to pay such investment banking and monitoring fees terminated in
September 1996, in conjunction with its initial public offering, however, the
Company, at its discretion, may utilize the stockholder's investment banking
services under the same fee arrangement.
In connection with the acquisition of Center, the Company entered into
leases for certain of Center's facilities with David P. Lanoha, a director of
the Company, and certain partnerships affiliated with Mr. Lanoha. The leases
initially expire in 2002, with options to extend for three periods of five years
each. The aggregate annual rent under such leases is $720,000. Prior to the
acquisition of Center, these locations had been leased by Center from Mr. Lanoha
and his affiliates. The previous leases were terminated in connection with the
acquisition of Center.
From time to time, the Company also leases facilities from former owners
of acquired businesses, who may be current employees of the Company.
F-20
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
11. Income Taxes
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
1996 1997 1998
--------- --------- --------
(In thousands)
<S> <C> <C> <C>
Current:
Federal................................................ $ -- $ 2,669 $ 5,406
State.................................................. 187 279 550
--------- --------- --------
187 2,948 5,956
Deferred:
Federal................................................ 1,550 6,402 14,211
State.................................................. 163 594 1,543
--------- --------- --------
1,713 6,996 15,754
Foreign..................................................... -- -- 223
Extraordinary items......................................... 822 386 --
--------- --------- --------
$ 2,722 $ 10,330 $ 21,933
========= ========= ========
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1998
--------- ---------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Accrued liabilities.................................... $ 5,004 $ 4,957
Rental equipment and inventory reserves................ 1,496 3,087
Bad debt reserve....................................... 504 1,396
Net operating loss carryforwards....................... 7,948 16,154
Alternative minimum tax credit......................... 4,776 10,506
Valuation allowance.................................... (4,487) (7,364)
--------- ---------
15,241 28,736
Deferred tax liabilities:
Depreciation and amortization.......................... (30,857) (64,996)
--------- ---------
Net deferred tax liability.................................. $ (15,616) $ (36,260)
========= =========
</TABLE>
The Company's effective income tax rate varied from the statutory U.S.
federal income tax rate (34% in 1996 and 35% in 1997 and 1998) as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
1996 1997 1998
--------- --------- --------
(In thousands)
<S> <C> <C> <C>
Expected provision using the statutory tax rate............. $ 2,282 $ 8,218 $ 17,894
State taxes, net of federal tax benefit..................... 204 753 1,924
Foreign taxes............................................... -- -- 223
Permanent differences, primarily amortization
of intangibles............................................ 341 732 1,998
Other....................................................... (105) 627 (106)
--------- --------- --------
$ 2,722 $ 10,330 $ 21,933
========= ========= ========
</TABLE>
F-21
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
At December 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of $39.1 million that expire in the years 2005
through 2018. In addition the Company had combined state net operating loss
carryforwards of $48.2 million that expire in the years 1999 through 2018. $11.8
million of the federal and $3.6 million of the state net operating loss
carryforwards relate to certain of the Company's acquisitions. The acquired
separate company net operating loss carryforwards are subject to restrictions in
accordance with Internal Revenue Code Section 382, and the ultimate utilization
of the net operating loss carryforwards is further limited based upon the future
profitability of the acquired entities. For financial reporting purposes, a
valuation allowance of $5 million has been recognized to offset the deferred tax
asset related to the net operating loss carryforwards obtained in connection
with these acquisitions.
At December 31, 1998, the Company has alternative minimum tax credit
carryforwards of $10.3 million for federal income tax purposes and $200,000 for
state income tax purposes that are available to offset future regular income tax
that is in excess of the alternative minimum tax in such year. $2.1 million of
the federal and all of the state alternative minimum tax credit carryforwards
relate to certain of the Company's acquisitions. Limitations similar to those
restricting the use of acquired company net operating loss carryforwards also
restrict the use of acquired company alternative minimum tax credit
carryforwards. For financial reporting purposes, a valuation allowance of $2.4
million has been recognized to offset the deferred tax asset related to the
alternative minimum tax credit carryforwards obtained in connection with these
acquisitions.
In connection with certain acquisitions, $4.5 million and $5 million of net
deferred tax liabilities were assumed by the Company in the years ended December
31, 1997 and 1998, respectively.
The valuation allowance decreased $253,000 in 1997 and increased $2.8
million in 1998. The decrease in 1997 is principally due to a decrease in the
estimated state net operating loss not expected to be realized from the
Company's discontinued California operations. The increase in 1998 is
principally to provide for potential limitations on the use of net operating
loss and alternative minimum tax credit carryforwards obtained in connection
with certain of the Company's 1998 acquisitions.
Any tax benefit resulting from the utilization of the net operating loss or
alternative minimum tax credit carryforwards obtained in connection with the
Company's acquisitions will be accounted for as a reduction of the purchase
price of the acquired entities in the periods they are realized.
Pre-tax income attributable to the Company's foreign operations was $489,000
in the year ended December 31, 1998.
12. Financial Information of Guarantor Subsidiaries
The Senior Subordinated Notes are guaranteed by all of the Company's
domestic subsidiaries (the "guarantor subsidiaries"), but are not guaranteed by
RSC Canada (the "non-guarantor subsidiary"). The guarantor subsidiaries are all
wholly-owned and the guarantees are made on a joint and several basis and are
full and unconditional (subject to subordination provisions and a standard
limitation providing that the maximum amount guaranteed by each guarantor will
not exceed the maximum amount that can be guaranteed without making the
guarantee void under fraudulent conveyance laws). Separate financial statements
of the guarantor subsidiaries have not been presented because such information
would not materially differ from the consolidated financial statements of the
Company, as the non-guarantor subsidiary represented only 1.1% of total assets,
0.4% of total revenues and 1% of pre-tax income for 1998. Financial information
for the non-guarantor subsidiary is not presented for 1996 and 1997 since this
subsidiary came into existence during 1998.
F-22
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
13. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth Year-
Quarter Quarter Quarter Quarter To-Date
--------- --------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total revenues:
1997................................................ $ 41,309 $ 58,554 $ 72,469 $ 88,931 $ 261,263
1998................................................ 108,663 141,050 160,687 168,074 578,474
Gross profit:
1997................................................ 10,978 14,870 18,841 23,943 68,632
1998................................................ 26,936 38,448 44,847 49,076 159,307
Income before extraordinary items:
1997................................................ 2,183 2,855 3,920 4,191 13,149
1998................................................ 5,484 7,135 8,283 8,290 29,192
Net income:
1997................................................ 1,649 2,855 3,920 4,191 12,615
1998................................................ 5,484 7,135 8,283 8,290 29,192
Earnings per common share:
1997
----
Income before extraordinary items................... $ .19 $ .23 $ .26 $ .26 $ .96
Extraordinary items................................. (.04) -- -- -- (.04)
--------- --------- --------- --------- ---------
Net income.......................................... $ .15 $ .23 $ .26 $ .26 $ .92
========= ========= ========= ========= =========
1998
----
Income before extraordinary items................... $ .27 $ .34 $ .37 $ .35 $ 1.33
Extraordinary items................................. -- -- -- -- --
--------- --------- --------- --------- ---------
Net income.......................................... $ .27 $ .34 $ .37 $ .35 $ 1.33
========= ========= ========= ========= =========
Earnings per common share, assuming dilution:
1997
----
Income before extraordinary items................... $ .19 $ .23 $ .26 $ .26 $ .94
Extraordinary items................................. (.05) -- -- -- (.03)
--------- --------- --------- --------- ---------
Net income.......................................... $ .14 $ .23 $ .26 $ .26 $ .91
========= ========= ========= ========= =========
1998
----
Income before extraordinary items................... $ .27 $ .34 $ .37 $ .34 $ 1.32
Extraordinary items................................. -- -- -- -- --
--------- --------- --------- --------- ---------
Net income.......................................... $ .27 $ .34 $ .37 $ .34 $ 1.32
========= ========= ========= ========= =========
</TABLE>
F-23
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
14. Subsequent Events
On January 4, 1999, the Company granted options to purchase 687,254 shares
of common stock to its officers and employees under the 1996 Plan (including
200,000 shares to its current chairman). The options were granted at an exercise
price equal to the fair market value of the Company's common stock on the date
of grant.
On January 20, 1999, the Company entered into an Agreement and Plan of
Merger with NationsRent, Inc., a Delaware corporation. The merger agreement
provides, subject to the terms and conditions set forth therein, for NationsRent
to be merged with and into the Company. Following the merger, NationsRent's
subsidiaries will become wholly owned subsidiaries of RSC. At the effective time
of the merger, (i) each outstanding share of NationsRent common stock will be
converted into 0.355 of a share of RSC's common stock (the "Exchange Ratio") and
(ii) all outstanding options to purchase shares of NationsRent common stock will
be assumed by the Company and converted into options to purchase RSC common
stock subject to adjustment for the Exchange Ratio. The merger is expected to be
accounted for as a pooling of interests. The merger, which is subject to
stockholder approvals and other customary conditions, is expected to close
during the second quarter of 1999.
Subsequent to December 31, 1998, the Company has completed one acquisition
of an equipment rental business for a purchase price of $3.3 million in cash
(including the payoff of assumed debt), 5,000 shares of common stock and the
assumption of certain liabilities.
As of February 26, 1999, the Company was party to non-binding letters of
intent to acquire six equipment rental businesses for an aggregate purchase
price of $12.6 million in cash (including the payoff of assumed debt). These
acquisitions are subject to a number of closing conditions, including the
execution of definitive purchase agreements, the completion of due diligence
investigations and Board of Directors approval.
F-24
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors
Rental Service Corporation
We have audited the consolidated financial statements of Rental Service
Corporation as of December 31, 1997 and 1998, and for each of the three years in
the period ended December 31, 1998, and have issued our report thereon dated
February 10, 1999, included elsewhere in this Form 10-K. Our audits also
included the financial statement schedules listed in Item 14(a). These schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
February 10, 1999
S-1
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENTAL SERVICE CORPORATION (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1998
---------- -----------
<S> <C> <C>
ASSETS
------
Cash........................................................................ $ 5 $ --
Other assets, net........................................................... 2 7,488
Investment in and net amounts due from wholly owned subsidiaries............ 290,782 612,316
----------- -----------
$ 290,789 $ 619,804
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts payable and accrued expenses.................................... $ 8 $ --
Accrued interest payable................................................. -- 2,319
Senior Subordinated Notes................................................ -- 200,000
------------ -----------
Total liabilities.................................................... 8 202,319
Stockholders' equity:
Common stock............................................................. 198 241
Additional paid-in capital............................................... 270,927 373,646
Common stock issuable.................................................... 6,000 3,988
Deferred compensation expense............................................ -- (3,162)
Currency translation loss................................................ -- (76)
Retained earnings........................................................ 13,656 42,848
----------- ------------
Total stockholders' equity........................................... 290,781 417,485
----------- ------------
$ 290,789 $ 619,804
=========== ============
</TABLE>
See accompanying notes.
S-2
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENTAL SERVICE CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
Costs and expenses:
Selling, general and administrative expense........................... $ -- $ -- $ 305
Amortization expense.................................................. -- -- 410
Interest expense, net................................................. 3 -- 11,817
------------ ------------ ---------
Loss before equity in income of subsidiaries, income taxes and
extraordinary item.................................................... (3) -- (12,532)
Benefit for income taxes............................................... -- -- (5,376)
----------- ------------ ---------
Loss before equity in income of subsidiaries and extraordinary items... (3) -- (7,156)
Equity in income of subsidiaries....................................... 2,503 12,615 36,348
----------- ------------- ---------
Income before extraordinary item....................................... 2,500 12,615 29,192
Extraordinary item, gain on extinguishment of debt less applicable
income taxes of $142 in 1996.......................................... 220 -- --
----------- ------------- ---------
Net income............................................................. $ 2,720 $ 12,615 9,192
=========== ============= =========
</TABLE>
See accompanying notes.
S-3
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENTAL SERVICE CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1996 1997 1998
-------------- ------------- ----------
<S> <C> <C> <C>
Operating activities
Net income............................................................. $ 2,720 $ 12,615 $ 29,192
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Equity in income of subsidiaries..................................... (2,503) (12,615) (36,348)
Amortization......................................................... -- -- 410
Extraordinary item................................................... (220) -- --
Amortization of deferred compensation expense........................ -- -- 305
Currency translation loss............................................ -- -- (76)
Change in other assets............................................... -- (2) (7,486)
Change in accounts payable and accrued expenses...................... 8 -- (8)
Change in accrued interest payable................................... -- -- 2,319
-------- --------- ---------
Net cash provided by (used in) operating activities.................... 5 (2) (11,692)
Financing activities
Proceeds from issuance of redeemable preferred stock................... 7,500 -- --
Redemption of redeemable preferred stock............................... (37,874) -- --
Payments of debt issuance costs........................................ -- -- (5,675)
Payments on notes payable.............................................. (12,055) -- --
Proceeds from issuance of Senior Subordinated Notes.................... -- -- 200,000
Proceeds from issuance of common stock, net of issuance costs.......... 95,223 153,974 77,809
Proceeds from exercise of stock options................................ 1 85 569
Proceeds from QSP plan offerings....................................... -- -- 433
Repurchase of common stock warrants.................................... (945) -- --
Loans to subsidiaries.................................................. (51,855) (154,057) (261,449)
-------- --------- ---------
Net cash provided by (used in) financing activities.................... (5) 2 11,687
-------- --------- ---------
Decrease in cash....................................................... $ -- $ -- $ (5)
======== ========= =========
</TABLE>
See accompanying notes.
S-4
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENTAL SERVICE CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
December 31, 1998
1. Basis of Presentation
Rental Service Corporation's ("RSC" or the "Company") investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. The Company's share of net income of
its unconsolidated subsidiaries is included in consolidated net income using the
equity method. The parent company-only financial statements should be read in
conjunction with the Company's consolidated financial statements.
2. Long-Term Debt
The Company has guaranteed its domestic subsidiaries' $650 million
revolving line of credit with banks, of which $206.5 million and $503.8 million
was outstanding at December 31, 1997 and 1998, respectively. The Company has
also guaranteed its domestic subsidiaries' $100 million term loan with banks, of
which $100 million and $99 million was outstanding at December 31, 1997 and
1998, respectively. Additionally, the Company has guaranteed the Cdn. $28
million revolving line of credit with banks of RSC Canada, a wholly owned
subsidiary of RSC, of which $3.4 million was outstanding at December 31, 1998.
On May 13, 1998, the Company issued $200 million 9% Senior Subordinated
Notes due 2008 in a private placement pursuant to Rule 144A. The Senior
Subordinated Notes call for semi-annual interest payments at the 9% rate on May
15 and November 15 of each year (beginning November 15, 1998) and mature on May
15, 2008. The Senior Subordinated Notes are guaranteed by substantially all of
the Company's current and future domestic subsidiaries, and contain covenants
restricting additional indebtedness, certain payments by the Company and its
subsidiaries, asset sales, liens, mergers and consolidations and transactions
with affiliates.
3. Stockholders' Equity
During 1998, the Company granted its current chairman 261,589 shares of
restricted stock (26,589 shares of which were issued under one of the Company's
stock option plans). The restricted stock is subject to vesting in equal
installments over four years from the respective dates of grant, however, the
vesting may be accelerated under certain circumstances, including a change of
control. The restricted stock was valued at the fair market value of the
Company's common stock on the respective dates of grant, and the resulting
deferred compensation expense is being amortized over the respective vesting
periods.
In connection with a restricted stock grant in October 1998, the Company
entered into an agreement to loan the chairman the amount of any tax liability
resulting from the grant (up to $1.4 million). The loan accrues interest at a
rate equal to the current rate on the Company's revolving line of credit, with
principal and interest due upon 100% vesting of the restricted stock and in
certain other circumstances. The loan is secured by the restricted stock and
will be forgiven based on the market price of the Company's common stock
reaching certain levels, and in certain other circumstances if the vesting of
the restricted stock is accelerated. At December 31, 1998, the chairman owed the
Company $1.4 million, including accrued interest, under this loan agreement.
S-5
<PAGE>
4. Subsequent Events
On January 20, 1999, the Company entered into an Agreement and Plan of Merger
with NationsRent, Inc., a Delaware corporation. The merger agreement provides,
subject to the terms and conditions set forth therein, for NationsRent to be
merged with and into the Company. Following the merger, NationsRent's
subsidiaries will become wholly owned subsidiaries of RSC. At the effective time
of the merger, (i) each outstanding share of NationsRent common stock will be
converted into 0.355 of a share of RSC's common stock (the "Exchange Ratio") and
(ii) all outstanding options to purchase shares of NationsRent common stock will
be assumed by the Company and converted into options to purchase RSC common
stock subject to adjustment for the Exchange Ratio. The merger is expected to be
accounted for as a pooling of interests. The merger, which is subject to
stockholder approvals and other customary conditions, is expected to close
during the second quarter of 1999.
S-6
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
RENTAL SERVICE CORPORATION
Year Ended December 31, 1996, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
Additions
--------------------------
Balance at Charged to Transfers
Beginning of Costs and From Other Balance at
Description Year Expenses Acquisitions Accounts Deductions End of Year
- --------------------------------------- ------------ ----------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Deducted from assets accounts:
Allowance for doubtful accounts....... $ 1,791 $ 1,692 $ 276 $ -- $ 1,594 (a) $ 2,165
Reserve for rental equipment.......... 511 434 -- -- 22 (b) 923
Reserve for inventory obsolescence.... 603 97 224 -- 142 (b) 782
Income tax valuation allowance........ 7,858 -- -- -- 3,118 (c) 4,740
-------- ------- -------- ------- ------- -------
Total............................. $ 10,763 $ 2,223 $ 500 $ -- $ 4,876 $ 8,610
======== ======= ======== ======= ======= =======
Year ended December 31, 1997
Deducted from assets accounts:
Allowance for doubtful accounts....... $ 2,165 $ 2,596 $ 582 $ -- $ 2,418 (a) $ 2,925
Reserve for rental equipment.......... 923 511 218 1,416 412 (b) 2,656
Reserve for inventory obsolescence.... 782 534 247 787 169 (b) 2,181
Income tax valuation allowance........ 4,740 -- -- -- 253 (c) 4,487
-------- ------- ------- ------- ------- -------
Total............................. $ 8,610 $ 3,641 $ 1,047 $ 1,529 $ 2,578 $12,249
======== ======= ======= ======= ======= =======
Year ended December 31, 1998
Deducted from assets accounts:
Allowance for doubtful accounts....... $ 2,925 $ 4,429 $ 1,335 $ -- $ 3,832 (a) $ 4,857
Reserve for rental equipment.......... 2,656 1,080 5,714 -- 2,503 (b) 6,947
Reserve for inventory obsolescence.... 2,181 975 545 185 2,877 (b) 1,009
Income tax valuation allowance........ 4,487 -- 2,877 -- -- 7,364
-------- ------- -------- ------- ------- -------
Total............................. $ 12,249 $ 6,484 $10,471 $ 185 $ 9,212 $20,177
======== ======= ======== ======= ======= =======
</TABLE>
(a) Write-off of uncollectible accounts, net of recoveries.
(b) Write-off of physical inventory shortages or obsolescence.
(c) Decrease due to changes in the expected future utilization of net operating
loss carryforwards.
S-7
<PAGE>
EXHIBIT 10.6
FIFTH AMENDMENT
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "Fifth Amendment") dated as of February 10, 1999 relates to that certain
---------------
Second Amended and Restated Credit Agreement dated as of December 2, 1997 (as
previously amended and as further amended, restated, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among Rental Service
----------------
Corporation USA, Inc., an Arizona corporation, as successor in interest to RSC
Alabama, Inc., RSC Center, Inc., RSC Duval Inc., RSC Industrial Corporation, RSC
Rents, Inc., Walker Jones Equipment, Inc., RSC Acquisition Corp. and RSC
Holdings, Inc. (the "Borrower"), and Rental Service Corporation (the "Parent
-------- ------
Guarantor"), each financial institution identified on Annex I thereto (together
- ---------
with its successors and permitted assigns pursuant to Section 12.8 thereof, a
"Lender"), Bankers Trust Company, as Issuing Bank, and BT Commercial
- -------
Corporation, acting as agent for the Lenders and the Issuing Bank (in such
capacity, together with any successor agent appointed pursuant to Section 11.8
thereof, the "Agent").
-----
PRELIMINARY STATEMENTS:
WHEREAS, the Parent Guarantor has announced that it has entered into a
definitive merger agreement with NationsRent, Inc. ("NationsRent"), pursuant to
which the Parent Guarantor will acquire substantially all of the issued and
outstanding capital stock of NationsRent and NationsRent will be merged with and
into the Parent Guarantor (the "Proposed NationsRent Merger");
---------------------------
WHEREAS, the Parent Guarantor has informed the Agent, the Issuing Bank
and the Lenders that the Proposed NationsRent Merger is expected to be
consummated on or before August 31, 1999 and that the Credit Agreement and the
other Credit Documents will be amended and restated, replaced or refinanced on
or before that date;
WHEREAS, pursuant to Section 3 of the Fourth Amendment to Second
Amended and Restated Credit Agreement dated as of November 24, 1998 (the "Fourth
------
Amendment"), each of the Agent, the Lenders and the Parent Guarantor, for itself
- ---------
and on behalf of the Borrower, agreed to enter into a Third Amended and Restated
Credit Agreement as soon as practicable after the consummation of the RSC
Subsidiary Consolidation in order to give effect to each amendment to the Credit
Agreement and the RSC Subsidiary Consolidation, together with any amendments
and/or amendments and restatements of the Credit Documents necessary to give
effect to the RSC Subsidiary Consolidation (the "Required Amendment and
----------------------
Restatement");
- -----------
WHEREAS, the Borrower and the Parent Guarantor have requested that the
Agent and the Lenders (i) amend certain provisions of the Credit Agreement to
give effect to the RSC
<PAGE>
Subsidiary Consolidation, (ii) amend the deadline set forth in the Fourth
Amendment for the consummation of the Required Amendment and Restatement and
(iii) amend the Credit Agreement to increase the amount of permitted Capital
Expenditures for Fiscal Year 1998, in each case as set forth below;
WHEREAS, in consideration of the agreements, covenants and
representations set forth herein, the Agent and the Majority Lenders are willing
to amend the Credit Agreement and the Fourth Amendment on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing, the Borrower, the
Parent Guarantor, the Agent and the Majority Lenders agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined
-----------
herein have the meanings assigned to them in the Credit Agreement.
2. Amendments to the Credit Agreement. Upon the satisfaction of the
----------------------------------
conditions set forth in Section 4 below, the Credit Agreement is hereby amended
as follows, such amendments to be effective as of the respective dates specified
below:
2.1 Amendments to Section 1.1. Effective as of January 1, 1999,
-------------------------
Section 1.1 of the Credit Agreement is hereby amended as follows:
(a) the definition of "Borrowers" is amended and restated in
its entirety to read as follows:
Borrowers or Borrower means, notwithstanding any
--------- --------
contrary definition set forth in the preamble hereto, (i) RSC
USA, as successor in interest to RSC Alabama, RSC Center, RSC
Duval, RSC Industrial, RSC Rents and Walker Jones and (ii) any
Subsidiary of any Credit Party which becomes a party hereto in
accordance with Section 8.20.
------------
(b) the definition of "Parent Guarantors" is amended and
restated in its entirety to read as follows:
Parent Guarantors or Parent Guarantor means,
----------------- ----------------
notwithstanding any contrary definition set forth in the preamble
hereto, RSC.
2.2 Amendment to Section 6.10. Effective as of January 1, 1999,
-------------------------
Section 6.10 of the Credit Agreement is hereby amended to delete in their
entirety the first through eighth sentences thereof and to substitute in
lieu thereof the following:
-2-
<PAGE>
RSC is the record and beneficial owner of all of the shares of capital
stock of each of RSC USA and RSC Canada. RSC has no direct
Subsidiaries other than RSC USA and RSC Canada. RSC USA has no direct
or indirect Subsidiaries (other than Subsidiaries permitted to be
created or acquired under Section 8.20 as to which all actions
------------
required by Section 8.20 have been taken).
------------
2.3 Amendment to Section 8.5(f). Effective as of December 31,
---------------------------
1998, Section 8.5(f) of the Credit Agreement is hereby amended to delete in
its entirety the Maximum Amount of "$335,000,000" set out opposite the 1998
Fiscal Year in the table therein and to substitute in lieu thereof a
Maximum Amount of "$365,000,000".
2.4 Amendment to Section 8.9. Effective as of January 1, 1999,
------------------------
Section 8.9 of the Credit Agreement is hereby amended to delete in its
entirety the last sentence thereof.
2.5 Amendments to Section 8.10. Effective as of January 1,
--------------------------
1999, Section 8.10 of the Credit Agreement is hereby amended as follows:
(a) to delete in its entirety the reference in clause (iii)
thereof to "the Borrowers may declare and pay to RSC Acquisition and
RSC Holdings, and RSC Acquisition and RSC Holdings may declare and pay
to RSC, cash" and to substitute in lieu thereof "the Borrower may
declare and pay cash to RSC"; and
(b) to delete in its entirety the references in clauses (iv)
and (v) thereof to "the Borrowers may declare and pay cash to RSC
Acquisition and RSC Holdings, and RSC Acquisition and RSC Holdings may
declare and pay to RSC, cash" and to substitute in lieu thereof "the
Borrower may declare and pay cash to RSC".
2.6 Amendments to Section 10.1. Effective as of January 1,
--------------------------
1999, Section 10.1 of the Credit Agreement is hereby amended to delete the
provisions of clauses (a) and (b) in their entirety and to substitute in
lieu thereof "[intentionally deleted]".
2.7 Amendments to Section 10.4(b). Effective as of January 1,
-----------------------------
1999, Section 10.4(b) of the Credit Agreement is hereby amended to delete
in its entirety each reference to "any of RSC, RSC Acquisition (with
respect to the RSC Acquisition Borrowers) or RSC Holdings (with respect to
the RSC Holdings Borrowers)" in clauses (i) and (ii) thereof and to
substitute in lieu thereof "RSC".
3. Amendment to Fourth Amendment. Upon the "Amendment Effective
-----------------------------
Date" (as defined in Section 4 below), Section 3 of the Fourth Amendment is
hereby amended and restated to read as follows:
-3-
<PAGE>
3. Agreement to Amend and Restate Credit Agreement. Not later
-----------------------------------------------
than August 31, 1999 (unless the Credit Agreement and the other Credit
Documents shall have been amended and restated, replaced or refinanced
prior to that date), each of the Agent, the Lenders, RSC and RSC USA agree
to enter into a Third Amended and Restated Credit Agreement giving effect
to each amendment to the Credit Agreement and the RSC Subsidiary
Consolidation, together with any amendments and/or amendments and
restatements of the Credit Documents necessary to give effect to the RSC
Subsidiary Consolidation; provided, however, that (i) the Borrower shall
-------- -------
execute and deliver to the Agent, for delivery to the respective Lenders,
amended and restated Notes on or before the "Amendment Effective Date" (as
defined in the Fifth Amendment to Second Amended and Restated Credit
Agreement dated as of February 10, 1999) and (ii) the Borrower and the
Parent Guarantor shall promptly execute and deliver such new UCC-1
financing statements and/or amendments to previously filed UCC-1 financing
statements as the Agent may reasonably request.
4. Representations and Warranties. Each of the Credit Parties
------------------------------
hereby represents and warrants to each Lender, the Issuing Bank and the Agent
that, as of the Amendment Effective Date (after giving effect to this Fifth
Amendment):
(a) Each of the representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct on and as of
such dates, as if then made, other than representations and warranties that
relate solely to an earlier date;
(b) No Default or Event of Default shall have occurred and is
continuing;
(c) No change, occurrence, event or development or event involving a
prospective change that is reasonably likely to have a Material Adverse
Effect shall have occurred and be continuing; and
(d) No Change of Control has occurred.
5. Amendment Effective Date. This Fifth Amendment shall become
------------------------
effective as of the date first written above (the "Amendment Effective Date")
------------------------
upon the satisfaction of each of the following conditions:
(a) the Agent shall have received each of the following documents, in
each case in form and substance reasonably satisfactory to the Agent:
(i) counterparts hereof executed by the Borrower, the Parent
Guarantor, the Agent and the Majority Lenders;
-4-
<PAGE>
(ii) amended and restated Notes executed by the Borrower and
payable to the respective Lenders; and
(iii) such additional documentation as the Agent may reasonably
request.
(b) All Fees, and all Expenses as to which the Credit Parties have
received an invoice, in each case which are payable on or before the
Amendment Effective Date shall have been paid.
6. Miscellaneous. This Fifth Amendment is a Credit Document. The
-------------
headings herein are for convenience of reference only and shall not alter or
otherwise affect the meaning hereof. Except to the extent specifically amended
hereby for the periods specified herein, the provisions of the Credit Agreement
shall not be amended, modified, impaired or otherwise affected hereby and the
Credit Agreement and all of the Obligations are hereby confirmed in full force
and effect. The execution, delivery and effectiveness of this Fifth Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Agent, any Lender or the Issuing Bank under any of
the Credit Documents, nor constitute a waiver of any provision of any of the
Credit Documents. Nothing in this Fifth Amendment shall be construed to require
the Agent or any Lender to agree to any other amendments in the future or as a
consent to the Proposed NationsRent Merger.
7. Counterparts. This Fifth Amendment may be executed in any number
------------
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
8. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
-------------
THIS FIFTH AMENDMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS
FIFTH AMENDMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL
BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS
OTHER THAN THOSE CONTAINED IN NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401)
AND DECISIONS OF THE STATE OF NEW YORK.
-5-
<PAGE>
IN WITNESS WHEREOF, the Agent, the Lenders, the Borrowers and the
Parent Guarantors have caused this Fifth Amendment to be executed by their
respective officers thereunto duly authorized as of the date first above
written.
BORROWER: RENTAL SERVICE CORPORATION USA, INC.
- --------
By: /s/ Rosemary Strunk
-----------------------------------------------
Name: Rosemary Strunk
--------------------------------------------
Title: Secretary
-------------------------------------------
PARENT GUARANTOR: RENTAL SERVICE CORPORATION
- ----------------
By: /s/ Doug Bonnette
----------------------------------------------
Name: Doug Bonnette
--------------------------------------------
Title: Assistant Secretary
-------------------------------------------
AGENT: BT COMMERCIAL CORPORATION,
- ----- as Agent and as a Revolving Credit Lender
By: /s/ Albert Sun
----------------------------------------------
Name: Albert Sun
--------------------------------------------
Title: Principal
-------------------------------------------
REVOLVING CREDIT LENDERS: AMSOUTH BANK
- ------------------------
By: /s/ Patrick R. Brocker
----------------------------------------------
Name: Patrick R. Brocker
--------------------------------------------
Title: Attorney-in-Fact
-------------------------------------------
BANKBOSTON, N.A.
By: /s/ Robert Brandow
----------------------------------------------
Name: Robert Brandow
--------------------------------------------
Title: Director
-------------------------------------------
S-1
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ John Quick
----------------------------------------------
Name: John Quick
--------------------------------------------
Title: Senior Relationship Manager
-------------------------------------------
BANK ONE, ARIZONA, NA
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
BAY VIEW BANK
By: /s/ Gary Harrigian
-----------------------------------------------
Name: Gary Harrigian
--------------------------------------------
Title: Vice President
-------------------------------------------
BAY VIEW FINANCIAL CORPORATION
By: /s/ Sharon Shani
----------------------------------------------
Name: Sharon Shani
--------------------------------------------
Title: Assistant Vice President
-------------------------------------------
BNY FINANCIAL CORPORATION
By: /s/ Anthony Viola
----------------------------------------------
Name: Anthony Viola
--------------------------------------------
Title: Vice President
-------------------------------------------
THE CHASE MANHATTAN BANK
By: /s/ Jeffrey S. Ackerman
----------------------------------------------
Name: Jeffrey S. Ackerman
--------------------------------------------
Title: Vice President
-------------------------------------------
S-2
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ William Shiao
----------------------------------------------
Name: William Shiao
--------------------------------------------
Title: Assistant Vice President
------------------------------------------
COMERICA BANK
By: /s/ Eoin Collins
----------------------------------------------
Name: Eoin P. Collins
--------------------------------------------
Title: Account Officer
-------------------------------------------
CONGRESS FINANCIAL CORPORATION (WESTERN)
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
CREDIT LYONNAIS LOS ANGELES BRANCH
By: /s/ Dianne M. Scott
----------------------------------------------
Name: Dianne M. Scott
--------------------------------------------
Title: First Vice President and Manager
-------------------------------------------
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ Glen W. Clark
----------------------------------------------
Name: Glen W. Clark
--------------------------------------------
Title: Vice President
-------------------------------------------
DIME COMMERCIAL CORP.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
S-3
<PAGE>
FINOVA CAPITAL CORPORATION
By: /s/ Kurt Duerfeldt
----------------------------------------------
Name: Kurt Duerfeldt
--------------------------------------------
Title: Vice President
-------------------------------------------
FIRST UNION NATIONAL BANK
By: /s/ Myron Landau
----------------------------------------------
Name: Myron Landau
--------------------------------------------
Title: Vice President
-------------------------------------------
FLEET CAPITAL CORPORATION
By: /s/ Matthew R. Van Steenhuyse
----------------------------------------------
Name: Matthew R. Van Steenhuyse
--------------------------------------------
Title: Senior Vice President
-------------------------------------------
FREMONT INVESTMENT & LOAN
By: /s/ Cheri Buckingham
----------------------------------------------
Name: Cheri Buckingham
--------------------------------------------
Title: Vice President
-------------------------------------------
IBJ WHITEHALL BUSINESS CREDIT CORPORATION
By: /s/ John Butera
----------------------------------------------
Name: John Butera
--------------------------------------------
Title: Vice President
-------------------------------------------
S-4
<PAGE>
ISRAEL DISCOUNT BANK
By: /s/ R. David Korngruen
----------------------------------------------
Name: R. David Korngruen
--------------------------------------------
Title: Vice President
-------------------------------------------
By: /s/ Andrew Finkle
----------------------------------------------
Name: Andrew Finkle
--------------------------------------------
Title: Corporate Banking Representative
-------------------------------------------
KEY CORPORATE CAPITAL INC.
By: /s/ J. Eric Stropkay
----------------------------------------------
Name: J. Eric Stropkay
--------------------------------------------
Title: Assistant Vice President
-------------------------------------------
LASALLE NATIONAL BANK, N.A.
By: /s/ Christopher G. Clifford
----------------------------------------------
Name: Christopher G. Clifford
--------------------------------------------
Title: Senior Vice President
-------------------------------------------
MELLON BANK, N.A.
By: /s/ Jeffrey G. Saperstein
----------------------------------------------
Name: Jeffrey G. Saperstein
--------------------------------------------
Title: Vice President
-------------------------------------------
NATIONAL BANK OF CANADA
By: /s/ R. A. McKerroll
----------------------------------------------
Name: R. A. McKerroll
--------------------------------------------
Title: Vice President
-------------------------------------------
By: John Curry
----------------------------------------------
Name: John Curry
--------------------------------------------
Title: Vice President
-------------------------------------------
S-5
<PAGE>
NATIONSBANK, N.A.
By: /s/ E. James Beckemeier
----------------------------------------------
Name: E. James Beckemeier
--------------------------------------------
Title: Vice President
-------------------------------------------
PARIBAS
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
PNC BANK, NATIONAL ASSOCIATION
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
THE PROVIDENT BANK
By: /s/ Peter B. York
----------------------------------------------
Name: Peter B. York
--------------------------------------------
Title: Vice President
-------------------------------------------
SANWA BANK CALIFORNIA
By: /s/ Dirk Price
-----------------------------------------------
Name: Dirk Price
--------------------------------------------
Title: Vice President
-------------------------------------------
S-6
<PAGE>
SUMMIT COMMERCIAL/GIBRALTAR CORP.
(formerly known as Gibraltar Corporation of
America)
By: /s/ Peter J. Hollitscher
----------------------------------------------
Name: Peter J. Hollitscher
--------------------------------------------
Title: Vice President
-------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ Robert L. Heinz
----------------------------------------------
Name: Robert L. Heinz
--------------------------------------------
Title: Senior Vice President
-------------------------------------------
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Greg F. Ennis
----------------------------------------------
Name: Greg F. Ennis
--------------------------------------------
Title: Vice President
-------------------------------------------
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Kelly Condon
----------------------------------------------
Name: Kelly Condon
--------------------------------------------
Title: Vice President
-------------------------------------------
S-7
<PAGE>
TERM LOAN LENDERS: ARES LEVERAGED INVESTMENT
- ----------------- FUND L.P.
By: Ares Management, L.P.
Its general partner
By: Ares Operating Member LLC,
Its general partner
By: /s/ David A. Sachs
-----------------------------------------------
Name: David A. Sachs
--------------------------------------------
Title: Vice President
-------------------------------------------
BANKERS TRUST COMPANY
By: /s/ Rosemary F. Dunne
----------------------------------------------
Name: Rosemary F. Dunne
--------------------------------------------
Title: Vice President
-------------------------------------------
FIRST DOMINION FUNDING I
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
KZH HIGHLAND-2 LLC
By: Virginia Conway
----------------------------------------------
Name: Virginia Conway
--------------------------------------------
Title: Authorized Agent
-------------------------------------------
KZH ING-2 LLC
By: /s/ Virginia Conway
----------------------------------------------
Name: Virginia Conway
--------------------------------------------
Title: Authorized Agent
-------------------------------------------
S-8
<PAGE>
PARIBAS CAPITAL FUNDING LLC
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
ML CLO XIX STERLING (CAYMAN) LTD.
By: Sterling Asset Manager, L.L.C.,
as its Investment Advisor
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
TORONTO DOMINION (TEXAS), INC.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
WELLS FARGO BANK, N.A., as Attorney-in-Fact for
Sutter CBO 1998-1 Ltd.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
S-9
<PAGE>
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company,
its Investment Manager
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisers (Bermuda), Ltd.,
as General Partner
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
By: TCW Investment Management Company,
as Investment Adviser
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
TCW LEVERAGED INCOME TRUST II, L.P.
By: TCW Advisers (Bermuda), Ltd.,
as General Partner
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
By: TCW Investment Management Company,
as Investment Adviser
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
S-10
<PAGE>
EXHIBIT 10.31
THE
RENTAL SERVICE CORPORATION
EXECUTIVE SAVINGS PLAN
April 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PREAMBLE.................................................................. 1
ARTICLE ONE
EFFECTIVE DATE....................................... 1
--------------
1.1. EFFECTIVE DATE....................................... 1
ARTICLE TWO
DEFINITIONS AND CONSTRUCTION......................... 1
----------------------------
2.1. DEFINITIONS.......................................... 1
2.2. CONSTRUCTION......................................... 4
ARTICLE THREE
ELIGIBILITY AND PARTICIPATION........................ 4
-----------------------------
3.1. GENERAL.............................................. 4
3.2. APPLICATION TO PARTICIPATE........................... 4
3.3. TIMING OF PARTICIPATION.............................. 4
3.4. DISCONTINUANCE OF PARTICIPATION...................... 5
ARTICLE FOUR
PARTICIPANT DEFERRALS................................ 5
---------------------
4.1. PARTICIPANT DEFERRALS................................ 5
4.2. DESIGNATION AND CHANGE OF DESIGNATION OF PARTICIPANT
DEFERRALS............................................ 6
ARTICLE FIVE
CREDITING OF CONTRIBUTIONS AND INVESTMENT EXPERIENCE. 6
----------------------------------------------------
5.1. TRANSFER TO TRUSTEE.................................. 6
5.2. CREDITING OF INVESTMENT EXPERIENCE TO ACCOUNTS....... 6
5.3. ACCELERATION OF BENEFITS............................. 6
5.4. LIMITATION ON DISTRIBUTIONS.......................... 7
ARTICLE SIX
VESTING.............................................. 7
-------
6.1. FULL VESTING......................................... 7
</TABLE>
<PAGE>
TABLE OF CONTENTS
Continued
<TABLE>
<CAPTION>
PAGE
ARTICLE SEVEN
<S> <C> <C>
DISTRIBUTION OF BENEFITS............................. 7
------------------------
7.1. NORMAL AND LATE RETIREMENT........................... 7
7.2. DISABILITY RETIREMENT................................ 7
7.3. DEATH................................................ 8
7.4. OTHER TERMINATION OF EMPLOYMENT...................... 8
7.5. TIME AND METHOD OF DISTRIBUTION OF BENEFITS.......... 8
7.6. DESIGNATION OF BENEFICIARY........................... 9
7.7. PAYMENTS TO DISABLED................................. 9
7.8. UNDERPAYMENT OR OVERPAYMENT OF BENEFITS.............. 10
ARTICLE EIGHT
INALIENABILITY OF BENEFITS........................... 10
--------------------------
8.1. NO ASSIGNMENT PERMITTED.............................. 10
8.2. QUALIFIED DOMESTIC RELATIONS ORDERS.................. 10
8.3. PROCESSING QUALIFIED DOMESTIC RELATIONS ORDERS....... 11
ARTICLE NINE
ADMINISTRATION....................................... 11
--------------
9.1. PLAN ADMINISTRATOR................................... 11
9.2. ALLOCATION OF FIDUCIARY RESPONSIBILITY............... 11
9.3. POWERS OF THE PLAN ADMINISTRATOR..................... 12
9.4. CLAIMS............................................... 12
9.5. CREATION OF COMMITTEE................................ 13
9.6. CHAIRMAN AND SECRETARY............................... 14
9.7. APPOINTMENT OF AGENTS................................ 14
9.8. MAJORITY VOTE AND EXECUTION OF INSTRUMENTS........... 14
9.9. ALLOCATION OF RESPONSIBILITIES AMONG COMMITTEE
MEMBERS.............................................. 14
9.10. CONFLICT OF INTEREST................................. 14
9.11. OTHER FIDUCIARY CAPACITIES........................... 14
ARTICLE TEN
SCOPE OF RESPONSIBILITY.............................. 15
-----------------------
10.1. SCOPE OF RESPONSIBILITY.............................. 15
</TABLE>
<PAGE>
TABLE OF CONTENTS
Continued
<TABLE>
<CAPTION>
PAGE
ARTICLE ELEVEN
<S> <C> <C>
AMENDMENT, MERGER AND TERMINATION.............. 16
---------------------------------
11.1. AMENDMENT...................................... 16
11.2. MERGER OR CONSOLIDATION OF EMPLOYER............ 16
11.3. TERMINATION OF PLAN OR DISCONTINUANCE OF
CONTRIBUTIONS.................................. 16
11.4. LIMITATION OF EMPLOYER LIABILITY............... 16
ARTICLE TWELVE
GENERAL PROVISIONS............................. 17
------------------
12.1. LIMITATION ON PARTICIPANTS' RIGHTS............. 17
12.2. STATUS OF PARTICIPANTS AS UNSECURED CREDITORS.. 17
12.3. STATUS OF TRUST FUND........................... 17
12.4. UNIFORM ADMINISTRATION......................... 17
12.5. HEIRS AND SUCCESSORS........................... 17
12.6. EMPLOYER-OWNED LIFE INSURANCE.................. 17
</TABLE>
<PAGE>
RENTAL SERVICE CORPORATION
EXECUTIVE SAVINGS PLAN
PREAMBLE
---------
Rental Service Corporation (the "Employer") hereby adopts the Rental
Service Corporation Executive Savings Plan ("Plan"), effective April 1, 1998.
The purpose of this Plan is to provide a select group of management or
highly compensated employees of the Company and certain of its affiliates with
the opportunity to defer a portion of their earnings. As a result, the Plan
shall be considered to be a "top hat plan", exempt from many of the requirements
of the Employee Retirement Income Security Act of 1974 ("ERISA"). This Plan is
not intended to "qualify" for favorable tax treatment pursuant to Section 401(a)
of the Internal Revenue Code of 1986 (the "Code") or any successor section or
statute.
The provisions of the Plan, as set forth herein, shall apply only to a
Participant whose termination from employment occurs on or after the Effective
Date noted in Section 1.1.
ARTICLE ONE
------------
EFFECTIVE DATE
---------------
1.1 EFFECTIVE DATE.
--------------
Except as otherwise specifically provided with respect to particular
provisions of the Plan, the provisions of this Plan shall be effective as of
April 1, 1998 (the "Effective Date").
ARTICLE TWO
------------
DEFINITIONS AND CONSTRUCTION
----------------------------
2.1 DEFINITIONS.
-----------
When a word or phrase shall appear in this Plan with the initial letter
capitalized, and the word or phrase does not commence a sentence, the word or
phrase shall generally be a term defined in this Section 2.1, the Preamble, or
Section 1.1.
(a) "AFFILIATE" - Any organization other than the Employer that is
---------
related to the Employer through stock ownership or otherwise that elects, with
the consent of the Employer, to adopt this Plan for the benefit of one or more
of its Employees.
(b) "BENEFICIARY" - The person or persons designated to receive benefits
-----------
under this Plan in the event of the Participant's death.
<PAGE>
(c) "BOARD" - The Board of Directors of the Employer.
-----
(d) "DISABILITY" - The injury or sickness of the Participant, such that
----------
he is unable to perform the substantial and material duties of his regular
occupation with the Employer (determined at the time of such Disability), and
which requires the Participant to be under the care of a licensed physician
(unless the Plan Administrator determines that a physician's care would be of no
further benefit to the Participant). The Plan Administrator's determination of
Disability shall be conclusive and binding on all parties.
(e) "EARNINGS" - All salary, bonuses and incentive compensation paid to
--------
the Employee by the Employer in cash, including amounts deferred under the
Rental Service Corporation 401(k) Employee Savings Plan and under this Plan.
All other forms of compensation shall be disregarded for purposes of this Plan.
(f) "EFFECTIVE DATE" - The Effective Date of this Plan is April 1, 1998,
--------------
except as otherwise specifically provided with respect to particular provisions
of this Plan.
(g) "EMPLOYEE" - Each person receiving remuneration, or who is entitled
--------
to remuneration, for services rendered to the Employer in the legal relationship
of employer and employee and not in the relationship of a private contractor (or
who would be receiving or be entitled to remuneration were such person not on an
authorized leave of absence).
(h) "EMPLOYER" - Rental Service Corporation, and each successor in
--------
interest to the Employer resulting from merger, consolidation, or transfer of
substantially all of its assets that elects to continue this Plan. Except as
otherwise clearly indicated by the context (such as in Sections 2.1(c)), the
term "Employer" as used herein shall include each Affiliate which has elected by
action of its board of directors, with the consent of the Board, to adopt this
Plan. Each Affiliate adopting this Plan shall be deemed to have delegated to
the Board all authority to amend or terminate the Plan and to appoint and remove
the Plan Administrator and the Trustee.
(i) "INTEREST RATE" - The rate of interest credited to the Participant
-------------
Deferrals Account of the Participants as announced by the Plan Administrator
from time to time. The initial Interest Rate from the Effective Date through
March 31, 2003 shall be the greater of ten percent (10%) or the average long-
term bond rate, and thereafter the Interest Rate shall be the average long-term
bond rate. For Plan Years beginning on or after April 1, 2000, the Plan
Administrator has the discretion to credit each Participant Deferrals Account
with a supplemental interest rate (i.e., a rate in excess of the Interest Rate),
----
which rate will be in effect for a Plan Year only if it is communicated to
Participants prior to the beginning of a Plan Year.
(j) "NORMAL RETIREMENT AGE" or "NORMAL RETIREMENT DATE" -The later of
--------------------- ----------------------
the date on which a Participant attains age 55 and is credited with seven Years
of Service with the Employer or an Affiliate.
2
<PAGE>
(k) "PARTICIPANT" - An Employee who has satisfied the eligibility
-----------
requirements specified in Section 3.1, who has elected to participate pursuant
to Section 3.2 and whose participation in the Plan has not been terminated. If
so indicated by the context, the term Participant shall also include former
Participants whose active participation in the Plan has terminated but who have
not received all amounts to which they are entitled pursuant to the terms and
provisions of this Plan.
(l) "PARTICIPANT DEFERRALS" - The deferrals directed by a Participant
---------------------
pursuant to Section 4.1.
(m) "PARTICIPANT DEFERRALS ACCOUNT" - The bookkeeping account
-----------------------------
established pursuant to Section 6.1 to which are credited the Participant
Deferrals directed by a Participant and the investment experience thereon.
(n) "PLAN" - The Rental Service Corporation Executive Savings Plan, as
----
set forth in this instrument, and as it may hereafter be amended.
(o) "PLAN ADMINISTRATOR" - The individual, entity, or committee
------------------
appointed to act as such pursuant to Section 9.1.
(p) "PLAN YEAR" - A twelve (12) month period, commencing on each January
---------
1 and ending on each following December 31. The first Plan Year, however, will
commence April 1, 1998 and end December 31, 1998.
(q) "TRUST AGREEMENT" - The agreement entered into between the Employer
---------------
and the Trustee.
(r) "TRUST FUND" - The fund established by the Employer pursuant to the
----------
terms of the Trust Agreement as may be established under this Plan.
(s) "TRUSTEE" - The individual, individuals, or entity selected by the
-------
Employer to act as such. The Trustee shall acknowledge acceptance of its
appointment by the execution of the Trust Agreement or, in the case of a
successor Trustee, by the execution of an appropriate written instrument. If
the Employer appoints two or more individuals or entities to act jointly as the
Trustee, the term "Trustee" shall refer collectively to all such individuals or
entities.
(t) "VALUATION DATE" - The date or dates as of which the Participant
--------------
Deferrals Accounts are adjusted to reflect the crediting of investment
experience, the addition of Participant Deferrals and the subtraction of
distributions. The Valuation Date shall be the last day of a Plan Year and such
other dates designated by the Plan Administrator as Valuation Dates.
(u) "YEAR OF SERVICE" - The Years of Service credited to the Participant
---------------
pursuant to the Rental Service Corporation 401(k) Employee Savings Plan, as it
may be amended from time to time. Years of Service credited under the Rental
Service
3
<PAGE>
Corporation 401(k) Employee Savings Plan prior to the Effective Date shall be
counted as Years of Service under this Plan.
2.2 CONSTRUCTION.
------------
The masculine gender, where appearing in the Plan, shall include the
feminine gender (and vice versa), and the singular shall include the plural,
unless the context clearly indicates to the contrary. The term "delivered to
the Plan Administrator," as used in the Plan, shall include delivery to a person
or persons designated by the Plan Administrator for the disbursement and receipt
of administrative forms. Headings and subheadings are for the purpose of
reference only and are not to be considered in the construction of this Plan.
If any provision of this Plan is determined to be for any reason invalid or
unenforceable, the remaining provisions shall continue in full force and effect.
All of the provisions of this Plan shall be construed and enforced according to
the laws of the State of Arizona and shall be administered according to the laws
of such state, except as otherwise required by the Act, the Code or other
Federal law.
ARTICLE THREE
--------------
ELIGIBILITY AND PARTICIPATION
-----------------------------
3.1 GENERAL.
-------
For purposes of Title I of ERISA, the Plan is intended to be an unfunded
plan of deferred compensation covering a select group of management or highly
compensated employees. As a result, participation in the Plan shall be limited
to Employees who are properly included in one or both of these categories. The
Plan Administrator, in the exercise of its discretion, may exclude an Employee
who otherwise meets the requirements of this Section 3.1 from participation in
the Plan if it concludes that the exclusion of that Employee is necessary in
order to satisfy these requirements. The Plan Administrator also may exclude an
Employee who otherwise meets the requirements of this Section 3.1 for any other
reason, or for no reason, as the Plan Administrator deems to be appropriate.
3.2 APPLICATION TO PARTICIPATE.
--------------------------
Each Employee who is designated as eligible to participate in the Plan
by the Plan Administrator may become a Participant by completing and signing an
enrollment form provided by, or acceptable to, the Plan Administrator and
delivering the form to the Plan Administrator. The Employee shall designate on
the form the amount of his Participant Deferrals and shall authorize the
reduction of his Earnings in an amount equal to his Participant Deferrals.
3.3 TIMING OF PARTICIPATION.
-----------------------
After an Employee has been selected by the Plan Administrator to
participate in the Plan, the Employee will have 30 days to notify the Plan
Administrator whether he will
4
<PAGE>
participate in the Plan. If the Employee timely notifies the Plan Administrator
of his intent to participate in the Plan, the Employee's participation will
commence the beginning of the first payroll period following or coinciding with
the first day of the calendar month after the Plan Administrator is so notified.
If the Employee does not timely notify the Plan Administrator of his intent to
participate in the Plan, the Employee may commence participation as of the first
payroll period following or coinciding with the first day of any later Plan Year
by notifying the Plan Administrator prior to the first day of such Plan Year and
provided further that the Plan Administrator determines that the Employee
remains eligible to participate in the Plan under Section 3.1.
3.4 DISCONTINUANCE OF PARTICIPATION.
-------------------------------
Once an Employee is designated as eligible to participate, he will
remain eligible to participate in the Plan unless the Plan Administrator
specifically discontinues his eligibility. In the exercise of its discretion,
the Plan Administrator may elect to discontinue an Employee's participation in
the Plan at any time and for any or no reason. If an Employee's participation
in the Plan is discontinued, the Employee will no longer be eligible to make
Participant Deferrals. The Employee will not be entitled to receive a
distribution from his Participant Deferrals Account, however, until the
occurrence of one of the events listed in Sections 7.1 through 7.4, unless the
Plan Administrator, in its discretion, directs that a distribution be made at an
earlier date, in which case the Participant's Participant Deferrals Account will
be distributed on the same basis as if the Participant's employment had been
terminated.
ARTICLE FOUR
-------------
PARTICIPANT DEFERRALS
---------------------
4.1 PARTICIPANT DEFERRALS.
---------------------
(a) ELECTION. Each Participant may elect to make Participant Deferrals
--------
during each Plan Year while he is a Participant. The amount payable to the
Participant as his Earnings shall then be reduced by an amount equal to the
Participant Deferrals. On the election form, the Participant may designate
different deferral percentages or amounts for different forms of Earnings (e.g.,
base salary as opposed to bonuses). Participant Deferrals shall be directed in
a specified dollar amount or in whole percentage increments of the type of
Earnings to which the election relates. Contributions of amounts deferred shall
be made by the Employer directly to the Trust.
(b) LIMITATIONS AND MINIMUM. A Participant shall not be permitted to
-----------------------
make annual Participant Deferrals during in Plan Year in excess of fifty percent
(50%) of his base salary and up to one hundred percent (100%) of any bonus or
incentive compensation that otherwise qualifies as Earnings during such Plan.
Year. The Plan Administrator may adopt other limits on the amount of
Participant Deferrals in accordance with such uniform rules as it may adopt from
time to time. The minimum dollar amount that a Participant is permitted to
defer under the Plan during a Plan Year is $10,000.
5
<PAGE>
4.2 DESIGNATION AND CHANGE OF DESIGNATION OF PARTICIPANT DEFERRALS.
--------------------------------------------------------------
All designations or changes of designation of the amount of Participant
Deferrals to be elected shall be made on forms supplied by, or acceptable to,
the Plan Administrator, signed by the Participant and delivered to the Plan
Administrator. A designation shall be effective as of the beginning of the
first payroll period following or coinciding with the first day of the next Plan
Year. A payroll deduction designation form shall be effective for all future
Plan Years until it is succeeded by another valid payroll deduction designation
form or until the Participant's right to make Participant Deferrals is otherwise
suspended or terminated.
ARTICLE FIVE
-------------
CREDITING OF CONTRIBUTIONS AND INVESTMENT EXPERIENCE
----------------------------------------------------
5.1 TRANSFER TO TRUSTEE.
-------------------
All Participant Deferrals shall be transmitted to the Trustee by the
Plan Administrator as soon as reasonably practicable and shall be credited to
the Participant Deferrals Account of the Participant immediately upon receipt.
All payments from a Participant Deferrals Account between Valuation Dates shall
be charged against the Participant Deferrals Account as of the preceding
Valuation Date. The Participant Deferrals Accounts are bookkeeping accounts
only and the Plan Administrator is not in any way obligated to segregate assets
for the benefit of any Participant.
5.2 CREDITING OF INVESTMENT EXPERIENCE TO ACCOUNTS. For each Valuation
----------------------------------------------
Date, the Plan Administrator shall credit interest at the Interest Rate
applicable for that Plan Year (or portion thereof) to each Participant Deferral
Account. Interest will be credited on each Participant Deferral Account on a
uniform basis that reflects the timing of the deferral, withdrawals, and
distributions. The amount of interest to be credited to the Participant
Deferrals Account shall be prorated in a uniform manner if the period of time
since the last Valuation Date is less than one year.
5.3 ACCELERATION OF BENEFITS.
------------------------
(a) GENERAL. A Participant may elect to receive an accelerated
-------
withdrawal from his Participant Deferrals Account by filing an election with the
Plan Administrator on such forms as may be prescribed from time to time by the
Plan Administrator. If a Participant makes such an election, the Participant
shall receive a single lump sum payment equal to 90% of the amount credited to
his Participant Deferrals Account. For purposes of determining the amount to be
distributed, the Participant's Participant Deferrals Account shall be valued as
of the effective date of the withdrawal. The accelerated withdrawal shall be
paid as soon as reasonably possible following the effective date.
6
<PAGE>
(b) FORFEITURE. A Participant shall forfeit the remaining 10% of his
----------
Participant Deferrals Account as of the day on which the accelerated withdrawal
is distributed to the Participant.
(c) SUSPENSION OF PARTICIPATION. If a Participant elects to receive an
---------------------------
accelerated withdrawal, the Participant's right to make Participant Deferrals
shall be terminated and the Participant shall not be entitled to again
participate in the Plan.
5.4 LIMITATION ON DISTRIBUTIONS.
---------------------------
To the extent that any payment under this Article, when combined with
all other payments received during the year that are subject to the limitations
on deductibility under Section 162(m) of the Code, exceeds the limitations on
deductibility under Section 162(m) of the Code, such payment shall, in the
discretion of the Plan Administrator, be deferred to a later calendar year.
Such deferred amounts shall be paid in the next succeeding calendar year,
provided that such payment, when combined with any other payments subject to the
Section 162(m) limitations received during the year, does not exceed the
limitations on deductibility under Section 162(m) of the Code.
ARTICLE SIX
------------
VESTING
-------
6.1 FULL VESTING.
------------
Subject to the forfeiture provision of Section 5.3(b), each Participant
shall at all times be fully vested in all amounts credited to or allocable to
his Participant Deferrals Account and his rights and interest therein shall not
be forfeitable for any reason.
ARTICLE SEVEN
--------------
DISTRIBUTION OF BENEFITS
------------------------
7.1 NORMAL AND LATE RETIREMENT.
--------------------------
A Participant shall be entitled to a distribution of amounts credited to
his Participant Deferrals Account, as provided in Section 7.5, upon actual
retirement as of or after his Normal Retirement Date. A Participant may remain
in the employment of the Employer after his Normal Retirement Date, if he
desires, and shall retire at such later time as he may desire, unless the
Employer lawfully directs earlier retirement.
7.2 DISABILITY RETIREMENT.
---------------------
A Participant who separates from employment due to Disability shall be
entitled to a distribution of amounts credited to his Participant Deferrals
Account as provided in Section 7.5. Subject to Section 7.5, the payments may
commence as of his date of separation of employment due to Disability.
7
<PAGE>
7.3 DEATH.
-----
(a) BENEFIT. In the event that a Participant (which term for purposes
-------
of this Section includes former Participants) shall die prior to the day on
which his benefit payments commence, the Participant's Beneficiary shall be
entitled to distribution of amounts credited to the Participant's Participant
Deferrals Account at the time and in the manner provided in Section 7.5.
(b) DEATH AFTER COMMENCEMENT OF BENEFITS. In the event that a former
------------------------------------
Participant shall die after the day on which his benefit payments commence, but
prior to the complete distribution of all amounts to which such Participant is
entitled under the provisions of this ARTICLE SEVEN, the Participant's
Beneficiary shall be entitled to receive any remaining amounts to which the
Participant would have been entitled had the Participant survived at the time
and in the manner provided in Section 7.5. The Plan Administrator may require
and rely upon such proofs of death and the right of any Beneficiary to receive
benefits pursuant to this Section 7.3 as the Plan Administrator may reasonably
determine, and its determination of death and the right of such Beneficiary to
receive payment shall be binding and conclusive upon all persons whomsoever.
7.4 OTHER TERMINATION OF EMPLOYMENT.
-------------------------------
A Participant who separates from employment for any reason other than
after attaining Normal Retirement Age, death, or Disability shall be entitled to
distribution of amounts credited to his Participant Deferrals Account at the
time and in the manner provided in Section 7.5. In the exercise of its
discretion, the Plan Administrator may also elect to commence distributions
while the Participant is employed if the Participant's participation has been
discontinued pursuant to Section 3.4.
7.5 TIME AND METHOD OF DISTRIBUTION OF BENEFITS.
-------------------------------------------
(a) RETIREMENT. Payment to a Participant who is entitled to benefits
----------
under Section 7.1 normally shall commence within a reasonable time following the
Valuation Date next following the Participant's termination of employment. Such
distributions shall be paid in 15 substantially equal annual installments and
the remaining balance in the Participant's Participant Deferrals Account shall
continue to be credited with interest at the applicable Interest Rate.
(b) DISABILITY. Payment to a Participant who is entitled to benefits
----------
under Section 7.1 shall commence as soon as possible after the Valuation Date
next following the Participant's termination of employment due to a Disability.
Such distribution shall be paid in a single lump sum.
(c) DEATH AFTER COMMENCEMENT OF PAYMENTS. In the event of the death of
------------------------------------
a Participant after the day on which his benefit payments commence but prior to
the complete distribution to such Participant of the benefits payable to him
under the Plan, any remaining benefits shall be distributed to the Participant's
Beneficiary in a single
8
<PAGE>
lump sum. Payments to the Beneficiaries entitled to payments pursuant to Section
7.3 shall commence as soon as possible following the death of the Participant.
(d) DEATH PRIOR TO COMMENCEMENT OF BENEFITS. In the event of the death
---------------------------------------
of the Participant prior to the day on which his benefit payments commence,
payments to the Participant's Beneficiary shall commence as soon as possible
following the Participant's death. Such distribution shall be paid in a single
lump sum.
(e) TERMINATION. Payment to a Participant who is entitled to benefits
-----------
under Section 7.4 shall commence within a reasonable time following the
Valuation Date next following the Participant's attaining age 62. Such
distribution shall be paid in 15 substantially equal annual installments and the
remaining balance in the Participant's Participant Deferrals Account shall
continue to be credited with interest at the applicable Interest Rate.
7.6 DESIGNATION OF BENEFICIARY.
--------------------------
Each Participant shall have the right to designate, on forms supplied
by, or acceptable to, and delivered to the Plan Administrator, a Beneficiary or
Beneficiaries to receive his benefits hereunder in the event of the
Participant's death. For each Participant who is married, his Beneficiary shall
be deemed to be his spouse, unless the Participant's spouse consents to the
Participant's Beneficiary designation to the contrary. Such consent must be in
writing, must acknowledge the effect of the beneficiary designation and the
spouse's consent thereto. Subject to the foregoing, each Participant may change
his Beneficiary designation from time to time in the manner described above.
Upon receipt of such designation by the Plan Administrator, such designation or
change of designation shall become effective as of the date of the notice,
whether or not the Participant is living at the time the notice is received.
There shall be no liability on the part of the Employer, the Plan Administrator
or the Trustee with respect to any payment authorized by the Plan Administrator
in accordance with the most recent valid Beneficiary designation of the
Participant in its possession before receipt of a more recent and valid
Beneficiary designation. If no designated Beneficiary is living when benefits
become payable, or if there is no designated Beneficiary, the Beneficiary shall
be the Participant's spouse; or if no spouse is then living, such Participant's
issue, including any legally adopted child or children, in equal shares by right
of representation; or if no such designated Beneficiary and no such spouse or
issue, including any legally adopted child or children, is living upon the death
of a Participant, or if all such persons die prior to the full distribution of
such Participant's benefits, then the Beneficiary shall be the estate of the
Participant.
7.7 PAYMENTS TO DISABLED.
--------------------
If a person entitled to any payment hereunder shall be under a legal
disability, or in the sole judgment of the Plan Administrator shall otherwise be
unable to apply such payment to his own interest and advantage, the Plan
Administrator in the exercise of its discretion may make any such payment in any
one or more of the following ways: (a) directly to such person, (b) to his legal
guardian or conservator, or (c) to his spouse or to
9
<PAGE>
any person charged with the legal duty of his support, to be expended for his
benefit. The decision of the Plan Administrator shall in each case be final and
binding upon all persons in interest.
7.8 UNDERPAYMENT OR OVERPAYMENT OF BENEFITS.
---------------------------------------
In the event that, through misstatement or computation error, benefits
are underpaid or overpaid, there shall be no liability for any more than the
correct benefit sums under the Plan. Overpayments may be deducted from future
payments under the Plan, and underpayments may be added to future payments under
the Plan. In lieu of receiving reduced benefits under the Plan, a Participant
or beneficiary may elect to make a lump sum repayment of any overpayment.
ARTICLE EIGHT
--------------
INALIENABILITY OF BENEFITS
--------------------------
8.1 NO ASSIGNMENT PERMITTED.
-----------------------
(a) GENERAL PROHIBITION. No Participant or Beneficiary, and no creditor
-------------------
of a Participant or Beneficiary, shall have any right to assign, pledge,
hypothecate, anticipate, or in any way create a lien upon the Plan or the Trust
Fund. All payments to be made to Participants or their Beneficiaries shall be
made only upon their personal receipt or endorsement, except as provided in
Section 7.6, and no interest in the Plan or the Trust Fund shall be subject to
assignment or transfer or otherwise be alienable, either by voluntary or
involuntary act or by operation of law or equity, or subject to attachment,
execution, garnishment, sequestration, levy, or other seizure under any legal,
equitable or other process, or be liable in any way for the debts or defaults of
Participants and Beneficiaries.
(b) PERMITTED ARRANGEMENTS. This Section shall not preclude
----------------------
arrangements for the withholding of taxes from benefit payments, arrangements
for the recovery of benefit overpayments, arrangements for the transfer of
benefit rights to another plan, or arrangements for direct deposit of benefit
payments to an account in a bank, savings and loan association or credit union
(provided that such arrangement is not part of an arrangement constituting an
assignment or alienation). Additionally, this Section shall not preclude
arrangements for the distribution of the benefits of a Participant or
Beneficiary pursuant to the terms and provisions of a "qualified domestic
relations order" in accordance with the following provisions of this ARTICLE
EIGHT.
8.2 QUALIFIED DOMESTIC RELATIONS ORDERS.
-----------------------------------
A "qualified domestic relations order" is an order described in Section
206(d)(3) of the Employee Retirement Income Security Act of 1974 (the "Act")
that permits distribution of benefits in a distribution mode provided under the
Plan, does not require payment of increased benefits and does not require
payment of benefits allocated to a different alternate payee under a prior
qualified domestic relations order.
10
<PAGE>
8.3 PROCESSING QUALIFIED DOMESTIC RELATIONS ORDERS.
----------------------------------------------
(a) NOTICE. All decisions and determinations with respect to a domestic
------
relations order, including whether such order is a qualified domestic relations
order within the meaning of Section 206(d)(3) of the Act, shall be made by the
Plan Administrator within a reasonable time following its receipt of such order
and in accordance with such uniform and nondiscriminatory rules and procedures
as may be adopted by the Plan Administrator. Upon receipt of a domestic
relations order, the Plan Administrator shall notify the Participant or
Beneficiary whose benefits may be affected by such order of its receipt of such
order. The Plan Administrator shall also advise the Participant or Beneficiary
and the alternate payee named in the order of its rules and procedures relating
to the determination of the qualified status of such order.
(b) RETENTION OF PAYMENTS. If payment of benefits to the Participant or
---------------------
Beneficiary has commenced at the time a domestic relations order is received by
the Plan Administrator or benefits become payable after receipt of such order,
the Plan Administrator shall segregate and hold the amounts which would be
payable to the alternate payee under the order if such order is ultimately
determined to be a qualified domestic relations order. If the Plan
Administrator determines that the order is a qualified domestic relations order
within eighteen (18) months of the segregation of benefits payable to the
alternate payee under such order, the Plan Administrator shall pay the
segregated amounts (plus any earnings thereon) as well as such future amounts as
may be specified in such order to the alternate payee. If the Plan
Administrator determines that the order is not a qualified domestic relations
order or is unable to determine whether such order is a qualified domestic
relations order within the eighteen (18) month period following the segregation
of benefits, the Plan Administrator shall pay the segregated amounts (plus any
earnings thereon) to the Participant or Beneficiary. A determination by the
Plan Administrator after the close of such eighteen (18) month period that the
order is a qualified domestic relations order shall be applied prospectively.
All determinations of the Plan Administrator hereunder with respect to the
status of an order as a qualified domestic relations order shall be binding and
conclusive on all interested parties, subject to the provisions of Section 9.4.
ARTICLE NINE
-------------
ADMINISTRATION
--------------
9.1 PLAN ADMINISTRATOR.
------------------
The Employer shall be the Plan Administrator, but it may delegate its
duties as such to a committee appointed in accordance with Section 9.5.
9.2 ALLOCATION OF FIDUCIARY RESPONSIBILITY.
--------------------------------------
The Plan Administrator is the named fiduciary with respect to the
administration of the Plan. It shall not be responsible for any fiduciary
functions or other duties assigned to the Trustee pursuant to this Plan or the
Trust Agreement.
11
<PAGE>
9.3 POWERS OF THE PLAN ADMINISTRATOR.
--------------------------------
(a) GENERAL POWERS. The Plan Administrator shall have the power and
--------------
discretion to perform the administrative duties described in this Plan or
required for proper administration of the Plan and shall have all powers
necessary to enable it to properly carry out such duties. Without limiting the
generality of the foregoing, the Plan Administrator shall have the power and
discretion to construe and interpret this Plan, to hear and resolve claims
relating to this Plan, and to decide all questions and disputes arising under
this Plan. The Plan Administrator shall determine, in its discretion, the
service credited to the Employees, the status and rights of a Participant, and
the identity of the Beneficiary or Beneficiaries entitled to receive any
benefits payable hereunder on account of the death of a Participant.
(b) BENEFIT PAYMENTS. Except as is otherwise provided hereunder, the
----------------
Plan Administrator shall determine the manner and time of payment of benefits
under this Plan. All benefit disbursements by the Trustee shall be made upon
the instructions of the Plan Administrator.
(c) DECISIONS FINAL. The decision of the Plan Administrator upon all
---------------
matters within the scope of its authority shall be binding and conclusive upon
all persons.
(d) REPORTING AND DISCLOSURE. The Plan Administrator shall file all
------------------------
reports and forms lawfully required to be filed by the Plan Administrator with
any governmental agency or department, federal or state, and shall distribute
any forms, reports, statements or plan descriptions lawfully required to be
distributed to Participants and others by any governmental agency or department,
federal or state.
9.4 CLAIMS.
------
(a) FILING OF CLAIM. A Participant or Beneficiary entitled to benefits
---------------
need not file a written claim to receive benefits. If an Employee, Participant,
Beneficiary, or any other person is dissatisfied with the determination of his
benefits, eligibility, participation, or any other right or interest under this
Plan, such person may file a written statement setting forth the basis of the
claim with the Plan Administrator in a manner prescribed by the Plan
Administrator. In connection with the determination of a claim, or in
connection with review of a denied claim, the claimant may examine this Plan and
any other pertinent documents generally available to Participants relating to
the claim and may submit comments in writing.
(b) NOTICE OF DECISION. A written notice of the disposition of any such
------------------
claim shall be furnished to the claimant within thirty (30) days after the claim
is filed with the Plan Administrator, provided that the Plan Administrator may
have an additional period to decide the claim if it advises the claimant in
writing of the need for an extension and the date on which it expects to decide
the claim. The notice of disposition of a claim shall refer, if appropriate, to
pertinent provisions of this Plan, shall set forth in writing the reasons for
denial of the claim if the claim is denied (including references to any
pertinent
12
<PAGE>
provisions of this Plan), and where appropriate shall explain how the claimant
can perfect the claim.
(c) REVIEW. If the claim is denied, in whole or in part, the claimant
------
shall also be notified in writing that a review procedure is available.
Thereafter, within ninety (90) days after receiving the written notice of the
Plan Administrator's disposition of the claim, the claimant may request in
writing, and shall be entitled to, a review meeting with the Plan Administrator
to present reasons why the claim should be allowed. The claimant shall be
entitled to be represented by counsel at the review meeting. The claimant also
may submit a written statement of his claim and the reasons for granting the
claim. Such statement may be submitted in addition to, or in lieu of, the
review meeting with the Plan Administrator. The Plan Administrator shall have
the right to request of and receive from a claimant such additional information,
documents, or other evidence as the Plan Administrator may reasonably require.
If the claimant does not request a review meeting within ninety (90) days after
receiving written notice of the Plan Administrator's disposition of the claim,
the claimant shall be deemed to have accepted the Plan Administrator's written
disposition, unless the claimant shall have been physically or mentally
incapacitated so as to be unable to request review within the ninety (90) day
period.
(d) DECISION FOLLOWING REVIEW. A decision on review shall be rendered
-------------------------
in writing by the Plan Administrator ordinarily not later than sixty (60) days
after review, and a written copy of such decision shall be delivered to the
claimant. If special circumstances require an extension of the ordinary period,
the Plan Administrator shall so notify the claimant. In any event, if a claim
is not determined within one hundred twenty (120) days after submission for
review, it shall be deemed to be denied.
(e) DECISIONS FINAL; PROCEDURES MANDATORY. To the extent permitted by
-------------------------------------
law, a decision on review by the Plan Administrator shall be binding and
conclusive upon all persons whomsoever. To the extent permitted by law,
completion of the claims procedures described in this Section shall be a
mandatory precondition that must be complied with prior to commencement of a
legal or equitable action in connection with the Plan by a person claiming
rights under the Plan or by another person claiming rights through such a
person. The Plan Administrator may, in its sole discretion, waive these
procedures as a mandatory precondition to such an action.
9.5 CREATION OF COMMITTEE.
---------------------
The Employer may appoint a committee to perform its duties as Plan
Administrator by the adoption of appropriate Board resolutions. The committee
shall consist of at least two (2) members, and they shall hold office during the
pleasure of the Board. The committee members shall serve without compensation
but shall be reimbursed for all expenses by the Employer. The committee shall
conduct itself in accordance with the provisions of this ARTICLE NINE. The
members of the committee may resign with thirty (30) days notice in writing to
the Employer and may be removed immediately at any time by written notice from
the Employer. Unless otherwise provided pursuant to this
13
<PAGE>
SECTION 9.5, the Employer hereby appoints the Compensation Committee of the
Board to act as Plan Administrator.
9.6 CHAIRMAN AND SECRETARY.
----------------------
The committee may elect a chairman from among its members and may select
a secretary who is not required to be a member of the committee and who may be
authorized to execute any document or documents on behalf of the committee. The
secretary of the committee or his designee shall record all acts and
determinations of the committee and shall preserve and retain custody of all
such records, together with such other documents as may be necessary for the
administration of this Plan or as may be required by law.
9.7 APPOINTMENT OF AGENTS.
---------------------
The committee may appoint such other agents, who need not be members of
the committee, as it may deem necessary for the effective performance of its
duties, whether ministerial or discretionary, as the committee may deem
expedient or appropriate. The compensation of any agents who are not Employees
of the Employer shall be fixed by the committee within any limitations set by
the Board.
9.8 MAJORITY VOTE AND EXECUTION OF INSTRUMENTS.
------------------------------------------
In all matters, questions, and decisions, the action of the committee
shall be determined by a majority vote of its members. They may meet informally
or take any ordinary action without the necessity of meeting as a group. All
instruments executed by the committee shall be executed by a majority of its
members or by any member of the committee designated to act on its behalf.
9.9 ALLOCATION OF RESPONSIBILITIES AMONG COMMITTEE MEMBERS.
------------------------------------------------------
The committee may allocate responsibilities among its members or
designate other persons to act on its behalf. Any allocation or designation,
however, must be set forth in writing and must be retained in the permanent
records of the committee.
9.10 CONFLICT OF INTEREST.
--------------------
No member of the committee who is a Participant shall take any part in
any action in connection with his participation as an individual. Such action
shall be voted or decided by the remaining members of the committee.
9.11 OTHER FIDUCIARY CAPACITIES.
--------------------------
The members of the committee may also serve in any other fiduciary
capacity, and, specifically, all or some members of the committee may serve as
Trustee. Notwithstanding any other provision of this Plan, if and so long as any
two (2) members of
14
<PAGE>
the committee also serve as Trustee, any provision of this Plan or the Trust
Agreement which requires a direction, certification, notification, or other
communication from the Plan Administrator to the Trustee shall be inapplicable.
If and so long as any two (2) members of the committee also serve as Trustee,
any action taken by either the committee or the Trustee shall be deemed to be
taken by the appropriate party.
ARTICLE TEN
------------
SCOPE OF RESPONSIBILITY
-----------------------
10.1 SCOPE OF RESPONSIBILITY.
-----------------------
(a) GENERAL. The Employer, the Plan Administrator and the Trustee shall
-------
perform the duties respectively assigned to them under this Plan and the Trust
Agreement and shall not be responsible for performing duties assigned to others
under the terms and provisions of this Plan or the Trust Agreement. No
inference of approval or disapproval is to be made from the inaction of any
party described above or the employee or agent of any of them with regard to the
action of any other such party. Persons, organizations, or corporations acting
in a position of any fiduciary responsibility with respect to the Plan or the
Trust Fund may serve in more than one fiduciary capacity.
(b) ADVISORS. The Employer, the Plan Administrator, and the Trustee
--------
shall have authority to employ advisors, legal counsel, and accountants in
connection with the administration of the Plan and the Trust Fund, as set forth
in the Trust Agreement. To the extent permitted by applicable law, the
Employer, the Plan Administrator, and the Trustee shall not be liable for
complying with the directions of any advisors, legal counsel, or accountants
appointed pursuant to this Plan or the Trust Agreement.
(c) INDEMNIFICATION. To the extent permitted by law, the Employer shall
---------------
and does hereby jointly and severally indemnify and agree to hold harmless its
employees, officers, and directors who serve in fiduciary capacities with
respect to the Plan and the Trust Agreement from all loss, damage, or liability,
joint or several, including payment of expenses in connection with defense
against any such claim, for their acts, omissions, and conduct, and for the
acts, omissions, and conduct of their duly appointed agents, which acts,
omissions, or conduct constitute or are alleged to constitute a breach of such
individual's fiduciary or other responsibilities under the Act or any other law,
except for those acts, omissions, or conduct resulting from his own willful
misconduct, willful failure to act, or gross negligence; provided, however, that
if any party would otherwise be entitled to indemnification hereunder in respect
of any liability and such party shall be insured against loss as a result of
such liability by any insurance contract or contracts, such party shall be
entitled to indemnification hereunder only to the extent by which the amount of
such liability shall exceed the amount thereof payable under such insurance
contract or contracts.
15
<PAGE>
ARTICLE ELEVEN
---------------
AMENDMENT, MERGER AND TERMINATION
---------------------------------
11.1 AMENDMENT.
---------
The Employer shall have the right at any time, by an instrument in
writing duly executed, acknowledged and delivered to the Plan Administrator and
the Trustee, to modify, alter or amend this Plan, in whole or in part,
prospectively or retroactively; provided, however, that the duties and
liabilities of the Plan Administrator and the Trustee hereunder shall not be
substantially increased without their written consent; and provided further that
the amendment shall not reduce any Participant's interest in the Plan,
calculated as of the date on which the amendment is adopted. If the Plan is
amended by the Board after it is adopted by an Affiliate, unless otherwise
expressly provided, it shall be treated as so amended by such Affiliate without
the necessity of any action on the part of the Affiliate.
11.2 MERGER OR CONSOLIDATION OF EMPLOYER.
-----------------------------------
The Plan shall not be automatically terminated by the Employer's
acquisition by or merger into any other employer, but the Plan shall be
continued after such acquisition or merger if the successor employer elects and
agrees to continue the Plan and to become a party to the Trust Agreement. All
rights to amend, modify, suspend, or terminate the Plan shall be transferred to
the successor employer, effective as of the date of the merger and provided
specifically that the successor employer shall not have the right to amend the
Plan to reduce any Participant's interest in the Plan, calculated as of the date
on which any amendment is adopted.
11.3 TERMINATION OF PLAN OR DISCONTINUANCE OF CONTRIBUTIONS.
------------------------------------------------------
It is the expectation of the Employer that this Plan and the payment of
contributions hereunder will be continued indefinitely. However, continuance of
the Plan is not assumed as a contractual obligation of the Employer, and the
right is reserved at any time to terminate this Plan or to reduce, temporarily
suspend, or discontinue contributions hereunder, provided that any such
termination, reduction, suspension, or discontinuance of contributions shall not
reduce any Participant's interest in the Plan, calculated as of the date such
action is taken.
11.4 LIMITATION OF EMPLOYER LIABILITY.
--------------------------------
The adoption of this Plan is strictly a voluntary undertaking on the
part of the Employer and shall not be deemed to constitute a contract between
the Employer and any Employee or Participant or to be consideration for, an
inducement to, or a condition of the employment of any Employee. A Participant,
Employee, or Beneficiary shall not have any right to retirement or other
benefits except to the extent provided herein.
16
<PAGE>
ARTICLE TWELVE
---------------
GENERAL PROVISIONS
------------------
12.1 LIMITATION ON PARTICIPANTS' RIGHTS.
----------------------------------
Participation in the Plan shall not give any Employee the right to be
retained in the Employer's employ or any right or interest under the Plan or in
the Trust Fund other than as herein provided. The Employer reserves the right
to dismiss any Employee without any liability for any claim either under the
Plan or against the Trust Fund, except to the extent herein provided, or against
the Employer.
12.2 STATUS OF PARTICIPANTS AS UNSECURED CREDITORS.
---------------------------------------------
All benefits under the Plan shall be unsecured obligations of the
Employer and, except for the assets placed in the Trust Fund as provided in this
Plan, no assets of the Employer will be segregated from the general assets of
the Employer for the payment of benefits under this Plan. To the extent that
any person acquires the right to receive payments under this Plan, such right
shall be no greater than the right of any unsecured general creditor of the
Company.
12.3 STATUS OF TRUST FUND.
--------------------
The Trust Fund is being established to assist the Employer in meeting
its obligations to the Participants and to provide the Participants with a
measure of protection in certain limited instances. In certain circumstances
described in the Trust Agreement, the assets of the Trust Fund will be used for
the benefit of the Employer's creditors. Benefit payments due under this Plan
shall either be paid from the Trust Fund or from the Employer's general assets
as directed by the Employer.
12.4 UNIFORM ADMINISTRATION.
----------------------
Whenever in the administration of the Plan any action is required by the
Plan Administrator, such action shall be uniform in nature as applied to all
persons similarly situated.
12.5 HEIRS AND SUCCESSORS.
--------------------
All of the provisions of this Plan shall be binding upon all persons who
shall be entitled to any benefits hereunder, and their heirs and legal
representatives.
12.6 EMPLOYER-OWNED LIFE INSURANCE.
-----------------------------
(a) EMPLOYER OWNS ALL RIGHTS. In the event that, in its discretion, the
------------------------
Employer purchases a life insurance policy or policies insuring the life of any
Participant to allow the Employer to informally finance and/or recover, in whole
or in part, the cost of providing benefits under this Plan, neither the
Participant nor any Beneficiary
17
<PAGE>
shall have any rights whatsoever in such policy or policies. The Employer shall
be the sole owner and beneficiary of any such policy or policies and shall
possess and may exercise all incidents of ownership, except in the event that
the Employer establishes and transfers such policy or policies to the Trust
Fund.
(b) PARTICIPANT COOPERATION. If the Employer decides to purchase a life
-----------------------
insurance policy or policies on any Participant, the Employer will so notify
each Participant. Each Participant shall consent to being insured for the
benefit of the Employer and shall take whatever actions may be necessary to
enable the Employer to timely apply for and acquire such life insurance and to
fulfil the requirements of the insurance carrier relative to the issuance
thereof as a condition of eligibility to participate in the Plan.
IN WITNESS WHEREOF, the Employer has caused this Plan to be executed by
its duly authorized representative effective this 1st day of April, 1998.
RENTAL SERVICE CORPORATION
By /s/ David B. Harrington
------------------------
Its Senior Vice President of Human Resources
-----------------------------------------
18
<PAGE>
Exhibit 10.32
RENTAL SERVICE CORPORATION
FORM OF SURVIVOR PROTECTION PROGRAM AGREEMENT
THIS AGREEMENT, made and entered into this ______ day of ________________,
19__, by and between Rental Service Corporation (the "Employer"), and
_________________________, an individual residing in the State of ____________
______________ (the "Employee").
1. PURPOSE. The purpose of this Agreement is to acknowledge the value of
the Employee's efforts and services to the Employer and to encourage the
Employee's continued employment with the Employer by providing the Employee with
certain assurances that, pursuant to the terms set forth in this Agreement, upon
the Employee's death, the beneficiary designated by the Employee in this
Agreement will receive benefits as set forth below.
2. DEFINITIONS. The following words and phrases used in this Agreement
shall have the meanings set forth in this Section 2, unless a clearly different
meaning is required by the context in which the word or phrase is used:
(a) "BASE SALARY" - The Employee's compensation reportable under
-------------
Section 3401 of the Internal Revenue Code of 1986, as amended, but excluding
bonuses, commissions, and other extraordinary payments, on the date of the
Employees' death in the case of the Pre-Retirement Survivor Benefit in paragraph
3 or on the date of the Employee's retirement in the case of the Post-Retirement
Survivor Benefit in paragraph 4.
(b) "BENEFICIARY" - The person or persons designated by the Employee
-------------
to receive benefits under this Agreement in the event of death of the Employee.
(c) "NORMAL RETIREMENT DATE" - The earlier of (i) the date on which
------------------------
an Employee attains age 62, or (ii) the date on which the Employee attains age
55 with seven Years of Service. For purposes of this Agreement, Years of Service
will be determined pursuant to the Rental Service Corporation 401(k) Employee
Savings Plan.
3. PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the provisions set forth
below, if the Employee dies while employed by the Employer, the Beneficiary
shall be entitled to a benefit equal to [three] [two] times the Employee's Base
Salary less $100,000; provided however that the benefit shall not exceed
$500,000. Such benefit shall be payable in a single lump sum following the date
of the Employee's death.
4. POST-RETIREMENT SURVIVOR BENEFIT. Subject to the provisions set forth
below, if the Employee dies after having terminated employment with the Employer
and after attaining Normal Retirement Age, the Beneficiary shall be entitled to
a benefit equal to [three] [two] times the Employee's Base Salary less $100,000;
provided however that the benefit shall not exceed $500,000. Such benefit shall
be payable in a single lump sum following the date of the Employee's death.
<PAGE>
5. DESIGNATION OF BENEFICIARY.
(a) DESIGNATION. The following Beneficiary(ies) are to be considered
-----------
Beneficiary(ies) and entitled to receive any benefit payments which may be due
under this Agreement:
----------------------------------------
----------------------------------------
----------------------------------------
Unless clearly noted above by the Employee, all death benefits payable
under this Agreement shall be paid in equal share to the Beneficiaries.
(b) REVOCATION. The Employee may change the Beneficiary(ies) under
----------
this Agreement at any time up until his or her death by filing a change of
Beneficiary on a form provided by, or acceptable to, the Employer. The
revocation of a prior designation is effective only after such form is delivered
to the Employer.
(c) DEATH OF A DESIGNATED BENEFICIARY. In the event that a
---------------------------------
Beneficiary predeceases the Employee, such Beneficiary's share shall be paid to
the surviving Beneficiaries in equal shares unless otherwise indicated above.
In the event that no Beneficiary survives the Employee, any benefits due under
this Agreement shall be paid to the Employee's estate.
6. TERMINATION. In the event that, prior to the Employee's Normal
Retirement Date, the Employee's employment with the Employer is terminated for
any reason other than Employee's death this Agreement shall thereupon terminate
and the Employer shall have no further obligation hereunder.
7. FUNDING OF BENEFITS. Any life insurance policy, annuity contract or
other asset purchased by the Employer or a grantor trust established by the
Employer to assure itself of the funds to provide the benefits hereunder shall
not serve in any way as security for the Employer's performance under this
Agreement. The rights accruing to the Employee or any Beneficiary under this
Agreement shall be solely those of any unsecured creditor of the Employer and
all benefits paid hereunder shall be paid out of the general assets of the
Employer.
8. CLAIMS PROCEDURE.
(a) FILING OF CLAIM. If any benefits become payable under this
---------------
Agreement, the Beneficiary(ies) shall file a claim for benefits by notifying the
Employer in writing and by providing a copy of a certified death certificate.
If the claim is wholly or partially denied, the Employer shall provide a written
notice within ninety (90) days specifying the reason for the denial, the basis
for such denial, and any additional material or information necessary to receive
benefits, if any. Also, such written notice shall indicate the steps to be
taken if a review of the denial is desired.
2
<PAGE>
(b) REVIEW OF CLAIMS DECISION. If a claim is denied and a review is
-------------------------
desired, the Beneficiary shall notify the Employer in writing within sixty (60)
days after receipt of written notice of a denial of claim. In requesting a
review, the Beneficiary may review this Agreement and submit any written issues
and comments he or she feels are appropriate. The Employer shall then review
the claim and provide a written decision within sixty (60) days of receipt of a
request for a review. This decision shall state the specific reasons for the
decision and shall include references to specific provisions of this Agreement
on which the decision is based.
9. INDEPENDENT AGREEMENT. Any payments under this Agreement shall be
independent of, and in addition to, those under any other plan, program or
agreement which may be in effect between the parties hereto. This Agreement
shall not be construed as a contract of employment nor does it restrict the
right of the Employer to discharge the Employee for proper cause or the right of
the Employee to terminate his or her service with the Employer.
10. INTERPRETATION OF AGREEMENT. In the interpretation of this
Agreement, capitalized terms shall have the meanings and definitions set forth
in this Agreement. Where the context admits, words used in the singular in this
Agreement shall include the plural and the plural shall include the singular.
Headings and subheadings in this Agreement are for reference only and are not to
be considered in the construction of this Agreement. The Employer has the power
and discretion to interpret and construe the terms of this Agreement. Such
power and discretion shall include, but shall not be limited to, the power and
discretion to determine eligibility to participate in the Agreement and the
amount and timing of any benefit payment and to decide claims.
11. ASSIGNMENT. Neither the Employee nor any Beneficiary shall have any
power or right to transfer, assign, anticipate, hypothecate or otherwise
encumber any part or all of the amounts payable hereunder, nor shall such
amounts be subject to seizure by any creditor of any Beneficiary, by a
proceeding at law or in equity, and no such benefit shall be transferable by
operation of law in the event of bankruptcy, insolvency or death of the
Employee, Employee's spouse, or any other Beneficiary hereunder. Any such
attempted assignment or transfer shall be void and shall terminate this
Agreement, and the Employer shall thereupon have no further liability hereunder.
12. EMPLOYER-OWNED LIFE INSURANCE.
(a) EMPLOYER OWNS ALL RIGHTS. In the event that, in its discretion,
------------------------
the Employer or a grantor trust established by the Employer purchases a life
insurance policy or policies insuring the life of the Employee to allow the
Employer to informally finance and/or recover, in whole or in part, the cost of
providing benefits under this Agreement, neither the Employee nor any
Beneficiary shall have any rights whatsoever in such policy or policies. The
Employer or a grantor trust established by the Employer shall be the sole owner
and beneficiary of any such policy or policies and shall possess and may
exercise all incidents of ownership.
3
<PAGE>
(b) EMPLOYEE COOPERATION. If the Employer decides to purchase a life
--------------------
insurance policy or policies on the Employee, the Employer will so notify the
Employee. The Employee shall consent to being insured for the benefit of the
Employer and shall take whatever actions may be necessary to enable the Employer
to timely apply for and acquire such life insurance and to fulfil the
requirements of the insurance carrier relative to the issuance of such policy or
policies.
(c) EMPLOYEE MISREPRESENTATION. If the Employee is required by this
--------------------------
Agreement to submit any information to any insurance carrier and the Employee
makes a material misrepresentation in any application for such insurance and as
a result of such material misrepresentation the insurance carrier is not
required to pay all or part of the proceeds provided under that insurance, then
the Employee's (or the Employee's Beneficiary's) rights to any benefits under
this Agreement may be, at the sole discretion of the Employer, forfeited.
13. NAMED FIDUCIARY. For purposes of the Employee Retirement Income
Security Act of 1974 (the "Act"), the Employer is the "named fiduciary" of this
Agreement for which this Agreement is hereby designed as the written plan
instrument.
14. AMENDMENT. This Agreement may be altered, amended, or revoked by a
written instrument signed by the Employer and the Employee.
15. GOVERNING LAW. The law of the State of Arizona shall govern this
Agreement, except to the extent preempted by the Act.
16. SUICIDE. Notwithstanding any other provision of this Agreement, this
Agreement shall be void with respect to the Employee if the Employee dies by
reason of suicide within two (2) years after the date of this Agreement, and no
benefit shall be payable under this Agreement to the Employee, his Beneficiary,
or any person claiming under him.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first hereinabove written.
RENTAL SERVICE CORPORATION
By:_____________________________________
Its:__________________________________
EMPLOYEE
_______________________________________
4
<PAGE>
Exhibit 10.37
[Letterhead of Rental Service Corporation]
[Name & Address of Employee]
Dear _______________:
Rental Service Corporation (the "Corporation") considers it in the
best interests of its stockholders to foster the continuous employment of key
management personnel. In order to induce you to remain in its employ, the
Corporation agrees that after this letter agreement (this "Agreement") has been
fully executed, you shall be entitled to receive the severance and other
benefits subject to the terms and conditions of this Agreement.
1. Term of Agreement. This Agreement shall continue in effect
-----------------
through ______________.
2. Right to Severance and Other Benefits Upon Termination.
------------------------------------------------------
(a) General. So long as you comply with the Corporation's standard
-------
termination procedures and execute a release in the form of Appendix A hereto,
you will be entitled to the benefits provided in Section 3(a) upon the
termination of your employment during the term of this Agreement, if such
termination is by the Corporation without Cause or by you due to a reduction in
your base salary and benefits (other than across the board salary cuts for
employees at your level or changes in benefits). For purposes of this agreement,
"cause" shall mean (i) gross negligence or malfeasance by Executive in the
performance of his employment-related duties, (ii) conviction of a felony or
other crime related to the performance of Executive's employment related duties.
Whether "cause" for termination exists shall, in any instance , be determined in
the good faith judgment of the Board of Directors of RSC, and shall not require
any judicial finding (except as set forth herein) as a condition precedent to
termination.
Except in the event of acts involving fraud, dishonesty or bad faith
by Executive, or conviction for a crime as described herein, RSC shall give
Executive 30 days prior notice of any intention to terminate Executive for
cause, and the reasons therefore, and Executive shall have an opportunity to
cure the deficiencies cited. Executive's failure to cure such deficiencies
within such 30 day period shall be sufficient grounds for the Board to determine
that cause exists.
<PAGE>
3. Compensation Upon Termination. The benefits referred to in
-----------------------------
Section 2 are:
(i) your full base salary, when due, through your date of
termination, plus all other amounts to which you are entitled under any
compensation plan of the Corporation at the time such payments are due;
(ii) in lieu of any further salary payments, a lump sum
severance payment equal to 100% of your base salary plus a pro rata payment
of your target bonus for the current year.
(iii) for a twelve (12) month period after your date of
termination, the Corporation shall arrange to provide you with life,
disability, accident and group health insurance benefits substantially
similar to those that you were receiving immediately prior to the
termination. Benefits otherwise receivable by you pursuant to this Section
3(a)(iii) shall be reduced to the extent comparable benefits are actually
received by you during such twelve-month period, and any such benefits
actually received by you shall be reported to the Corporation; and;
(iv) notwithstanding any other provision of this Agreement or of
any stock option plan or agreement, all of your stock options granted prior
to 1996 and all other stock options scheduled to vest in the year of your
termination, and one-third of all other stock options held by you, if any,
granted under any of the Corporation's stock option plans or agreements
shall become vested and exercisable effective as of the day immediately
prior to your date of termination, and remain exercisable for a period of
180 days following your termination.
(b) You shall bear all expense of, and be solely responsible for, all
federal, state, local or foreign taxes due with respect to any payment received
hereunder, including, without limitation, any excise tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended ("Code").
4. No Solicitation of Customers or Employees. You agree that during
-----------------------------------------
the term of this Agreement and for twelve (12) months after your termination of
employment for any reason, whether voluntary or involuntary:
(a) you will not, directly or indirectly, call on or solicit or divert
or take away from the Corporation or any affiliate (including without limitation
by divulging to any competitor or potential competitor of the Corporation) any
person, firm, corporation or other entity who is a customer of the Corporation
or whose identity is known to you as one whom the Corporation or any affiliate
intends to solicit; and
<PAGE>
(b) you will not, directly or indirectly, hire or offer employment to
or seek to hire or offer employment to any employee of the Corporation or any
employee of any successor or affiliate of the Corporation, unless the
Corporation first terminates the employment of such employee or the Corporation
gives its written consent to such employment or offer of employment.
5. Miscellaneous. No provision of this Agreement maybe modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware without regard to its conflicts of law
principles. All references to sections of the Code shall be deemed also to
refer to any successor provisions to such sections. You may not assign this
Agreement or your rights hereunder without the Corporation's prior written
consent. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Corporation under Section 3 shall survive the expiration of
the term of this Agreement. The section headings contained in this Agreement
are for convenience only, and shall not affect the interpretation of this
Agreement.
6. Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
7. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
8. Entire Agreement. This Agreement sets forth the entire agreement
----------------
of the parties hereto in respect of your benefits upon termination and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto related to the subject
of your benefits upon termination; and any prior agreement of the parties hereto
in respect of your benefits upon termination, is hereby terminated and canceled.
Notwithstanding the foregoing, this Agreement shall not supersede any employment
agreement between you and the Corporation, except that if the provisions and
definitions of such an employment agreement in respect of your benefits upon
termination, if any, differ from the provisions and definitions of this
Agreement in respect of your benefits upon termination, you, in your sole and
absolute discretion, may choose whether the provisions and definitions of such
employment agreement or this Agreement shall govern all matters relating to your
benefits upon termination.
<PAGE>
9. No Employment Right Created. Nothing in this Agreement shall
---------------------------
confer on you any right to continue in the employ of the Corporation or shall
interfere with or restrict in any way the rights of the Corporation, which are
hereby expressly reserved, to discharge you at any time for any reason
whatsoever, with or without good cause, except as may be otherwise provided in
any written employment agreement between you and the Corporation. This
Agreement shall not constitute an agreement for employment.
Please sign and return to the Corporation this letter to evidence our
agreement on this subject.
RENTAL SERVICE CORPORATION
By______________________________
Martin R. Reid
Chief Executive Officer
Agreed to this ____ day of __________, ____.
___________________________________
Name:
<PAGE>
APPENDIX A
----------
RELEASE
- -------
For valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the undersigned ("Employee"), on behalf of himself and his
spouse, dependents, predecessors, successors, heirs, assigns, representatives,
and agents, and each of them, does hereby release and forever discharge Rental
Service Corporation ("Employer") and its parents, subsidiaries, and affiliates,
past and present, and each of them, as well as its and their directors,
officers, associates, employees, servants, owners, stockholders, partners,
trustees, predecessors, successors, heirs, assigns, representatives, agents,
attorneys, and all persons acting by, through, under, or in concert with them,
past or present, and each of them, of and from any and all manner of action or
actions, cause or causes of action, in law or in equity, suits, debts, liens,
contracts, agreements, promises, liabilities, claims, demands, damages, losses,
costs, or expenses, of any nature whatsoever, known or unknown, fixed or
contingent (hereinafter called "Claims"), which Employee now has or may
hereafter have against them, or any of them, by reason of any and all acts,
omissions, events or facts occurring or existing prior to the date hereof. The
Claims released thereunder include, without limitation, any Claims arising out
of, based upon, or relating to the hire, employment, or remuneration of Employee
by Employer or arising out of, based upon, or relating to Employee's termination
of employment with Employer; any Claims arising out of, based upon, or relating
to any alleged breach of any employment agreement between Employee and Employer;
any Claims arising out of, based upon, or relating to any alleged breach of any
covenant of good faith and fair dealing, express or implied; any Claims arising
out of, based upon, or relating to any alleged torts or other alleged legal
restrictions on Employer's right to terminate Employee's employment; and any
Claims arising out of, based upon, or relating to any alleged violation of any
federal, state, or local statute or ordinance pertaining to or governing
Employee's employment with Employer or the payment of wages, including, without
limitation, Title VII of the Civil Rights Act of 1964, as amended, the Age
Discrimination in Employment Act of 1967, as amended, the Americans with
Disabilities Act, as amended, the Equal Pay Act, as amended, the Fair Labor
Standards Act, as amended, and the Employee Retirement income and Security Act
of 1974, as amended.
IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990,
EMPLOYEE IS HEREBY ADVISED AS FOLLOWS:
(A) EMPLOYEE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY BEFORE
SIGNING THIS RELEASE;
(B) EMPLOYEE HAS TWENTY-ONE (21) DAYS FROM THE EXECUTION OF THIS
RELEASE TO CONSIDER THIS RELEASE BEFORE THIS RELEASE BECOMES EFFECTIVE; AND
<PAGE>
(C) EMPLOYEE HAS SEVEN (7) DAYS AFTER SIGNING THIS RELEASE TO
REVOKE IT; OTHERWISE, THIS RELEASE WILL BECOME EFFECTIVE UPON THE
EXPIRATION OF THAT REVOCATION PERIOD.
EMPLOYEE ACKNOWLEDGES THAT HE HAS BEEN ADVISED OF AND IS FAMILIAR WITH
THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH, IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
EMPLOYEE, BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS
HE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW
PRINCIPLES OF SIMILAR EFFECT.
Employee represents and warrants that there has been no assignment or
other transfer of any interest in any Claim which Employee may have against
Employer. Employee agrees to indemnify and hold Employer harmless from any
liability, claims, demands, damages, costs, expenses, and attorneys' fees
incurred as a result of any person asserting any such assignment or transfer of
any rights or Claims under any such assignment or transfer. It is the intention
of the Employee and Employer that this indemnity does not require payment as a
condition precedent to recovery by Employer from the Employee under this
indemnity.
Employee agrees that if he hereafter commences, joins in, or in any
manner seeks relief through any suit arising out of, based upon, or relating to
any of the Claims released thereunder or in any manner asserts against Employer
any of the Claims released hereunder, then Employee will pay to Employer, in
addition to any other damages caused thereby, all attorneys' fees incurred by
Employer in defending or otherwise responding to said suit or Claim.
Employee and Employer further understand and agree that neither the
payment of money nor execution of this Release shall constitute or be construed
as an admission of any liability whatsoever by either Employer or Employee.
Date: ________ ___, _____
________________________________
Name:
<PAGE>
Exhibit 21.1
Subsidiaries of Rental Service Corporation
Rental Service Corporation USA, Inc. (Arizona)
Rental Service Corporation of Canada Ltd. (Alberta, Canada)
1
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-59679) pertaining to the 1996 Equity Participation Plan of Rental
Service Corporation, which incorporates by reference the Registration Statement
(Form S-8 No. 333-22403); the Registration Statement (Form S-8 No. 333-29579)
pertaining to the First Amended and Restated Employee Qualified Stock Purchase
Plan of Rental Service Corporation; and the Registration Statement (Form S-8 No.
333-18637) pertaining to the 1995 Stock Option Plan for Key Employees of Acme
Acquisition Holdings Corp. of our report dated February 10, 1999 with respect to
the consolidated financial statements of Rental Service Corporation included in
the Annual Report and Form 10-K for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
March 1, 1999
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the audited
financial statements of Rental Service Corporation as of December 31, 1998 and
for the year then ended and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,466
<SECURITIES> 0
<RECEIVABLES> 129,087
<ALLOWANCES> 4,857
<INVENTORY> 47,216
<CURRENT-ASSETS> 0
<PP&E> 877,362
<DEPRECIATION> 153,526
<TOTAL-ASSETS> 1,352,576
<CURRENT-LIABILITIES> 0
<BONDS> 808,712
0
0
<COMMON> 241
<OTHER-SE> 417,244
<TOTAL-LIABILITY-AND-EQUITY> 1,352,576
<SALES> 174,289
<TOTAL-REVENUES> 578,474
<CGS> 132,134
<TOTAL-COSTS> 419,167
<OTHER-EXPENSES> 53,378
<LOSS-PROVISION> 4,429
<INTEREST-EXPENSE> 50,375
<INCOME-PRETAX> 51,125
<INCOME-TAX> 21,933
<INCOME-CONTINUING> 29,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,192
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.32
</TABLE>
