<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1996
REGISTRATION NO. 333-11517
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRIME SERVICE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7353 76-0452435
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>
16225 PARK TEN PLACE, SUITE 200
HOUSTON, TEXAS 77084
(713) 578-5600
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
BRIAN FONTANA
CHIEF FINANCIAL OFFICER
PRIME SERVICE, INC.
16225 PARK TEN PLACE, SUITE 200
HOUSTON, TEXAS 77084
(713) 578-5600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
WITH COPIES TO:
CHARLES K. MARQUIS, ESQ. D. COLLIER KIRKHAM, ESQ.
STEVEN R. FINLEY, ESQ. CRAVATH, SWAINE & MOORE
GIBSON, DUNN & CRUTCHER LLP 825 EIGHTH AVENUE
200 PARK AVENUE NEW YORK, NEW YORK 10019
NEW YORK, NEW YORK 10166 (212) 474-1000
(212) 351-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE COMMON STOCK: As
soon as practicable after this Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
TITLE OF PROPOSED PROPOSED
EACH CLASS MAXIMUM MAXIMUM
OF SECURITIES AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED UNIT PRICE FEE(1)
Common Stock.............................. 8,337,500 $25.00 $208,437,500 $71,321
</TABLE>
(1) A filing fee of $67,242 on an aggregate offering price of $195,000,000
was paid with the initial filing of this Registration Statement. The additional
filing fee of $4,079 on the difference in aggregate offering price of
$13,437,500 is being paid with this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1996
7,250,000 Shares
Prime Service, Inc.
Common Stock
($0.01 PAR VALUE)
--------------
ALL OF THE SHARES OF COMMON STOCK, $0.01 PAR VALUE (THE "COMMON STOCK"), OF
PRIME SERVICE, INC. (THE "COMPANY" OR "PRIME") OFFERED HEREBY ARE BEING SOLD BY
THE COMPANY, EXCEPT THAT THE SELLING STOCKHOLDERS NAMED HEREIN UNDER
PRINCIPAL AND SELLING STOCKHOLDERS (THE "SELLING STOCKHOLDERS") HAVE GRANTED
THE U.S. UNDERWRITERS AND THE MANAGERS THE OPTION TO PURCHASE UP TO AN
AGGREGATE OF 1,087,500 SHARES OF THE COMMON STOCK SOLELY TO COVER
OVER-ALLOTMENTS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS" AND
"UNDERWRITING." OF THE 7,250,000 SHARES OF COMMON STOCK BEING OFFERED,
5,800,000 SHARES ARE INITIALLY BEING OFFERED IN THE UNITED STATES
AND CANADA (THE "U.S. SHARES") BY THE U.S. UNDERWRITERS (THE "U.S.
OFFERING") AND 1,450,000 SHARES ARE INITIALLY BEING CONCURRENTLY
OFFERED OUTSIDE THE UNITED STATES AND CANADA (THE "INTERNATIONAL
SHARES") BY THE MANAGERS (THE "INTERNATIONAL OFFERING" AND,
TOGETHER WITH THE U.S. OFFERING, THE "OFFERING"). THE OFFERING
PRICE AND UNDERWRITING DISCOUNTS AND COMMISSIONS OF THE
U.S. OFFERING AND THE INTERNATIONAL OFFERING ARE
IDENTICAL.
OF THE 7,250,000 SHARES BEING OFFERED BY THE U.S. UNDERWRITERS AND THE MANAGERS,
575,000 SHARES WILL BE RESERVED FOR SALE TO OFFICERS AND EMPLOYEES OF
INVESTCORP S.A. AND ITS SUBSIDIARIES AND TO DIRECTORS, OFFICERS AND EMPLOYEES
OF THE COMPANY AND ITS SUBSIDIARIES. SEE "UNDERWRITING." PRIOR TO THIS
OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK. IT IS
ANTICIPATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$22.00 AND $25.00 PER SHARE. FOR INFORMATION RELATING TO THE FACTORS
CONSIDERED IN DETERMINING THE INITIAL OFFERING PRICE TO THE
PUBLIC, SEE "UNDERWRITING."
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "PRS," SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
----------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 9
HEREIN.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
AD-
EQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION
TO THE CONTRARY IS A
CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL(3)........................................... $ $ $
</TABLE>
- ------------------------
(1) SEE "UNDERWRITING" FOR INFORMATION RELATING TO RESERVED SHARES.
(2) BEFORE DEDUCTION OF EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $2,153,000.
(3) THE SELLING STOCKHOLDERS HAVE GRANTED THE U.S. UNDERWRITERS AND THE MANAGERS
AN OPTION, EXERCISABLE FOR 30 DAYS FROM THE DATE OF THIS PROSPECTUS, TO
PURCHASE A MAXIMUM OF 1,087,500 ADDITIONAL SHARES OF COMMON STOCK TO COVER
OVER-ALLOTMENTS, IF ANY. IF THE OPTION IS EXERCISED IN FULL, THE TOTAL PRICE
TO PUBLIC WILL BE $ , UNDERWRITING DISCOUNTS AND COMMISSIONS WILL BE
$ , PROCEEDS TO COMPANY WILL REMAIN THE SAME, AND PROCEEDS TO
SELLING STOCKHOLDERS WILL BE $ .
THE U.S. SHARES ARE OFFERED BY THE SEVERAL U.S. UNDERWRITERS WHEN, AS AND IF
DELIVERED TO AND ACCEPTED BY THE U.S. UNDERWRITERS AND SUBJECT TO THEIR RIGHT TO
REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT THE U.S. SHARES WILL BE
READY FOR DELIVERY ON OR ABOUT NOVEMBER , 1996, AGAINST PAYMENT IN IMMEDIATELY
AVAILABLE FUNDS.
CS First Boston
Merrill Lynch & Co.
Salomon Brothers Inc
THE DATE OF THIS PROSPECTUS IS OCTOBER , 1996
<PAGE>
[INSERT MAP]
PRIME INTENDS TO FURNISH ITS STOCKHOLDERS ANNUAL REPORTS CONTAINING AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AND QUARTERLY REPORTS CONTAINING UNAUDITED
INTERIM INFORMATION FOR THE FIRST THREE QUARTERS OF EACH FISCAL YEAR OF PRIME.
IN CONNECTION WITH THIS OFFERING, CS FIRST BOSTON CORPORATION, ON BEHALF OF
THE U.S. UNDERWRITERS AND THE MANAGERS, MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY
AT LEVELS ABOVE THOSE WHICH WOULD OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THE OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10B-6,
10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT
OTHERWISE REQUIRES, REFERENCES TO THE "COMPANY" OR "PRIME" INCLUDE PRIMECO INC.,
A TEXAS CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF THE COMPANY ("PRIMECO").
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE INFORMATION CONTAINED HEREIN (I)
GIVES EFFECT TO A 18.15 FOR ONE SPLIT OF THE COMMON STOCK EFFECTIVE ON OCTOBER
9, 1996, AND THE CONVERSION OF ALL OUTSTANDING CLASS A COMMON STOCK, CLASS C
COMMON STOCK AND CLASS D COMMON STOCK OF THE COMPANY INTO AN EQUIVALENT NUMBER
OF SHARES OF COMMON STOCK EFFECTIVE AS OF THE CLOSING OF THE OFFERING, AND (II)
ASSUMES THAT THE OVER-ALLOTMENT OPTION IS NOT EXERCISED. SEE "UNDERWRITING."
THE COMPANY
GENERAL
Prime is the second largest rental equipment company in the United States,
based upon 1995 rental equipment revenues, and currently operates 101 rental
equipment yards in 13 states. The Company rents over 100 different types of
equipment, such as aerial manlifts, portable air compressors, forklifts and
light earth moving equipment and small equipment such as lawnmowers, plumbing
equipment and hand tools, to commercial construction, industrial and residential
users. The Company also sells complementary parts and merchandise and used
equipment, and acts as a distributor of new equipment on behalf of nationally
known equipment manufacturers. At September 30, 1996, the Company had an
equipment rental fleet with a book value of $255.8 million ($360.7 million at
original price) comprised of over 40,000 pieces of equipment. Over the period
from 1991 to 1995, Prime's total revenues increased from $146.2 million to
$242.8 million, a compound annual growth rate of 13.5%. Total 1995 revenues on a
pro forma basis for two acquisitions completed in 1996 would have been $307.2
million, an increase of 45% over the 1994 historical result. Prime reported a
net loss of $8.7 million in 1995 compared to net income of $12.1 million in the
year ended December 31, 1994. See "Management's Discussion and Analysis of
Financial Condition and Operations."
Prime seeks to be the market leader in the regions it services while
maximizing its profitability and cash flow. The Company attributes its success
to its operating strategy which includes, among other things, a focus on
customer service, a modern and diverse rental fleet, and a proprietary
point-of-sale ("POS") system. Management believes that the consistent delivery
of high quality service, including 24 hour on-call maintenance, repair and
support services, differentiates Prime from its competitors. Prime believes it
also offers one of the most comprehensive and well maintained fleets of
equipment in the rental equipment industry. The Company employs an extensive
preventive maintenance program for its rental fleet, increasing the
dependability, useful life and resale value of the equipment. In addition, the
Company's proprietary POS system enables each rental equipment yard manager on a
real-time basis to search the Company's entire rental fleet for needed
equipment, determine its location and arrange for delivery to customers using
the Company's radio-dispatched fleet of trucks and trailers and independent
carriers. The Company believes that its extensive, well maintained rental fleet,
coupled with its ability to redeploy equipment rapidly and efficiently among its
yards, allows it to optimize fleet utilization and return on fleet investment.
Prime has a diverse base of over 40,000 active customers, ranging from
"Fortune 500" companies to small contractors and homeowners. Commercial
construction and industrial customers accounted for approximately 50% and 40%,
respectively, of the Company's total revenues in 1995, with subcontractors,
homeowners and other customers generating the remaining 10%.
Primeco was purchased from W.R. Grace & Co. in 1989 by Compagnie Francaise
de l'Afrique Occidentale, a French company which, in turn, was acquired by an
affiliate of Artemis S.A. ("Artemis") in 1993. In December 1994, affiliates of
Investcorp S.A. ("Investcorp") and a group of international investors formed
Prime Service, Inc. to acquire Primeco from Artemis (the "1994 Acquisition").
3
<PAGE>
INDUSTRY
According to a survey conducted for the Associated Equipment Distributors,
an industry trade association ("AED"), the equipment rental industry grew from
approximately $600 million in 1982 to approximately $13 billion in 1993, the
last period for which such data are available. This increase represents a
compound annual growth rate of 32%. In addition, according to the Rental
Equipment Register, an industry trade publication ("RER"), rental revenues for
the top 100 equipment rental companies increased approximately 25% to $2.5
billion in 1995 from approximately $2.0 billion in 1994. Management believes
that this growth reflects, in part, increased outsourcing trends by industrial
corporations related to an increased emphasis on minimizing capital invested to
purchase low usage equipment as well as reducing the labor costs associated with
maintaining and servicing such equipment. While equipment users traditionally
have rented equipment for specific purposes, such as supplementing capacity
during peak periods in connection with special projects, the convenience and
cost-saving factors of utilizing rental equipment have encouraged customers to
look to suppliers such as the Company as ongoing comprehensive sources of
equipment. Management believes that demand for rental equipment by the
industrial segment will continue to increase as these industrial companies
continue to outsource many non-core operations. According to recent surveys
conducted by the CIT Group, commercial construction contractors intend to
increase the percentage of equipment they rent without a purchase option to an
estimated 8% of their total equipment requirements in 1996 from less than 5% in
1994.
The rental equipment industry is highly fragmented and primarily consists of
a large number of relatively small, independent businesses serving discrete
local markets and a small number of multi-yard regional and multi-regional
operators. Management believes that the rental equipment industry offers
substantial consolidation opportunities for large, well-capitalized rental
businesses such as the Company. Relative to smaller competitors, multi-regional
operators such as the Company benefit from several competitive advantages,
including purchasing power, the ability to service national accounts, the
ability to transfer equipment among rental equipment yards in response to
changing patterns of customer demand and sophisticated management information
systems. In addition, multi-regional operators such as the Company are less
sensitive to localized cyclical downturns.
STRATEGY
Prime's strategy is to become the largest and most profitable rental
equipment company in the United States. Since the 1994 Acquisition, the Company
has pursued an aggressive growth strategy primarily by: (i) increasing the
rental fleet at its existing rental equipment yards to satisfy current and
anticipated demands; (ii) expanding its rental equipment yard network both in
existing and new geographic markets by either acquiring existing yards or, to a
lesser extent, opening new yards; (iii) increasing revenues from industrial
customers; and (iv) maximizing the utilization and profitability of its rental
fleet. The Company plans to continue implementing these strategies, with
increased emphasis on expanding its rental equipment yard network and increasing
its revenues from industrial customers.
INCREASE RENTAL FLEET AT EXISTING RENTAL EQUIPMENT YARDS. From 1991 to
1995, Prime experienced a significant increase in the demand for its rental
equipment, as evidenced by a decline in Prime's percentage of equipment not
rented within the last 90 days (non-rental rate) from an average monthly rate of
7.0% in 1991 to an average monthly rate of 3.4% in 1994, 3.6% in 1995 and 3.5%
for the first nine months of 1996, despite increasing the rental fleet (based on
average original price) from $172.9 million in 1991 to $335.4 million for the
nine month period ended September 30, 1996. The Company targets a non-rental
rate of 5%, which it believes minimizes lost revenue opportunities resulting
from having insufficient equipment to meet demand, while maximizing the
Company's return on equity. Prior to the 1994 Acquisition, the Company's capital
expenditure program was limited by the Company's prior owners. From 1991 to
1994, the Company did not make any material acquisitions and purchased an
aggregate of $33.7 million of equipment (exclusive of amounts required to
replace used equipment sold in the ordinary course of business and inclusive of
rental equipment purchases for new yards). Despite revenues increasing during
4
<PAGE>
this period from $146.2 million in 1991 to $211.9 million in 1994, management
believes that its capital expenditures program and resulting rental equipment
fleet were not adequate to meet the market demand. Since the 1994 Acquisition,
the Company has significantly increased its rental fleet by purchasing
approximately $56.3 million of equipment through December 31, 1995, and $31.0
million during the nine months ended September 30, 1996 (in each case exclusive
of amounts required to replace used equipment sold in the ordinary course of
business and recent acquisitions, but inclusive of rental equipment purchases
for new yards). Management expects its total 1996 rental equipment purchases to
be $42.9 million (exclusive of amounts required to replace used equipment sold
in the ordinary course of business and recent acquisitions, but inclusive of
rental equipment purchases for new yards).
EXPAND RENTAL EQUIPMENT YARD NETWORK. Prime intends to selectively expand
its network of rental equipment yards through a combination of acquisitions of
suitable existing rental equipment yards and to a lesser extent by opening new
rental equipment yards. Management believes that its management information
systems, size and operating expertise provide a competitive advantage in making
acquisitions as these strengths allow Prime to (i) integrate targets quickly
into its information and operating structure, (ii) realize significant synergies
in the form of reduced overhead and lower cost of goods through greater
purchasing power, (iii) enhance revenue by supplying acquired yards with
additional equipment to optimize the rental fleet mix and add new business lines
at those yards and (iv) enhance revenue by expanding coverage of national
accounts. The Company primarily targets acquisitions of stable equipment
businesses in new or existing markets where an existing owner has limited
resources to expand the rental equipment fleet. Pursuant to this strategy, in
February 1996 Prime acquired Vibroplant U.S., Inc. (which operated as American
Hi-Lift Corporation, "American Hi-Lift"), adding a net of 12 yards in seven
states, and in July 1996 Prime acquired the assets of Alpine Equipment Rentals &
Supply Company, Inc. ("Alpine"), adding a net six yards in the state of
Washington and expanding Prime's presence in the Northwest (collectively, the
"1996 Acquisitions"). In the case of the 1996 Acquisitions, Prime completed the
integration of the acquired equipment yards and the acquired fleet into the
Company's management information systems on the closing date of each
acquisition. In connection with the integration of the business of American
Hi-Lift, Prime's management reduced, on an annualized basis, the selling,
general, administrative and other expenses associated with American Hi-Lift by
approximately $5.0 million, from $15.2 million incurred by American Hi-Lift for
the year ended March 31, 1995. Prime is currently considering several potential
acquisitions of equipment rental companies, although Prime does not currently
have any understandings or agreements with respect to potential acquisitions.
INCREASE REVENUES FROM INDUSTRIAL CUSTOMERS. Prime believes that it is one
of the largest suppliers of rental equipment to industrial companies in the
southern United States, based upon revenues from equipment rentals to such
customers. The demand for rental equipment from Prime's industrial customers
generally has been less sensitive to economic cycles than that of its commercial
and residential customers and is, therefore, more stable. Management attributes
this relative stability to the fact that a major part of rental equipment use by
industrial customers is related to ongoing and periodic maintenance work on
existing facilities. Since many of the facilities operate 24 hours a day, such
maintenance is essential to industrial customers in order to avoid costly
shutdowns that result from equipment failures. Prime has taken a number of steps
to increase revenues from industrial customers, including focusing its national
marketing program on the industrial market segment and offering services that
meet the specific needs of industrial customers such as its Integrated Rental
Management-TM- program. Under its Integrated Rental Management-TM- program,
Prime typically enters into exclusive contracts with large industrial customers,
generally "Fortune 500" companies, to supply rental equipment, to provide 24
hours a day maintenance and repair services, and to provide sophisticated
equipment management services required for a particular facility or facilities.
Prime believes that it is well-positioned to take advantage of the trend of
companies outsourcing their rental equipment needs due to its formalized
Integrated Rental Management-TM- program, customized POS system and strong
national account relationships.
5
<PAGE>
MAXIMIZE UTILIZATION AND PROFITABILITY OF RENTAL FLEET. Prime believes that
it maintains customer loyalty by maintaining a diverse modern fleet. As of
September 30, 1996, the average age of Prime's rental fleet was 36 months.
Prime's proprietary POS system allows it to monitor the demand for and actual
usage of its equipment on a real-time basis. The Company, taking advantage of
the POS system and its presence in numerous markets, can allocate new equipment
and transfer current equipment to yards with high rental activity. In addition,
if utilization of equipment declines, management is able to quickly react by
decreasing purchases of new equipment or replacement of used rental equipment
sold. The Company believes its comprehensive preventative maintenance program
allows it to increase the useful life of its equipment and obtain premium values
when it is sold.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 7,250,000
Common Stock outstanding immediately after
the Offering............................... 27,991,544(1)
Use of proceeds to the Company............... The net proceeds to the Company from the
Offering will be used to reduce outstanding
indebtedness of the Company. Prime will not
receive any proceeds from the sale by the
Selling Stockholders.
Dividend policy.............................. The Company does not anticipate paying any
dividends.
Proposed NYSE Symbol......................... "PRS"
</TABLE>
- ------------------------
(1) Excludes (i) 606,392 shares subject to options to be outstanding upon the
consummation of the Offering and (ii) 1,153,335 additional shares reserved
for issuance pursuant to options available for grant under the Company's
Management Stock Incentive Plan (the "Old Stock Plan") and the 1996
Management Stock Incentive Plan (the "New Stock Plan," together with the Old
Stock Plan, the "Stock Plans"). See "Management--Management Stock Incentive
Plans."
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the information set forth under "Risk Factors," in addition to the
other information set forth in this Prospectus, before purchasing any of the
shares of Common Stock. Such risk factors include, among others, the effect of
general economic conditions, the ability of Prime to implement and manage its
growth strategy, Prime's dependence on key personnel, and the impact of
competition.
6
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA
The following table sets forth summary financial and other data of the
Company as of and for the five years ended December 31, 1995 and as of and for
the nine months ended September 30, 1995 and 1996. The adjusted pro forma
statement of operations data assume that the 1996 Acquisitions and the Offering
occurred at January 1, 1995. The adjusted pro forma balance sheet data reflect
the September 30, 1996 balance sheet data as adjusted for the Offering as if it
occurred on that date. The pro forma financial data do not purport to represent
what the Company's financial position or results of operations would actually
have been had the 1996 Acquisitions and the Offering in fact occurred on such
dates or to project the Company's financial position or results of operations
for any future date or period. For additional information, see the Consolidated
Financial Statements and Pro Forma Consolidated Financial Statements included
elsewhere in this Prospectus. The following table should also be read in
conjunction with "Selected Consolidated Historical, Pro Forma Financial and
Other Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
SUCCESSOR YEAR ENDED SUCCESSOR NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
PREDECESSOR YEAR ENDED ----------------------------------- ---------------------------------
DECEMBER 31, ADJUSTED ADJUSTED
------------------------------- COMBINED PRO FORMA PRO FORMA
1991 1992 1993 1994 (1) 1995 1995 1995 1996 1996
--------- --------- --------- ----------- --------- ----------- --------- --------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues........... $ 146,231 $ 156,724 $ 174,249 $ 211,924 $ 242,787 $ 307,192 $ 178,236 $ 239,595 $ 254,172
Gross profit (2)......... 40,649 49,631 62,393 75,790 68,837 97,039 50,681 80,631 87,371
Operating income......... 3,755 10,337 21,651 34,459 20,789 32,332 19,439 39,705 41,959
Interest expense, net.... 16,826 14,299 12,753 13,852 30,546 21,086 22,526 28,181 18,478
Net (loss) income before
extraordinary item..... (9,774) (3,797) 4,548 12,084 (7,389) 5,615(3) (2,932) 5,987 13,463(3)
Net (loss) income........ (9,774) (3,797) 4,548 12,084 (8,657) (4,200) 5,987
Net income per share
before extraordinary
item................... .20 .48
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental
equipment.............. $ 90,594 $ 87,358 $ 99,093 $ 153,818 $ 181,798 $ 175,756 $ 255,752 $ 255,752
Total assets............. 288,331 278,314 280,072 369,403 391,979 393,354 511,441 508,500(4)
Total debt............... 163,000 146,000 133,000 235,000 265,000 265,500 354,000 200,550
Stockholders' equity..... 99,524 105,727 110,275 69,633 60,976 65,434 76,358 229,774(4)
OTHER DATA:
Gross equipment capital
expenditures........... $ 21,557 $ 31,061 $ 38,088 $ 52,814 $ 89,372 $ 66,612 $ 69,419
Net equipment capital
expenditures (5)....... 11,142 18,943 30,089 39,871 66,520 48,896 48,153
Gross rental revenue
(6).................... 86,405 93,516 102,802 120,388 141,138 102,737 139,343
Average original price of
rental equipment (7)... 172,940 169,954 174,210 191,241 228,406 222,531 335,442
Gross rental
revenue/average
original price of
rental equipment
("ROI") (7)............ 50.0% 55.0% 59.0% 63.0% 61.8% 61.6%(8) 55.4%(8)
Non-rental rate.......... 7.0% 5.9% 4.1% 3.4% 3.6% 3.6% 3.7%
Number of rental
equipment yards (end of
period)................ 64 64 70 74 81 80 101
</TABLE>
7
<PAGE>
NOTES TO SUMMARY FINANCIAL AND OTHER DATA
(1) As a result of the 1994 Acquisition, the Company's assets and liabilities
were adjusted to their estimated fair values as of December 2, 1994. In
addition, the Company entered into new financing arrangements and had a
change in its capital structure. Rental equipment acquired subsequent to
January 1, 1995 is being depreciated over a longer useful life. See Note 2
to the Consolidated Financial Statements. Accordingly, the combined results
of the 1994 period and subsequent periods are not comparable to prior
periods. The period from December 2, 1994 to December 31, 1994 reflects:
increased cost of sales due to higher depreciation expense for rental
equipment and cost of rental equipment sales; increased interest expense;
and lower other depreciation and amortization. The combined period for 1994
represents the mathematical addition of the historical amounts for the
Predecessor period (January 1, 1994 to December 1, 1994) and the Successor
period (December 2, 1994 to December 31, 1994). Such results may not be
indicative of results that would have been obtained had the 1994 Acquisition
occurred on January 1, 1994. For information regarding the periods
separately, see the Consolidated Financial Statements included elsewhere in
this Prospectus.
(2) Reflects costs of $22.6 million, $16.0 million and $8.8 million for the year
ended December 31, 1995 and the nine month periods ended September 30, 1995
and 1996, respectively, related to the step-up in carrying value of the
rental fleet that existed at the date of the 1994 Acquisition. Of these
costs, approximately $9.0 million, $7.1 million, and $4.7 million, for the
year ended December 31, 1995 and the nine month periods ended September 30,
1995 and 1996, respectively, is included within cost of goods sold, and
approximately $13.6 million, $8.9 million, and $4.1 million, for the year
ended December 31, 1995 and the nine month periods ended September 30, 1995
and 1996, respectively, is included within depreciation and amortization.
(3) Excludes the write-off of the historical unamortized prepaid management fee
paid to Investcorp International, Inc., the write-off of the historical
unamortized deferred financing costs directly related to the debt retired
with the proceeds from the Offering and the early redemption penalties
resulting from the retirement of approximately $33.3 million of the Senior
Notes and the $10 million Subordinated Notes.
(4) Reflects the write-off of the historical unamortized prepaid management fee
paid to Investcorp International, Inc. ($1,076, net of related income tax
benefit of $674), the write-off of the historical unamortized deferred
financing costs directly related to the debt retired with the proceeds from
the Offering ($733, net of related income tax benefit of $458) and the early
redemption penalties resulting from the retirement of approximately $33.3
million of the Senior Notes and the $10 million Subordinated Notes ($2,775,
net of related income tax benefit of $1,775).
(5) Net equipment capital expenditures represent gross rental equipment capital
expenditures reduced by the net book value of rental equipment sold.
(6) Gross rental revenue equals rental revenue less income from equipment that
the Company rents from third parties and subsequently re-rents to its
customers plus reclassified rental income due to sales of used rental
equipment through rent-to-own and rental purchase option programs.
(7) The Company uses ROI, which is a Company measurement of equipment
utilization not defined by generally accepted accounting principles, to
assist in determining the need for new rental equipment and to assign rental
equipment to different yards to maximize its utilization. Average original
price of rental equipment represents the average of the monthly original
price of rental equipment. Original price represents the undepreciated
original invoice price paid by the Company or its acquirees, as the case may
be, for rental equipment.
(8) ROI for interim periods is calculated on an annualized basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
8
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF SHARES OF COMMON STOCK SHOULD CONSIDER CAREFULLY
THE FOLLOWING RISK FACTORS RELATING TO THE OFFERING AND THE BUSINESS OF THE
COMPANY, TOGETHER WITH INFORMATION AND FINANCIAL DATA SET FORTH ELSEWHERE IN
THIS PROSPECTUS, PRIOR TO MAKING AN INVESTMENT DECISION.
GENERAL ECONOMIC CONDITIONS
The rental equipment industry is affected by changes in economic conditions,
including national, regional and local slowdowns in construction and industrial
activity. In addition, most of Prime's revenues are derived from customers who
are in industries and businesses that are cyclical in nature and subject to
changes in general economic conditions. Prime's operating results may also be
adversely affected by events or conditions in a particular region, such as
regional economic slowdowns, adverse weather and other factors. Prime's
operating results may be adversely affected by increases in interest rates that
may lead to a decline in economic activity, while simultaneously resulting in
higher interest payments by Prime under its credit facility. There can be no
assurance that economic slowdowns or adverse economic conditions will not have a
material adverse effect on the Company's operating results and financial
condition.
ABILITY TO IMPLEMENT AND MANAGE GROWTH STRATEGY
A principal component of the Company's strategy is to continue to expand
through additional acquisitions and start-up locations that complement the
Company's business in new or existing markets. The results achieved to date by
the Company in its expansion efforts are not necessarily indicative of its
prospects or ability to penetrate new markets, many of which will have different
competitive conditions and demographic characteristics than the Company's
current markets. Implementation of the Company's growth strategy may impose
significant strain on the Company's management, operating systems and financial
resources. Failure by the Company to manage its growth, or unexpected
difficulties encountered during expansion, could have a material adverse impact
on the Company's results of operations or financial condition.
The Company's ability to acquire or open and operate profitably new rental
equipment yards depends upon a number of factors, including (i) identifying
businesses or assets that meet the Company's investment criteria or identifying
and obtaining attractive sites for new yards, (ii) generating sufficient funds
from existing operations or obtaining third-party financing to acquire or open
and develop new yards, (iii) the Company's executive management team and its
financial and accounting controls and (iv) staffing, training and retaining
skilled on-site management personnel. Certain of these factors are beyond the
Company's control and may be affected by the economy or actions taken by
competing companies. The inability of the Company to successfully integrate
acquired businesses into its operations could have an adverse effect on the
Company's results of operations.
The primary source of capital to fund the Company's growth will be debt
financing, principally amounts borrowed under the Company's credit facility,
which will be amended and restated effective contemporaneously with the
consummation of this Offering. As of September 30, 1996, after giving pro forma
effect to the amended and restated credit facility and the sale of the Common
Stock hereby and the application of the proceeds therefrom, the Company would
have had $133.9 million of indebtedness outstanding and would have had $158.1
million of availability under the credit facility. To the extent the Company
succeeds in acquiring new businesses or opening start-up locations, the amount
of the Company's outstanding indebtedness can be expected to increase. As such
indebtedness increases, the level of indebtedness of the Company could have
important consequences to the holders of the Common Stock, including: (i) an
increasing portion of the Company's cash flow from operations will be dedicated
to the payment of principal and interest on its indebtedness and will not be
available for other purposes; (ii) the ability of the Company to obtain
financing thereafter for working capital needs and general corporate purposes
may be impaired; and (iii) the Company's level of indebtedness may reduce its
flexibility to respond to changing business and economic conditions.
9
<PAGE>
DEPENDENCE ON KEY PERSONNEL
Certain of the executive officers of the Company, particularly Thomas E.
Bennett, the President and Chief Executive Officer, are of significant
importance to the direction and management of the Company. The Company uses
several methods to retain key employees, including employment agreements and
incentive compensation arrangements, such as the Stock Plans. See "Management."
The loss of the services of such persons could have a material adverse effect on
the Company's business and future operations, and there can be no assurance that
the Company would be able to find replacements for such persons with comparable
business experience. The Company does not maintain key-man or similar insurance
policies.
IMPACT OF SIGNIFICANT COMPETITION
The equipment rental industry is highly fragmented and competitive. The
Company's competitors include: large national companies; regional competitors
which operate in one or two states; small, independent businesses with one or
two rental locations; and equipment vendors and dealers who both sell and rent
equipment to customers. Some of the Company's competitors have greater financial
resources, are more geographically diverse and have greater name recognition
than the Company. There can be no assurance that the Company will not encounter
increased competition from existing competitors or new market entrants that may
be significantly larger and have greater financial and marketing resources. In
addition, to the extent existing or future competitors seek to gain or retain
market share by reducing prices, the Company may be required to lower its
prices, thereby adversely affecting operating results. Existing or future
competitors also may seek to compete with the Company for acquisitions, which
could have the effect of increasing the price for acquisitions or reducing the
number of suitable acquisitions. In addition, such competitors also may compete
with the Company for start-up locations, thereby limiting the number of
attractive locations for expansion. See "Business--Competition."
ENVIRONMENTAL LIABILITIES
The Company is subject to various evolving Federal, state and local
environmental laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous substances and wastes. These laws and
regulations provide for substantial penalties for violations, and, in many
cases, could require the Company to remediate a site to meet applicable legal
requirements. Certain limited environmental investigations of the Company's
properties have revealed releases or possible releases of hazardous materials
that may require remediation. These include discharges of petroleum-based
materials from underground storage tanks, disposals of solvents, and groundwater
contamination at certain of the Company's sites. If the extent of environmental
conditions requiring remediation, or the cost of remediation, exceeds the
Company's current estimates and the Company is unable to obtain indemnification
from various sellers of such sites or is unsuccessful in collecting recoveries
from state trust funds, such additional costs could adversely affect the
Company's financial condition, results of operations and cash flows. See
"Business--Environmental Regulation."
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon consummation of the Offering, the non-management stockholders listed in
"Principal and Selling Stockholders," who are affiliates of Investcorp, or
others who frequently co-invest with Investcorp, may be deemed to be the
beneficial owners of approximately 66.4% of the outstanding shares of Common
Stock. Until such time, if ever, that there is a significant decrease in the
percentage of outstanding shares held by such stockholders, these stockholders
will be able to control the Company through their ability to determine the
outcome of votes of stockholders regarding, among other things, election of
directors and approval of significant transactions. In particular, Investcorp,
as the beneficial owner of 24.6% of the
10
<PAGE>
Common Stock after the Offering and with representatives on the board of
directors of the Company, may be able to exert influence over the operations of
the Company and Primeco. In addition, executive officers, directors and senior
management of the Company and Primeco will own an aggregate of approximately
866,153 shares, or 3.0%, of the Common Stock after the Offering on a fully
diluted basis, after giving effect to the exercise of all outstanding options
held by such officers, directors and management. See "Principal and Selling
Stockholders."
LIABILITY AND INSURANCE
The Company's business exposes it to possible claims for personal injury or
death resulting from the use of equipment rented or sold by the Company and from
injuries caused in motor vehicle accidents in which Company delivery and service
personnel are involved. The Company carries comprehensive insurance subject to a
large deductible per claim, with no aggregate deductible limit. There can be no
assurance that existing or future claims will not exceed the level of the
Company's insurance, or that such insurance will continue to be available on
economically reasonable terms, if at all.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the net tangible book value of their Common Stock. As of
September 30, 1996, the net tangible book value per share was a deficit of
$3.23. As of such date, current stockholders would experience an increase in net
tangible book value per share of $6.37 and purchasers of shares in the Offering
would experience dilution in net tangible book value of $20.36 per share (based
on an assumed initial public offering price of $23.50 per share). See
"Dilution."
NO DIVIDENDS
The Company currently does not intend to pay any cash dividends on the
Common Stock. The Company is a holding company with no business operations of
its own. The Company therefore is dependent upon payments, dividends and
distributions from Primeco for funds to pay its expenses and to pay future cash
dividends or distributions, if any, to holders of the Common Stock. Primeco
currently intends to retain any earnings for support of its working capital,
repayment of indebtedness, capital expenditures and general corporate purposes.
Primeco has no current intention of paying dividends or making other
distributions to the Company in excess of amounts necessary to pay the Company's
operating expenses and taxes. Primeco's credit facility and subordinated debt
contain restrictions on Primeco's ability to pay dividends or make other
distributions to the Company. See "Dividend Policy" and "Description of Certain
Indebtedness."
EFFECT OF CERTAIN CHARTER, CHANGE OF CONTROL AND STATUTORY PROVISIONS
The Company's Board of Directors is authorized, subject to certain
limitations prescribed by law, to issue up to ten million shares of preferred
stock in one or more classes or series and to fix the designations, powers,
preferences, rights, qualifications, limitations or restrictions, including
voting rights, of those shares without any further vote or action by
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of preferred stock.
See "Description of Capital Stock--Preferred Stock."
Primeco's credit facility and subordinated indebtedness contain provisions
that, under certain circumstances, will cause such indebtedness to become due
upon the occurrence of a change of control of
11
<PAGE>
Primeco or the Company. See "Description of Certain Indebtedness." These
provisions could have the effect of making it more difficult for a third party
to acquire control of the Company.
The Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. In general, the statute prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. See "Description of
Capital Stock--Certain Provisions of Delaware Law."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY IN PRICE OF COMMON STOCK
Prior to the Offering, there has been no public market for the Common Stock.
The Company plans to list the Common Stock on the New York Stock Exchange. Even
if the Common Stock is listed on the New York Stock Exchange, there can be no
assurance that an active public market for the Common Stock will develop or be
sustained after the Offering. The initial public offering price was determined
by negotiations between the Company, the Managers and the representatives of the
U.S. Underwriters, and may bear no relationship to the market price of the
Common Stock after the Offering. See "Underwriting." Subsequent to the Offering,
prices for the Common Stock will be determined by the market and may be
influenced by a number of factors, including the depth and liquidity of the
market for the Common Stock, investor perceptions of the Company and other
equipment rental companies and general economic and other conditions. In
addition, the stock market may experience volatility that affects the market
prices of companies in ways unrelated to the operating performance of such
companies, and such volatility could adversely affect the market price of the
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, 27,991,544 shares of Common Stock will be
outstanding. The 7,250,000 shares (8,337,500 if the over-allotment is exercised
in full) sold in the Offering will be freely transferable without restriction
under the Securities Act of 1933, as amended (the "Securities Act"), except for
shares acquired by "affiliates" of the Company as that term is defined under the
Securities Act. Of the remaining 20,741,544 outstanding shares of Common Stock
(assuming exercise of the over-allotment), 1,287,371 were sold in offshore
distributions under Regulation S within the past year, 15,022,787 were sold in
offshore distributions under Regulation S more than one year ago and 4,431,386
are deemed to be restricted securities. Pursuant to Rule 701 under the
Securities Act, 115,836 of the restricted securities will be available for
resale in the public market without restriction commencing 90 days after the
date of this Prospectus. Commencing 90 days after the date of this Prospectus,
all of the remaining restricted securities are eligible for sale in the public
market in compliance with Rule 144 under the Securities Act. Subject to certain
exceptions, the Company and all of the present stockholders of the Company have
agreed that they will not offer, issue, pledge, sell, transfer or otherwise
dispose of any shares of Common Stock or securities convertible into or
exercisable or exchangeable for shares of Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of CS First
Boston Corporation. See "Principal and Selling Stockholders" and "Underwriting."
At the expiration of the 180-day period described above, or earlier with the
written consent of CS First Boston Corporation, the holders of 15,138,623 shares
of Common Stock will have the right to sell shares of Common Stock without
regard to the volume or the other limitations of Rule 144 under the Securities
Act.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the sale of the 1,759,727 shares of Common Stock
reserved for issuance under its Stock Plans. As a result, any shares issued upon
exercise of stock options granted under such plan will be available, subject to
special rules for affiliates, for resale in the public market after the
effective date of such registration
12
<PAGE>
statement, subject to applicable lock-up arrangements. See
"Management--Management Stock Incentive Plans."
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares of Common Stock for future
sale would have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock in the public market
following the Offering, or the perception that such sales could occur, could
have an adverse effect on prevailing market prices for the Common Stock. See
"Shares Eligible for Future Sale" and "Underwriting."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are expected to be $158.0
million (assuming an initial public offering price of $23.50 per share, and
after deducting estimated offering expenses and underwriting discounts and
commissions). The Company intends to use the net proceeds to (i) reduce
outstanding borrowings under Primeco's credit facility by $110.2 million, (ii)
redeem approximately $33.3 million in principal amount of Primeco's 12.75%
Senior Subordinated Notes Due 2005 (the "Senior Notes") for $37.5 million (which
includes the premium on such principal as provided in the indenture in respect
of the Senior Notes), and (iii) repay $10 million of subordinated notes held by
an affiliate of Investcorp and other international investors (the "Subordinated
Notes") at a redemption price of $10.35 million. See "Certain Transactions."
Although the application of the net proceeds will result in a reduction of the
principal amount outstanding under Primeco's credit facility, it will not reduce
the maximum amount that Primeco can borrow under its credit facility. The
revolving credit facility permits Primeco to borrow funds for working capital
and capital expenditure purposes, including acquisitions. Prime currently is
considering several potential acquisitions, although Prime does not currently
have any understandings or agreements with respect to potential acquisitions.
For further information on the interest rates, maturity and other terms of the
credit facility, the Senior Notes and the Subordinated Notes, see "Description
of Certain Indebtedness" and Note 8 to the Consolidated Financial Statements.
DIVIDEND POLICY
The Company currently does not intend to pay any cash dividends on the
Common Stock.
The Company is a holding company with no business operations of its own. The
Company therefore is dependent upon payments, dividends and distributions from
Primeco for funds to pay dividends to stockholders of the Company. Primeco
currently intends to retain any earnings for support of its working capital,
repayment of indebtedness, capital expenditures and other general corporate
purposes. Primeco has no current intention of paying dividends or making other
distributions to the Company in excess of amounts necessary to pay the Company's
operating expenses and taxes. Primeco's credit facility and its indenture in
respect of the Senior Notes contain restrictions on Primeco's ability to pay
dividends or make payments or other distributions to the Company. See "Risk
Factors--No Dividends," and "Description of Certain Indebtedness."
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 (i) on a historical basis, and (ii) on an adjusted pro forma
basis to reflect the Offering (assuming an initial public offering price of
$23.50 per share, and after deducting estimated offering expenses and
underwriting discounts and commissions). This table should be read in
conjunction with the "Use of Proceeds," "Selected Consolidated Historical and
Pro Forma Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Consolidated Financial Statements
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
<S> <C> <C>
HISTORICAL PRO FORMA
---------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Debt:
Senior credit facility(1)............................................................... $ 244,000 $133,850
12.75% Senior Subordinated Notes due 2005............................................... 100,000 66,700
Subordinated Notes...................................................................... 10,000 --
---------- -----------
Total debt.......................................................................... 354,000 200,550
---------- -----------
Stockholders' equity:
Preferred stock, par value $.01 per share; 10 million shares authorized, no shares
issued and outstanding................................................................ -- --
Common Stock, par value $.01 per share; 100 million shares authorized, 20,743 shares
issued and 20,742 shares outstanding (27,992 shares outstanding as adjusted)(2)....... 208 208
Additional paid-in capital.............................................................. 79,192 237,192
Accumulated deficit..................................................................... (3,037) (7,621 )(3)
Treasury Stock.......................................................................... (5) (5 )
---------- -----------
Total stockholders' equity............................................................ 76,358 229,774
---------- -----------
Total capitalization.................................................................. $ 430,358 $430,324
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) The credit facility is collateralized by substantially all of the assets of
the Company. See Note 8 to the Consolidated Financial Statements.
(2) Excludes (i) 259,727 shares subject to options outstanding on the date
hereof under the Stock Plans and (ii) 1.5 million shares reserved for
issuance pursuant to options available for grant under the Company's Stock
Plans. See "Management--Management Stock Incentive Plan."
(3) Includes the write-off of the historical prepaid management fee paid to
Investcorp International, Inc. ($1,076, net of related tax benefit of $674),
the write-off of the historical unamortized deferred financing costs
directly related to the debt retired with the proceeds from the Offering
($733, net of related income tax benefit of $458) and the early redemption
penalties resulting from the retirement of approximately $33.3 million of
the Senior Notes and the $10 million Subordinated Notes ($2,775, net of
related income tax benefit of $1,775).
15
<PAGE>
DILUTION
The net tangible book value of the Company at September 30, 1996 was a
deficit of $67.0 million, or $3.23 per share of Common Stock. Net tangible book
value per share represents the amount of tangible assets of the Company, less
total liabilities, divided by the number of outstanding shares of Common Stock.
Without taking into account any other changes in net tangible book value after
September 30, 1996, other than to give effect to the sale by the Company of
7,250,000 shares of Common Stock offered hereby (based on an assumed initial
public offering price of $23.50 per share and after deducting estimated offering
expenses and underwriting discounts and commissions), and the application of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company at September 30, 1996, would have been $87.8 million, or $3.14 per
share. This represents an immediate increase in net tangible book value of $6.37
per share of Common Stock to existing stockholders and an immediate dilution of
$20.36 per share to new investors purchasing shares in the Offering. The
following table illustrates the per share book value dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... $ 23.50
Net tangible book value per share before the
Offering............................................ $ (3.23)
Increase per share attributable to the Offering....... 6.37
---------
Pro forma net tangible book value per share after the
Offering.............................................. 3.14
---------
Net tangible book value dilution per share to new
investors............................................. $ 20.36
---------
---------
</TABLE>
The following table summarizes, as of September 30, 1996, the differences
between existing stockholders and new investors with respect to the number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price paid per share (based on an assumed initial public
offering price of $23.50 per share and before deducting estimated offering
expenses and underwriting discount and commissions):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ------------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders*.......... 20,743,000 74% $ 76,358 31% $ 3.68
New investors................... 7,250,000 26% 170,375 69% 23.50
------------ --- ---------- ---
Total..................... 27,993,000 100% $ 246,733 100%
</TABLE>
- ------------------------
* Total consideration paid by existing stockholders represents consolidated
stockholders' equity before the Offering.
As of September 30, 1996 there were options outstanding to purchase a total
of 259,727 shares of Common Stock at a weighted average exercise price of $3.86
per share. To the extent that any of these options are exercised, there will be
further dilution to new investors. See "Capitalization" and
"Management--Management Stock Incentive Plan."
16
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma consolidated balance sheet as of September 30, 1996
presents the financial position of the Company as if the consummation of the
Offering (based on an assumed initial public offering price of $23.50 per share
and after deducting estimated offering expenses and underwriting discounts and
commissions) had occurred on September 30, 1996.
The pro forma consolidated statements of income for the fiscal year ended
December 31, 1995 and the nine months ended September 30, 1996 set forth below
present the results of operations of the Company for such year and such period
as if the following transactions had occurred on January 1, 1995: (i) the
acquisition of American Hi-Lift on February 26, 1996; (ii) the acquisition of
Alpine on July 29, 1996; and (iii) the consummation of the Offering and
application of the estimated net proceeds therefrom. The pro forma consolidated
statement of operations for the fiscal year ended December 31, 1995, combines,
with appropriate adjustments, the Company's audited consolidated results of
operations for its fiscal year ended December 31, 1995, the audited results of
operations of Alpine for its fiscal year ended December 31, 1995 and the audited
results of operations of American Hi-Lift for the period from April 1, 1995
through February 25, 1996 combined with the unaudited one month period ended
April 30, 1995 (the one month period ended April 30, 1995 is included twice
because the Company believes it is representative of normal operations, while
the one month period ended March 31, 1995 includes adjustments relating to prior
months). The pro forma consolidated statement of operations for the nine months
ended September 30, 1996 combines, with appropriate adjustments, the Company's
unaudited consolidated results of operations for its nine months ended September
30, 1996, the unaudited results of operations of Alpine for the period January
1, 1996 through July 29, 1996 and the unaudited results of operations of
American Hi-Lift for the period from January 1, 1996 through February 25, 1996.
Certain reclassifications were made to conform American Hi-Lift's historical
financial statements with the Company's historical financial statements.
The pro forma consolidated financial information for Alpine has been
prepared on the basis of preliminary assumptions and estimates. The pro forma
consolidated financial statements may not be indicative of the results of
operations that would have been achieved if the acquisition of Alpine and
American Hi-Lift and the application of the net proceeds from the Offering had
been effected on the dates indicated or which may be achieved in the future. The
pro forma consolidated financial statements and notes thereto should be read in
conjunction with "Selected Consolidated Historical, Pro Forma Financial and
Other Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Consolidated Financial Statements of the
Company, Alpine and American Hi-Lift appearing elsewhere herein.
17
<PAGE>
Pro Forma Consolidated Balance Sheet
as of September 30, 1996
(in thousands)
<TABLE>
<CAPTION>
OFFERING ADJUSTED
PRIME ADJUSTMENTS PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................................................... $ 1,225 $ $ 1,225
Accounts receivables, net.................................................... 49,646 49,646
Inventories.................................................................. 24,410 24,410
Rental equipment, net........................................................ 255,752 255,752
Property, plant and equipment, net........................................... 31,228 31,228
Cost in excess of fair value of net assets acquired, net..................... 130,441 130,441
Other assets................................................................. 18,739 (2,941)(1) 15,798
---------- ----------- -----------
Total assets............................................................. $ 511,441 $ (2,941) $ 508,500
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................................. $ 11,796 $ $ 11,796
Accrued expenses............................................................. 25,390 25,390
Debt......................................................................... 354,000 (153,450)(2) 200,550
Deferred income taxes........................................................ 34,660 (2,907)(1) 31,753
Other liabilities............................................................ 9,237 9,237
Stockholders' equity......................................................... 76,358 153,416 229,774
---------- ----------- -----------
Total liabilities and stockholder's equity............................... $ 511,441 $ (2,941) $ 508,500
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See accompanying notes to Pro Forma Consolidated Balance Sheet.
18
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
Pro forma adjustments related to the Offering include the following:
<TABLE>
<CAPTION>
BOOK VALUE
AT SEPTEMBER DEFERRED
30, INCOME TAX
1996 BENEFIT
--------------- -----------
<C> <S> <C> <C>
(1) Write-off of deferred financing costs related to debt extinguished
with Offering proceeds. See "Use of Proceeds."............................... $(1,191) $(458 )
Write-off of historical unamortized prepaid management fee paid to (1,750 ) (674 )
Investcorp International Inc. See "Certain Transactions."....................
Early redemption penalties of $4.6 million. See "Use of Proceeds."........... -- (1,775 )
------- -----------
$(2,941) $ (2,907 )
-------
------- -----------
-----------
(2) Gross proceeds from the Offering, $ 170,375
less estimated offering expenses and underwriting discounts and commissions (12,375 )
less early redemption penalties. See "Use of Proceeds." (4,550 )
-----------
$ 153,450
-----------
-----------
</TABLE>
19
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMERICAN ACQUISITION OFFERING ADJUSTED
PRIME HI-LIFT ALPINE ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------- ----------- ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental revenue............. $ 138,983 $ 37,439 $ 10,127 $ $ 186,549 $ $ 186,549
New equipment sales........ 34,601 3,778 38,379 38,379
Rental equipment sales..... 23,144 5,882 412 29,438 29,438
Parts and merchandise
sales.................... 32,223 2,599 34,822 34,822
Service revenue and other
income................... 13,836 3,966 202 18,004 18,004
------------- ----------- ------------- ------------- ----------- ----------- -----------
242,787 53,664 10,741 307,192 307,192
Cost of sales:
Depreciation--rental
equipment................ 37,427 7,048 615 (1,703)(1) 43,387 43,387
Cost of new equipment
sales.................... 28,960 3,097 32,057 32,057
Cost of rental equipment
sales, net of accumulated
depreciation............. 22,853 3,141 372 2,781(2) 29,147 29,147
Cost of parts and
merchandise sales........ 24,157 1,497 25,654 25,654
Direct operating 60,553 16,577 2,520 1,862(3) 79,908 79,908
expenses.................
(1,604)(4)
------------- ----------- ------------- ------------- ----------- ----------- -----------
173,950 31,360 3,507 1,336 210,153 210,153
------------- ----------- ------------- ------------- ----------- ----------- -----------
Gross profit........... 68,837 22,304 7,234 (1,336) 97,039 97,039
------------- ----------- ------------- ------------- ----------- ----------- -----------
Selling, general,
administrative and other... 36,821 14,742 5,680 (1,862)(3) 51,686 51,686
(3,695)(4)
Depreciation and
amortization:
Noncompete agreements...... 5,877 117(5) 5,994 5,994
Cost in excess of fair
value of assets
acquired................. 2,955 429(6) 3,384 3,384
Property, plant and
equipment................ 2,395 950 298 3,643 3,643
Interest expense, net........ 30,546 1,680 270 3,838(7) 36,334 (15,248)(9) 21,086
------------- ----------- ------------- ------------- ----------- ----------- -----------
78,594 17,372 6,248 (1,173) 101,041 (15,248) 85,793
------------- ----------- ------------- ------------- ----------- ----------- -----------
(Loss) income before
income taxes......... (9,757) 4,932 986 (163) (4,002) 15,248 11,246
Income tax (benefit)
expense.................... (2,368) 2,241 37 (152)(8) (242) 5,873(8) 5,631
------------- ----------- ------------- ------------- ----------- ----------- -----------
Net (loss) income before
extraordinary item......... $ (7,389) $ 2,691 $ 949 $ (11) $ (3,760) $ 9,375 $ 5,615(10)
------------- ----------- ------------- ----------- ----------- -----------
------------- ----------- ------------- ------------- ----------- ----------- -----------
-------------
Net income per share
before
extraordinary
item............... $ .20
-----------
-----------
Shares outstanding... 28,210(11)
-----------
-----------
</TABLE>
See accompanying notes to Pro Forma Consolidated Statement of Operations.
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
The pro forma adjustments include the following (in thousands):
<TABLE>
<C> <S> <C>
(1) Adjust depreciation expense for adjusted carrying values of assets acquired
from American Hi-Lift and the Company's depreciation method. $ (1,863)
Adjust depreciation expense for adjusted carrying values of assets acquired
from Alpine. 160
---------
$ (1,703)
---------
---------
(2) Adjust cost of sales for American Hi-Lift rental equipment sold to reflect new
carrying values and depreciation method. $ 2,741
Adjust cost of sales for Alpine rental equipment sold to reflect new carrying
values. 40
---------
$ 2,781
---------
---------
(3) Reclassify certain Alpine SG&A expenses to direct operating expenses to
conform with the Company's presentation.
(4) Reflects estimated cost savings from a reduction in the workforce of American
Hi-Lift and Alpine that were effected immediately after their respective
acquisitions and estimated reductions in overhead costs due to the
consolidation of certain general and administrative functions as follows:
Direct operating expenses (27 employees) $ 1,604
---------
---------
Selling, general, administrative and other:
Marketing salaries (6 employees) $ 155
Corporate office salaries (29 employees) 1,955
Corporate office expenses 1,385
Management fee 200
---------
$ 3,695
---------
---------
(5) Amortization of Alpine covenants not to compete (three years)
(6) Amortization of American Hi-Lift goodwill (40 year life). $ 417
Amortization of Alpine goodwill (40 year life). 12
---------
$ 429
---------
---------
(7) Adjust interest expense for debt incurred to finance the acquisitions at the
Company's then current rate of 8.5%.
American Hi-Lift $ 3,172
Alpine 666
---------
$ 3,838
---------
---------
(8) Adjust income tax expense to the Company's effective blended rate.
(9) Eliminate interest expense incurred on debt that will be retired with the
proceeds from the Offering. (credit facility at 8.5%, Senior Notes at 12.75%
and Subordinated Notes at 14%). See "Use of Proceeds."
(10) Excludes the write-off of the historical unamortized deferred financing costs
directly related to the debt retired with the proceeds from the Offering, the
early redemption penalties resulting from the retirement of approximately
$33.3 million of the Senior Notes and the $10 million Subordinated Notes and
the write-off of the historical unamortized prepaid management fee paid to
Investcorp-International, Inc. See "Use of Proceeds" and "Certain
Transactions".
(11) The earnings per share calculation is based upon (i) the number of common
shares outstanding for all classes of common stock, at December 31, 1995 (20.7
million shares), (ii) the Class C common stock issuable under the stock
options outstanding at December 31, 1995, net of the treasury stock effect (.2
million shares) and (iii) the common stock related to the Offering (7.3
million shares). In the event of an initial public offering or sale of the
Company, as defined in the Certificate, all issued and outstanding shares of
Class A, Class C and Class D Stock not otherwise redeemed by the Company shall
automatically convert into shares of Common Stock on a one-for-one basis.
</TABLE>
21
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRIME ALPINE
FOR THE AMERICAN FOR THE
NINE MONTHS HI-LIFT FOR PERIOD FROM
ENDED THE PERIOD JAN. 1, 1996
SEPTEMBER 30, FROM JAN. 1, 1996 TO ACQUISITION OFFERING ADJUSTED
1996 TO FEB. 25, 1996 JULY 29, 1996 ADJUSTMENTS PRO FORMA ADJUSTMENT PRO FORMA
------------- ----------------- ------------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental revenue......... $138,259 $6,239 $5,312 $ $149,810 $ $149,810
New equipment sales.... 33,268 630 33,898 33,898
Rental equipment
sales................ 25,940 980 216 27,136 27,136
Parts and merchandise
sales................ 28,398 433 28,831 28,831
Service revenue and
other income......... 13,730 661 106 14,497 14,497
------------- ------ ------ ----------- --------- ---------- ---------
239,595 8,943 5,634 254,172 254,172
Cost of sales:
Depreciation--rental
equipment............ 27,874 1,175 349 (208)(1) 29,190 29,190
Cost of new equipment
sales................ 27,928 516 28,444 28,444
Cost of rental
equipment sales, net
of accumulated
depreciation......... 21,266 524 203 468(2) 22,461 22,461
Cost of parts and
merchandise sales.... 20,526 250 20,776 20,776
Direct operating
expenses............. 61,370 2,763 1,129 959(3) 65,930 65,930
(291)(4)
------------- ------ ------ ----------- --------- ---------- ---------
158,964 5,228 1,681 928 166,801 166,801
------------- ------ ------ ----------- --------- ---------- ---------
Gross profit....... 80,631 3,715 3,953 (928) 87,371 87,371
------------- ------ ------ ----------- --------- ---------- ---------
Selling, general,
administrative and
other.................. 36,006 2,457 3,242 (959)(3) 40,031 40,031
(715)(4)
Depreciation and
amortization:
Noncompete agreements.. 19 68(5) 87 87
Cost in excess of fair
value of assets
acquired............. 2,463 77(6) 2,540 2,540
Property, plant and
equipment............ 2,438 158 158 2,754 2,754
Interest expense, net.... 28,181 280 179 813(7) 29,453 (10,975)(9) 18,478
------------- ------ ------ ----------- --------- ---------- ---------
69,107 2,895 3,579 (716) 74,865 (10,975) 63,890
------------- ------ ------ ----------- --------- ---------- ---------
Income before
income taxes..... 11,524 820 374 (212) 12,506 10,975 23,481
Income tax expense..... 5,537 374 2 (120)(8) 5,793 4,225(8) 10,018
------------- ------ ------ ----------- --------- ---------- ---------
Net income......... $ 5,987 $ 446 $ 372 $ (92) $ 6,713 $ 6,750 $ 13,463(10)
------------- ------ ------ --------- ---------- ---------
------------- ------ ------ ----------- --------- ---------- ---------
-----------
Net income per
share............ $ .48
---------
---------
Shares
outstanding...... 28,210(11)
---------
---------
</TABLE>
See accompanying notes to Pro Forma Statement of Operations.
22
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
The pro forma adjustments include the following:
<TABLE>
<C> <S> <C>
(1) Adjust depreciation expense for adjusted carrying values of assets acquired
from American Hi-Lift and the Company's depreciation method. $ (311)
Adjust depreciation expense for adjusted carrying values of assets acquired
from Alpine. 103
---------
$ (208)
---------
---------
(2) Adjust cost of sales for American Hi-Lift rental equipment sold to reflect new
carrying values and depreciation method. $ 456
Adjust cost of sales for Alpine rental equipment sold to reflect new carrying
values. 12
---------
$ 468
---------
---------
(3) Reclassify certain Alpine selling, general, administrative and other expenses
("SG&A") to direct operating expenses to conform with the Company's
presentation.
(4) Reflects estimated cost savings from a reduction in the workforce of American
Hi-Lift and Alpine that were effected immediately after their respective
acquisitions and estimated reductions in overhead costs due to the
consolidation of certain general and administrative functions as follows:
Direct operating expenses (27 employees) $ 291
---------
---------
Selling, general, administrative and other:
Marketing salaries (6 employees) $ 26
Corporate office salaries (29 employees) 425
Corporate office expenses 231
Management fee 33
---------
$ 715
---------
---------
(5) Amortization on Alpine covenants not to compete (three years).
(6) Additional two-months of amortization of American Hi-Lift goodwill (40 year
life). $ 70
Amortization of Alpine goodwill (40 year life). 7
---------
$ 77
---------
---------
(7) Adjust interest expense for debt incurred to finance the acquisitions at the
Company's current rate of 8%.
American Hi-Lift $ 479
Alpine 334
---------
$ 813
---------
---------
(8) Adjust income tax expense to the Company's effective blended rate.
(9) Eliminate interest expense incurred on debt that will be retired with the
proceeds from the Offering (credit facility at 8.0%, Senior Notes at 12.75%,
and Subordinated Notes at 14%). See "Use of Proceeds."
(10) Excludes the write-off of the historical unamortized deferred financing costs
directly related to the debt retired with the proceeds from the Offering, the
early redemption penalties resulting from the retirement of approximately
$33.3 million of the Senior Notes and the $10 million Subordinated Notes and
the write-off of the unamortized historical prepaid management fee paid to
Investcorp International Inc. See "Use of Proceeds" and "Certain
Transactions".
(11) The earnings per share calculation is based upon (i) the number of common
shares outstanding for all classes of common stock at September 30, 1996 (20.7
million shares), (ii) the Class C common stock issuable under the stock
options outstanding at September 30, 1996, net of the treasury stock effect
(.2 million shares) and (iii) the common stock related to the Offering (7.3
million shares). In the event of an initial public offering or sale of the
Company, as defined in the Certificate, all issued and outstanding shares of
Class A, Class C and Class D Stock not otherwise redeemed by the Company shall
automatically convert into shares of Common Stock on a one-for-one basis.
</TABLE>
23
<PAGE>
SELECTED CONSOLIDATED HISTORICAL, PRO FORMA FINANCIAL AND OTHER DATA
The following table sets forth selected financial and other data of the
Company as of and for the five years ended December 31, 1995 and as of and for
the nine months ended September 30, 1995 and 1996. As a result of certain
adjustments made in connection with the 1994 Acquisition, the results of
operations for the periods subsequent to such acquisition are not comparable to
prior periods. The adjusted pro forma statement of operations data assume that
the 1996 Acquisitions and the Offering occurred at January 1, 1995. The pro
forma balance sheet data reflect the historical September 30, 1996 balance sheet
data as adjusted for the Offering.
The selected historical financial data as of and for the five years ended
December 31, 1995 and the nine months ended September 30, 1995 and 1996 were
derived from the Company's Consolidated Financial Statements. The adjusted pro
forma financial data were derived from the Pro Forma Consolidated Financial
Statements included elsewhere in this Prospectus that give effect to the 1996
Acquisitions and the Offering (based on an assumed initial public offering price
of $23.50 per share and after deducting estimated operating expenses and
underwriting discounts and commissions). The pro forma adjustments are based
upon available information and certain assumptions that management believes are
reasonable. The adjusted pro forma financial information does not purport to
represent what the Company's financial position or results of operations
actually would have been had the 1996 Acquisitions and the Offering in fact
occurred on such date or to project the Company's financial position or results
of operations for any future date or period. The pro forma adjustments are based
on the purchase method of accounting and a preliminary allocation of the
purchase cost incurred in connection with the Alpine acquisition.
For additional information, see the Pro Forma Consolidated Financial
Statements included elsewhere in this Prospectus. The following table should be
read in conjunction with "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." For reports by the
independent accountants with respect to historical financial information, see
"Index to Financial Statements."
<TABLE>
<CAPTION>
SUCCESSOR YEAR ENDED SUCCESSOR NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
PREDECESSOR YEAR ENDED ----------------------------------- --------------------------
DECEMBER 31, ADJUSTED
------------------------------- COMBINED PRO FORMA
1991 1992 1993 1994 (1) 1995 1995 1995 1996
--------- --------- --------- ----------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
Revenues:
Rental revenue......... $ 83,645 $ 90,698 $ 100,829 $ 118,593 $ 138,983 $ 186,549 $ 101,108 $ 138,259
New equipment sales.... 20,336 18,878 26,162 32,396 34,601 38,379 24,796 33,268
Rental equipment
sales................ 14,726 17,303 13,498 20,359 23,144 29,438 17,911 25,940
Parts and merchandise
sales................ 20,349 21,317 23,874 28,787 32,223 34,822 24,168 28,398
Service and other
income............... 7,175 8,528 9,886 11,789 13,836 18,004 10,253 13,730
--------- --------- --------- ----------- --------- ----------- ------------ ------------
Total revenue........ 146,231 156,724 174,249 211,924 242,787 307,192 178,236 239,595
Cost of sales (2), (3)... 105,582 107,093 111,856 136,134 173,950 210,153 127,555 158,964
--------- --------- --------- ----------- --------- ----------- ------------ ------------
Gross profit......... 40,649 49,631 62,393 75,790 68,837 97,039 50,681 80,631
Selling, general and
administrative
expenses............... 24,696 26,856 28,248 30,901(4) 36,821(4) 51,686(4) 26,141(4) 36,006(4)
Depreciation and
amortization (5)....... 12,198 12,438 12,494 10,430 11,227 13,021 5,101 4,920
--------- --------- --------- ----------- --------- ----------- ------------ ------------
Operating income......... 3,755 10,337 21,651 34,459 20,789 32,332 19,439 39,705
Interest expense, net.... 16,826 14,299 12,753 13,852 30,546 21,086 22,526 28,181
--------- --------- --------- ----------- --------- ----------- ------------ ------------
(Loss) income before
income taxes........... (13,071) (3,962) 8,898 20,607 (9,757) 11,246 (3,087) 11,524
Income tax (benefit)
expense................ (3,297) (165) 4,350 8,523 (2,368) 5,631 (155) 5,537
--------- --------- --------- ----------- --------- ----------- ------------ ------------
Net (loss) income before
extraordinary item..... (9,774) (3,797) 4,548 12,084 (7,389) $ 5,615(6) (2,932) 5,987
----------- ------------
-----------
Extraordinary (loss) net
of tax benefit......... -- (1,268) (1,268)
--------- --------- --------- ----------- --------- ------------ ------------
--------- --------- --------- ----------- --------- ------------ ------------
Net (loss) income........ $ (9,774) $ (3,797) $ 4,548 $ 12,084 $ (8,657) $ (4,200) 5,987
--------- --------- --------- ----------- --------- ------------ ------------
--------- --------- --------- ----------- --------- ------------ ------------
Net income per share
before extraordinary
item................... $ .20
-----------
-----------
Shares outstanding....... 28,210
-----------
-----------
<CAPTION>
ADJUSTED
PRO FORMA
1996
-----------
<S> <C>
OPERATING DATA:
Revenues:
Rental revenue......... $ 149,810
New equipment sales.... 33,898
Rental equipment
sales................ 27,136
Parts and merchandise
sales................ 28,831
Service and other
income............... 14,497
-----------
Total revenue........ 254,172
Cost of sales (2), (3)... 166,801
-----------
Gross profit......... 87,371
Selling, general and
administrative
expenses............... 40,031(4)
Depreciation and
amortization (5)....... 5,381
-----------
Operating income......... 41,959
Interest expense, net.... 18,478
-----------
(Loss) income before
income taxes........... 23,481
Income tax (benefit)
expense................ 10,018
-----------
Net (loss) income before
extraordinary item..... $ 13,463(6)
-----------
-----------
Extraordinary (loss) net
of tax benefit.........
Net (loss) income........
Net income per share
before extraordinary
item................... $ .48
-----------
-----------
Shares outstanding....... 28,210
-----------
-----------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
SUCCESSOR YEAR ENDED SUCCESSOR NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
PREDECESSOR YEAR ENDED ----------------------------------- --------------------------
DECEMBER 31, ADJUSTED
------------------------------- COMBINED PRO FORMA
1991 1992 1993 1994 (1) 1995 1995 1995 1996
--------- --------- --------- ----------- --------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental
equipment.............. $ 90,594 $ 87,358 $ 99,093 $ 153,818 $ 181,798 $ 175,756 $ 255,752
Total assets............. 288,331 278,314 280,072 369,403 391,979 393,354 511,441
Total debt............... 163,000 146,000 133,000 235,000 265,000 265,500 354,000
Stockholders' equity..... 99,524 105,727 110,275 69,633 60,976 65,434 76,358
OTHER DATA:
Gross equipment capital
expenditure............ $ 21,557 $ 31,061 $ 38,088 $ 52,814 $ 89,372 66,612 69,419
Net equipment capital
expenditures (8)....... 11,142 18,943 30,089 39,871 66,520 48,896 48,153
Gross rental revenue
(9).................... 86,405 93,516 102,802 120,388 141,138 102,737 139,343
Average original price of
rental equipment
(10)................... 172,940 169,954 174,210 191,241 228,406 222,531 335,442
Gross rental revenue/
average original price
of rental equipment
("ROI") (10)........... 50.0% 55.0% 59.0% 63.0% 61.8% 61.6%(11) 55.4%(11)
Non-rental rate.......... 7.0% 5.9% 4.1% 3.4% 3.6% 3.6% 3.7%
Number of rental
equipment yards (end of
period)................ 64 64 70 74 81 80 101
<CAPTION>
ADJUSTED
PRO FORMA
1996
-----------
<S> <C>
BALANCE SHEET DATA (END O
Net book value of rental
equipment.............. $ 255,752
Total assets............. 508,500(7)
Total debt............... 200,550
Stockholders' equity..... 229,774(7)
OTHER DATA:
Gross equipment capital
expenditure............
Net equipment capital
expenditures (8).......
Gross rental revenue
(9)....................
Average original price of
rental equipment
(10)...................
Gross rental revenue/
average original price
of rental equipment
("ROI") (10)...........
Non-rental rate..........
Number of rental
equipment yards (end of
period)................
</TABLE>
- ------------------------------
(1) As a result of the 1994 Acquisition the Company's assets and liabilities
were adjusted to their estimated fair values as of December 2, 1994. In
addition, the Company entered into new financing arrangements and had a
change in its capital structure. Rental equipment acquired subsequent to
January 1, 1995 is being depreciated over a longer useful life. See Note 2
to the Consolidated Financial Statements. Accordingly, the combined results
of the 1994 period are not comparable to prior periods. The period from
December 2, 1994 to December 31, 1994 reflects: increased cost of sales due
to higher depreciation expense for rental equipment and cost of rental
equipment sales; increased interest expense; and lower other depreciation
and amortization. Accordingly, the combined period for 1994 represents the
mathematical addition of the historical amounts for the Predecessor period
(January 1, 1994 to December 1, 1994) and the Successor period (December 2,
1994 to December 31, 1994) and are not indicative of results that would have
been obtained had the 1994 Acquisition occurred on January 1, 1994. As used
herein, "Predecessor" refers to Primeco prior to the 1994 Acquisition, and
"Successor" refers to the Company after the acquisition.
(2) Reflects rental equipment depreciation.
(3) Reflects costs of $22.6 million, $16.0 million, and $8.8 million for the
year ended December 31, 1995 and the nine month periods ended September 30,
1995 and 1996, respectively, related to the increase in carrying value of
the rental fleet that existed at the date of the 1994 Acquisition. Of these
costs, approximately $9.0 million, $7.1 million, and $4.7 million for the
year ended December 31, 1995 and the nine month periods ended September 30,
1995 and 1996, respectively, is included in cost of goods sold, and
approximately $13.6 million, $8.9 million, and $4.1 million, for the year
ended December 31, 1995 and the nine month periods ended September 30, 1995
and 1996, respectively, is included within depreciation and amortization.
(4) Includes $125, $1,500, $1,125, and $1,125 in 1994, 1995, the nine month
periods ended September 30, 1995 and 1996, respectively, consisting of
amortization of pre-paid management fees to Investcorp International, Inc.
(5) Excludes rental equipment depreciation.
(6) Excludes the write-off of the historical unamortized prepaid management fee
paid to Investcorp International, Inc., the write-off of the historical
unamortized deferred financing costs directly related to the debt retired
with the proceeds of the Offering and the early redemption penalties
resulting from the retirement of approximately $33.3 milllion of the 12.75%
Senior Notes and the $10 million Subordinated Notes.
(7) Reflects the write-off of the historical unamortized prepaid management fee
paid to Investcorp International, Inc. ($1,076 net of related income tax
benefit of $674), the write-off of the historical unamortized deferred
financing costs related to the debt retired with the proceeds from the
Offering ($733 net of related income tax benefit of $458) and the early
redemption penalties resulting from the retirement of approximately $33.3
million of the Senior Notes and the $10 million Subordinated Notes ($2,775
net of related income tax benefit of $1,775).
(8) Net equipment capital expenditures represent gross rental equipment capital
expenditures reduced by the net book value of rental equipment sold.
(9) Gross rental revenue equals rental revenue less income from equipment that
the Company rents from third parties and subsequently re-rents to its
customers plus reclassified rental income due to sales of used rental
equipment through rent-to-own and rental purchase option programs.
(10) The Company uses ROI, which is a Company measurement of equipment
utilization not defined by generally accepted accounting principles, to
assist in determining the need for new rental equipment and to assign rental
equipment to different yards to maximize its utilization. Average original
price of rental equipment represents the average of the monthly original
price of rental equipment. Original price represents the undepreciated
original invoice price paid by the Company, its predecessor and its
acquirees for rental equipment.
(11) ROI for interim periods is calculated on an annualized basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Historical, Pro Forma Financial and Other Data" and the
Consolidated Financial Statements of the Company and the notes thereto included
elsewhere in this Prospectus.
GENERAL
Prime Service, Inc. is a holding company with no business operations of its
own. The Company's only material asset is the outstanding capital stock of
Primeco. Primeco derives revenue from four sources: (i) rental of equipment,
(ii) sales of new equipment and used rental equipment, (iii) sales of parts and
merchandise and (iv) service and other income. Financial information presented
herein for periods after December 1, 1994 is consolidated financial information
of the Company, and for periods prior to December 2, 1994 is financial
information of Primeco.
The Company's primary source of revenue is the rental of equipment to
commercial construction, industrial and residential users. Growth in rental
revenue is dependent on several factors, including the demand for rental
equipment, the amount of equipment available for rent, rental rates and general
economic conditions. The level of new and used equipment sales is primarily a
function of the supply of and demand for such equipment, price and general
economic conditions. The Company's revenues derived from the sale of used
equipment are also affected by its need to maintain the appropriate age, quality
and mix of its rental equipment. Prime sells parts and merchandise which
generally complement the equipment rented and sold at its rental equipment
yards. Revenues from the sale of parts and merchandise are usually correlated
with rental revenue and the sale of new and used equipment. Service and other
income consists primarily of damage waiver and delivery charges and is
correlated with the level of rental revenue.
A measure used by the Company to determine the appropriate mix and to manage
the utilization of its rental equipment is ROI. The Company uses ROI, which is a
Company measurement not defined by generally accepted accounting principles, to
assist in determining the need for new rental equipment and to assign rental
equipment to different yards to maximize its utilization. ROI is defined as
gross rental revenue as a percentage of the average monthly original price paid
for rental equipment. Original price represents the undepreciated original
invoice price paid by the Company or its acquirees, as the case may be, for
rental equipment. See Note 7 to "Summary Financial and Other Data." Prime's ROI
improved from 50.0% in 1990 to 61.8% in 1995. During the first nine months of
1996, Prime's ROI declined to 55.4% from 61.6% during the same period of 1995.
The decline is primarily attributable to the integration of American Hi-Lift's
rental fleet, which involved taking substantial amounts of American Hi-Lift's
rental fleet temporarily out of service to be refurbished and upgraded to
Prime's quality standards. Prime's ROI for the first nine months of 1996,
calculated excluding gross rental revenue and original equipment cost
attributable to former American Hi-Lift equipment, would have been 58.8%.
Prior to the 1994 Acquisition, the Company's capital expenditure program was
limited by the Company's prior owners. From 1991 to 1994, the Company did not
make any material acquisitions and purchased an aggregate of $33.7 million of
equipment (exclusive of amounts required to replace used equipment sold in the
ordinary course of business and inclusive of rental equipment purchases for new
yards). Despite revenues increasing during this period from $146.2 million in
1991 to $211.9 million in 1994, management believes that its capital
expenditures program and resulting rental equipment fleet were not adequate to
meet the market demand. Since the 1994 Acquisition, the Company has
significantly increased its rental fleet by purchasing approximately $56.3
million of equipment through December 31, 1995, and $31.0 million during the
nine months ended September 30, 1996 (in each case exclusive of amounts required
to replace used equipment sold in the ordinary course of business and recent
acquisitions, but inclusive of rental equipment purchases for new yards). Due to
the Company's substantial financial leverage and special charges, Prime reported
a net loss of $8.7 million in 1995 compared to net
26
<PAGE>
income of $12.1 million in the year ended December 31, 1994. Management expects
its total 1996 rental equipment purchases to be $42.9 million (exclusive of
amounts required to replace used equipment sold in the ordinary course of
business and recent acquisitions, but inclusive of rental equipment purchases
for new yards).
As a result of the 1994 Acquisition, Prime's assets and liabilities were
adjusted to their estimated fair values as of December 2, 1994. The step-up in
the carrying value of the rental fleet to estimated fair value increased
depreciation expense and the cost of used rental equipment sold in 1994, 1995
and 1996. The effects of the step-up on each period are discussed below. In
addition, in order to better reflect the useful life of the rental equipment and
its estimated salvage value upon disposal, the Company changed its depreciation
method for rental equipment acquired after January 1, 1995. See Note 2 to the
Consolidated Financial Statements.
The 1994 amounts discussed below represent the mathematical addition of the
historical amounts for the Predecessor period (January 1, 1994 to December 1,
1994) and the Successor period (December 2, 1994 to December 31, 1994) for
purposes of the discussion below only and are not indicative of results that
would actually have been obtained if the 1994 Acquisition occurred on January 1,
1994.
RECENT DEVELOPMENTS
AMERICAN HI-LIFT ACQUISITION. On February 26, 1996, Prime completed the
purchase of all of the outstanding stock of American Hi-Lift from Vibroplant plc
and Vibroplant Investments. Prime paid a purchase price of $66.5 million for the
shares of American Hi-Lift, which included repayment of the outstanding bank
debt of American Hi-Lift. American Hi-Lift merged into Primeco after the
closing.
American Hi-Lift operated 17 rental locations in California, Texas, Florida,
Louisiana, Ohio, Alabama, South Carolina and Georgia, and the acquisition
resulted in a net increase to the Company of 12 rental yards. American Hi-Lift,
which specialized in renting and selling aerial lift equipment to industrial and
commercial customers, had gross revenues of $50.4 million for the year ended
March 31, 1995. In connection with the American Hi-Lift acquisition, certain
stockholders of the Company made a capital infusion of $9.4 million into the
Company. Prime used these funds, as well as borrowings under its credit
facility, to fund the transaction.
ALPINE ACQUISITION. On July 29, 1996, Primeco purchased substantially all
of Alpine's assets. Prime paid approximately $11 million for Alpine's assets,
which included repayment of the outstanding debt of Alpine.
Alpine operated six rental yards oriented toward industrial equipment in the
state of Washington, resulting in a net increase of six yards and expanding
Prime's presence in the northwest market.
27
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the major components of the Company's
statement of operations expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994(4) 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
Statement of Operations:
Total revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales (1)..................... 72.2 68.3 64.2 64.2 71.6 71.6 66.3
Gross profit (2)...................... 27.8 31.7 35.8 35.8 28.4 28.4 33.7
Selling, general, administrative and
other expenses...................... 16.9 17.1 16.2 14.6 15.2 14.7 15.0
Depreciation and amortization (3)..... 8.3 7.9 7.2 4.9 4.6 2.9 2.1
Operating income...................... 2.6 6.6 12.4 16.3 8.6 10.9 16.6
</TABLE>
- ------------------------
(1) Includes rental equipment depreciation.
(2) See the "Gross Profit" discussions below for a discussion of the effect of
the step-up to fair value on gross profit.
(3) Excludes rental equipment depreciation.
(4) Combines the Predecessor period ended December 1, 1994, and the Successor
period ended December 31, 1994.
The Company historically has had low rates of customer defaults and bad
debts. The Company controls each account customer through assigned credit limits
based on the customer's financial history. The Company's bad debt expense as a
percentage of total revenues for the year ended December 31, 1995 and the nine
months ended September 30, 1995 and 1996 were 0.28%, 0.23% and 0.19%,
respectively.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
On February 26, 1996, Prime acquired American Hi-Lift, a company
specializing in renting and selling aerial lift equipment. The purchase price of
American Hi-Lift was $66.5 million. On July 29, 1996 Prime acquired Alpine for
approximately $11.0 million in cash and $350,000 for covenants not to compete.
These acquisitions were accounted for under the purchase method of accounting;
therefore, the results of operations of the Company include American Hi-Lift
beginning February 26, 1996 and Alpine beginning July 29, 1996. American Hi-Lift
had gross revenues of $50.4 million for the year ended March 31, 1995 and Alpine
had gross revenues of $10.7 million for the year ended December 31, 1995.
TOTAL REVENUES. Total revenues for the nine months ended September 30,
1996, increased 34.4% to $239.6 million, when compared to total revenues of
$178.2 million for the same period in the prior year. The increase was primarily
the result of increased rental revenues, and also reflects increases in all of
the Company's revenue components, as well as the 1996 Acquisitions. Management
estimates that approximately 52% of the increase in total revenues for the nine
months ended September 30, 1996 compared to the comparable period of the prior
year was attributable to the 1996 Acquisitions and that the remaining
approximately 48% of the increase was attributable to growth in the existing
business. Thus, of the 34.4% increase in revenues described above, approximately
17.9% was due to the 1996 Acquisitions and the remaining 16.5% was due to growth
in the existing business.
RENTAL REVENUES. Rental revenues for the nine months ended September
30, 1996, increased 36.7% to $138.3 million, when compared with the
corresponding prior period rental revenues of
28
<PAGE>
$101.1 million. This increase was primarily a result of a larger rental
equipment fleet base, strong equipment utilization and the addition of yards
associated with the 1996 Acquisitions.
NEW EQUIPMENT SALES. New equipment sales for the nine months ended
September 30, 1996, increased 34.2% to $33.3 million, when compared with the
corresponding prior period sales of $24.8 million. The increase is due to
strong general economic conditions, increased demand for equipment as well
as sales associated with the yards purchased in the 1996 Acquisitions.
USED RENTAL EQUIPMENT SALES. Rental equipment sales for the nine months
ended September 30, 1996, increased 44.8% to $25.9 million, when compared
with the corresponding prior period sales of $17.9 million, resulting,
primarily, from continued strong demand for used rental equipment and
Prime's efforts to dispose of older equipment purchased with the American
Hi-Lift acquisition.
PARTS AND MERCHANDISE SALES. Parts and merchandise sales for the nine
months ended September 30, 1996, increased 17.5% to $28.4 million, when
compared with the corresponding prior period sales of $24.2 million. This
increase correlates to higher rental revenue and sales of equipment since
parts and merchandise generally complement the equipment the Company rents
and sells.
SERVICE AND OTHER INCOME. Service and other income for the nine months
ended September 30, 1996, increased 33.9% to $13.7 million, when compared
with the corresponding prior period service and other income of $10.3
million. This increase related to the increase in rental revenue.
GROSS PROFIT. Gross profit for the nine months ended September 30, 1996,
increased 59.1% to $80.6 million, when compared with the corresponding prior
period gross profit of $50.7 million. Gross profit as a percentage of total
revenues was 33.7% for the nine months ended September 30, 1996 and 28.4% for
the nine months ended September 30, 1995. The increase is the result of
increased revenues as previously discussed with the most significant component
being the $37.2 million increase in rental revenue. The effect of the increase
to fair value of the rental equipment as a result of the 1994 Acquisition
decreased gross profit for the first nine months of 1996 by $4.7 million, as
compared to a $7.1 million decrease in the first nine months of 1995. Gross
profit was also impacted by direct operating expenses, which increased by 38.0%
to $61.4 million, when compared to the prior period expense level of $44.5
million. This increase primarily reflects increased expenses associated with the
repair and maintenance costs associated with refurbishing and upgrading the
former American Hi-Lift and Alpine equipment to Prime's standards.
SELLING, GENERAL, ADMINISTRATIVE AND OTHER EXPENSES. Selling, general,
administrative and other expenses for the nine months ended September 30, 1996,
increased 37.7% to $36.0 million, when compared to the prior expenses of $26.1
million. The increase reflects higher sales commissions due to increased rental
and sales revenue and continuing expenses associated with the inclusion of
American Hi-Lift and Alpine into the Company's operations. As a percentage of
total revenues, selling, general, adminstrative and other expenses for the first
nine months of 1996 was 15.0%, as compared to 14.7% during the same period in
1995.
INTEREST EXPENSE. Interest expense net of interest income for the nine
months ended September 30, 1996 increased 25.1% to $28.2 million, when compared
with the corresponding prior period interest expense of $22.5 million. The
increase reflects higher borrowings outstanding. The Company's average
outstanding indebtedness for the nine months ended September 30, 1996, totaled
$336.2 million, compared to $252.9 million for the nine months ended September
30, 1995. This increase is due primarily to the 1996 Acquisitions, and
borrowings to fund capital expenditures.
INCOME TAX EXPENSE (BENEFIT). Income tax expense for the first nine months
ended September 30, 1996 increased to $5.5 million from an income tax benefit of
$0.16 million for the corresponding prior period in 1995. This increase is due
primarily to the increase in pre-tax income.
29
<PAGE>
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM. Net income for the nine months
ended September 30, 1996 increased to $6.0 million, from a net loss of $2.9
million for the corresponding prior period in 1995. This increase reflects the
factors discussed above.
1995 COMPARED TO 1994
TOTAL REVENUES. Total revenues for the Company in 1995 increased 14.6% to
$242.8 million from $211.9 million. This increase reflects an increase in all of
Primeco's revenue components with rental revenues producing the largest dollar
increase.
RENTAL REVENUES. Rental revenues in 1995 increased 17.2% to $139.0
million from $118.6 million in 1994. This increase was a result of an
overall improvement in economic conditions, an increase in the average
amount of equipment available for rental and an increase in rental rates in
May 1995. The average amount of equipment available for rental in 1995
increased as evidenced by an increase in the monthly average original cost
of rental equipment of 19.4% to $228.4 million from $191.2 million in 1994.
Prime's utilization of rental equipment decreased slightly in 1995 with an
ROI of 61.8% versus 63.0% in 1994, primarily due to substantial additions to
the rental fleet and a different mix of rental equipment. In May 1995, the
Company raised the listed rental rates by a weighted average of 5%; the
increases vary, depending on the equipment type and duration of rental.
Although Prime attempts to achieve rental rates that are as close to list
price as possible, actual rental rates realized are generally lower than
listed rental rates owing to competitive conditions in various markets.
NEW EQUIPMENT SALES. Sales of new equipment in 1995 increased 6.8% to
$34.6 million from $32.4 million in 1994 primarily due to improved general
economic conditions and higher selling prices.
USED RENTAL EQUIPMENT SALES. Sales of used rental equipment in 1995
increased 13.7% to $23.1 million from $20.4 million in 1994 due to high
demand for used rental equipment and the Company's normal fleet upgrading.
PARTS AND MERCHANDISE SALES. Sales of parts and merchandise in 1995
increased 11.9% to $32.2 million from $28.8 million in 1994. This increase
correlates to the higher rental revenue and sales of equipment since parts
and merchandise generally complement the equipment the Company rents and
sells.
SERVICE AND OTHER INCOME. Service and other income in 1995 increased
17.4% to $13.8 million from $11.8 million in 1994. This increase reflects
the increased rental revenue.
GROSS PROFIT. Gross profit in 1995 decreased 9.2% to $68.8 million from
$75.8 million in 1994. Gross profit as a percentage of total revenues was 28.4%
in 1995 and 35.8% in 1994. This decrease primarily reflects higher depreciation
expense and cost of sales of rental equipment sold (non-cash items) due to the
increase in fair value of rental equipment as a result of the 1994 Acquisition.
The result of the increase to fair value was to decrease 1995 gross profits by
$22.6 million as compared to a $1.1 million decrease in 1994. Direct operating
expenses increased primarily due to higher compensation costs (reflecting an
increased number of employees) and increased maintenance costs necessary to
support the increased size of the rental fleet and to staff new rental equipment
yards. The increase in direct operating expenses also reflects start-up costs of
opening eight new rental equipment yards in 1995.
Depreciation for rental equipment acquired subsequent to January 1, 1995 was
changed as described in Note 2 to the Consolidated Financial Statements.
SELLING, GENERAL, ADMINISTRATIVE AND OTHER EXPENSES. Selling, general,
administrative and other expenses in 1995 increased 19.1% to $36.8 million from
$30.9 million in 1994. This increase primarily reflects higher sales commissions
due to increased rental and sales revenue in 1995 and unusually low
30
<PAGE>
expenses in 1994 due to a one-time insurance settlement with a prior owner which
generated approximately a $2.1 million gain and a franchise tax refund of
approximately $500,000. As a percentage of total revenues, selling, general,
administrative and other expenses in 1995 was 15.2% versus 14.6% in 1994.
INTEREST EXPENSE. Interest expense net of interest income increased 120.5%
to $30.5 million in 1995 from $13.9 million in 1994. This increase reflects
higher interest expense relating to higher levels of indebtedness incurred in
connection with the 1994 Acquisition. Immediately prior to the 1994 Acquisition,
the Company had outstanding debt of $133.0 million, and immediately after the
1994 Acquisition, the Company had outstanding debt of $235.0 million. At
December 31, 1995, outstanding debt aggregated $265.0 million, of which $155.0
million was at variable rates, $100.0 million was at a fixed rate of 12.75%, and
$10.0 million was at a fixed rate of 14%. At that date, after giving effect to
the interest rate swap described in Note 8 to the Consolidated Financial
Statements, approximately $75.0 million of indebtedness bore interest at
variable rates.
INCOME TAX EXPENSE (BENEFIT). Income tax expense in 1995 was a benefit of
$3.2 million (including a $0.8 million tax benefit on the extraordinary loss),
compared to an expense of $8.5 million in 1994. The effective income tax rate
for both periods differs from the federal statutory rate of 35% primarily as the
result of the non tax-deductible amortization of goodwill. At December 31, 1995,
the Company has an alternative minimum tax credit carry forward of approximately
$3.1 million and a corresponding valuation allowance. The allowance was
established since at that time it was not likely that the benefit of the credits
would be realized due to the high level of interest expense resulting from the
financing of the 1994 Acquisition.
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM. Net income decreased from
income of $12.1 million in 1994 to a loss of $7.4 million in 1995. This loss
includes the write off of the covenant not to compete with the former owner of
Primeco. Pinault S.A., the parent of Artemis, has exited the rental industry as
a result of the divestiture of Pinault Equipment. See Note 5 to the Consolidated
Financial Statements. The amount written off in 1995 was $3.6 million ($5.9
million pretax). Net income was also impacted by the factors discussed above.
1994 COMPARED TO 1993
TOTAL REVENUES. Total revenues in 1994 increased 21.6% to $211.9 million
from $174.2 million in 1993. This increase was primarily a result of higher
rental revenue and an increase in the sale of new and used equipment.
RENTAL REVENUE. Rental revenue in 1994 increased 17.6% to $118.6
million from $100.8 million in 1993. This increase was a result of an
overall improvement in economic conditions, an increase in the average
amount of equipment available for rental, higher utilization of rental
equipment and an increase in rental rates in March 1994. The average amount
of equipment available for rental in 1994 increased as evidenced by an
increase in the monthly average original cost of rental equipment of 9.8% to
$191.2 million from $174.2 million in 1993. The Company's higher utilization
of rental equipment is reflected by an increase in ROI to 63.0% in 1994 from
59.0% in 1993. In March 1994, the Company raised average listed rental rates
by varying amounts depending on equipment type and duration of rental, with
a weighted average increase of approximately 5%, which was the first such
increase since 1991. Although the Company attempts to achieve rental rates
that are as close to list price as possible, actual rental rates realized
are generally lower than listed rental rates owing to competitive conditions
in various markets.
NEW EQUIPMENT SALES. Sales of new equipment in 1994 increased 23.8% to
$32.4 million from $26.2 million in 1993 primarily due to improved general
economic conditions.
USED RENTAL EQUIPMENT SALES. Sales of used rental equipment in 1994
increased 50.8% to $20.4 million from $13.5 million in 1993 due to high
demand for rental equipment in 1994 and a $2.3 million used equipment
auction in 1994 (there was no such auction in 1993).
31
<PAGE>
PARTS AND MERCHANDISE SALES. Sales of parts and merchandise in 1994
increased 20.6% to $28.8 million from $23.9 million in 1993. This increase
correlates to the higher rental revenue and sales of equipment since parts
and merchandise generally complement the equipment Primeco rents and sells.
SERVICE AND OTHER INCOME. Service and other income in 1994 increased
19.2% to $11.8 million from $9.9 million in 1993. This increase reflects the
increased rental revenue.
GROSS PROFIT. Gross profit in 1994 increased 21.5% to $75.8 million from
$62.4 million in 1993. This increase primarily reflects the increase in total
revenues. This increase was partly offset by a 15.7% increase in direct
operating expenses in 1994 to $53.6 million from $46.3 million in 1993. The
increase was also partly offset by higher depreciation expense and cost of sales
of rental equipment due to the increase in carrying value of rental equipment as
a result of the 1994 Acquisition. Direct operating expenses increased primarily
due to higher compensation costs (reflecting an increased number of employees)
and increased maintenance costs necessary to support the increased size of the
rental fleet and to staff new rental equipment yards. The increase in direct
operating expenses also reflects start-up costs of opening five new rental
equipment yards in 1994. Gross profit as a percentage of total revenues was
35.8% in both 1994 and 1993.
SELLING, GENERAL, ADMINISTRATIVE AND OTHER EXPENSES. Selling, general,
administrative and other expenses in 1994 increased 9.4% to $30.9 million from
$28.2 million in 1993. This increase primarily reflects higher sales commissions
due to increased rental and sales revenue in 1994, offset by a one-time benefit
from a settlement of approximately $2.1 million with a prior owner of the
Company and a franchise tax refund of approximately $500,000. As a percentage of
total revenues, selling, general, administrative and other expenses in 1994
declined to 14.6% from 16.2% in 1993.
INTEREST EXPENSE. Interest expense net of interest income increased 8.6% to
$13.9 million in 1994 from $12.8 million in 1993. This increase reflects higher
interest expense following the 1994 Acquisition. Prior to the 1994 Acquisition,
reduced outstanding debts were offset by higher interest rates during that
period as compared to 1993. At December 31, 1994, outstanding debt aggregated
$235.0 million, of which $225.0 million was at variable rates and $10.0 million
was at a fixed annual rate of 14%. At that date, after giving effect to the
interest rate swaps described in Note 8 to the Consolidated Financial
Statements, approximately $145.0 million of indebtedness bore interest at
variable rates.
INCOME TAX EXPENSE (BENEFIT). Income tax expense was $8.5 million in 1994
compared to an expense of $4.4 million in 1993. The effective income tax rate
for both periods differ from the federal statutory rate of 34.0% due to high
levels of non tax-deductible amortization of goodwill. The Company had net
operating loss carry forwards for federal and state income tax purposes of
approximately $9.3 million. At December 31, 1994, the Company had a valuation
allowance established which eliminates the deferred tax asset associated with
the net operating losses. The allowance was established since at that time it
was not more likely than not that the benefit of these losses would be realized
due to the high level of interest expense resulting from the financing of the
1994 Acquisition and the limitations placed on the utilization of the net
operating losses as a result of the 1994 Acquisition.
NET INCOME (LOSS). Net income in 1994 increased to $12.1 million from $4.5
million in 1993. This increase reflects the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1996, and the years ended
December 31, 1993, 1994 and 1995, the Company's principal sources of funds
consisted of the net cash provided by operating activities, the proceeds from
the sale of used rental equipment and, in 1995, the proceeds from its credit
facility, the proceeds from the issuance of $100 million in Senior Notes and a
$10 million capital infusion from the Company's stockholders. See "Description
of Certain Indebtedness." The components of net cash provided by operating
activities are detailed on the Statements of Cash Flows in the Consolidated
Financial Statements and include net income or loss adjusted for (i)
depreciation and amortization, (ii) the gains (or
32
<PAGE>
losses) on the sales of used rental equipment and (iii) the effect of changes in
certain operating assets and liabilities. Net cash provided by operating
activities excludes proceeds from the sale of rental equipment. Net cash
provided by operating activities for the nine months ended September 30, 1996,
increased 88.1% to $30.2 million from $16.1 million for the corresponding period
in 1995. This increase was primarily caused by the acquisition of American
Hi-Lift. Net cash provided by operating activities in 1995 decreased 14.4% to
$32.2 million from $37.6 million in 1994. This decrease resulted primarily from
increased interest expense and increased working capital investment. Net cash
provided by operating activities in 1994 decreased 4.8% to $37.6 million from
$39.5 million in 1993. This decrease resulted primarily from a decrease in
certain operating liabilities and the absence of the decrease in inventory
levels experienced in 1993, and was partly offset by increased rental revenue
and deferred income taxes.
For the nine months ended September 30, 1996, the Company's principal uses
of funds were for the 1996 Acquisitions and the purchase of equipment for the
Company's rental fleet. The gross rental equipment capital expenditures for the
nine months ended September 30, 1996, increased 4.2% to $69.4 million from $66.6
million for the corresponding period in 1995. Of those amounts, $38.3 million
and $26.7 million was spent in the nine months ended September 30, 1996 and
1995, respectively, to replace used rental equipment sold with the remaining
amount being a net increase in investment in the rental fleet. Proceeds from the
sale of rental equipment for the nine months ended September 30, 1996, increased
45.1% to $25.9 million from $17.9 million for the corresponding period in 1995.
During the years ended December 31, 1993, 1994 and 1995, the Company's
principal uses of funds were for the purchase of equipment for its rental fleet
and the payment of principal on its outstanding indebtedness. The gross rental
equipment capital expenditures were $38.1 million, $52.8 million and $89.4
million in 1993, 1994 and 1995, respectively. Of those amounts, $20.4 million,
$33.0 million and $34.6 million were spent to replace used rental equipment sold
in 1993, 1994 and 1995 respectively, with the remaining amounts being a net
increase in investment in the rental fleet. Proceeds from the sale of used
rental equipment were $13.5 million, $20.5 million and $23.1 million in 1993,
1994 and 1995, respectively.
The Company has no long-term minimum purchase commitments for rental
equipment. Management has budgeted $98 million of gross fleet capital
expenditures exclusive of acquisitions in 1996, of which approximately $54
million will be used to replace used rental equipment sold, with the remaining
amounts being a net increase in investment in rental fleet. These expenditures
will be offset by expected proceeds from the sale of used equipment of
approximately $31 million. Prime will utilize these capital expenditures to
expand the fleet at existing rental equipment yards, to satisfy the equipment
needs of current and new Integrated Rental Management-TM- customers, to provide
for the equipment needs of new rental equipment yards, and to maintain and grow
the fleet at the rental yards recently acquired in connection with the 1996
Acquisitions. The Company also expects to spend approximately $6 million in 1996
on non-equipment related capital expenditures consisting of buildings, land,
furniture and fixtures and environmental capital expenditures. In addition to
the budgeted capital expenditures, the Company is currently considering several
potential acquisitions, although the Company does not currently have any
understandings or agreements with respect to potential acquisitions. In 1996,
Primeco purchased all of the outstanding stock of American Hi-Lift for
approximately $66.5 million, and all of the assets of Alpine for approximately
$11 million. The purchases were funded by a $9.4 million capital contribution
from certain stockholders of the Company and the balance through borrowings from
Prime's credit facility.
The Company's operations are subject to various environmental laws and
regulations. In order to comply with these requirements, the Company is engaged
in ongoing remediation, capital improvement and periodic compliance activities.
In connection with the 1994 Acquisition, an environmental consultant conducted
certain investigations of the Company's properties and compliance with
applicable environmental laws. In 1995, Prime spent approximately $1.3 million
on environmental matters, including costs related to remediation, compliance and
capital requirements, and has budgeted approximately $4.4 million in 1996 for
such matters. As of September 30, 1996, the Company had a reserve for
environmental remediation of $7.0 million and related receivables from state
trust fund programs and a seller of equipment yards of $2.0 million.
33
<PAGE>
Prime incurred substantial indebtedness in connection with the 1994
Acquisition and the 1996 Acquisitions. At September 30, 1996, Prime had
indebtedness outstanding of $354.0 million, consisting of $244.0 million under
the credit facility, $100 million under the Senior Notes and $10 million under
the Subordinated Notes. Prime received net proceeds of approximately $96.0
million from the Senior Notes, which were issued on March 6, 1995. Such proceeds
were used to repay $75.0 million of indebtedness under a subordinated loan
facility plus accrued interest and $20.0 million of indebtedness under the
revolving credit portion of the credit facility (without reducing the commitment
under the credit facility).
Prime believes that cash provided by operations, proceeds from the sale of
used equipment in the ordinary course of business and funds available under the
credit facility will be sufficient to permit Prime to meet its payment
obligations under the credit facility and the Senior Notes and to meet its
anticipated capital expenditures as described above.
The credit facility requires Prime to maintain interest rate protection,
which it has done through rate swap agreements covering a portion of its
outstanding and available credit facility including the portion related to
letters of credit. Accordingly, at December 31, 1995, Primeco had outstanding
interest rate swap agreements (total notional amount of $80.0 million) placed
with financial institutions, one of which is an affiliate of Salomon Brothers
Inc, that effectively converted a portion of its floating-rate debt to
fixed-rate debt. At December 31, 1995, the market value of the swaps represented
a loss of approximately $2.6 million. See Note 8 to the Consolidated Financial
Statements. The rate swap agreements expire in February, 1997 and March, 1997,
respectively, and the floating interest rate for the final period has been set.
The Company currently has no plans to, and is not required to, replace such
agreements. Upon expiration of such agreements, the Company must pay an
aggregate of approximately $1.29 million to cover market losses.
QUARTERLY RESULTS
The following table sets forth certain unaudited consolidated statement of
operations data for the fiscal quarters in the years ended December 31, 1994 and
1995, and the nine months ended September 30, 1996. The unaudited quarterly
information has been prepared on the same basis as the annual financial
information and, in management's opinion, includes all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
information for the quarters presented. As a result of the 1994 Acquisition, the
results subsequent to that date are not comparable to prior periods.
<TABLE>
<CAPTION>
1996
QUARTERS
1994 QUARTERS ENDED 1995 QUARTERS ENDED ENDED
------------------------------------------------ ------------------------------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
----------- ----------- ----------- --------- --------- --------- --------- --------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total
revenues..... $ 47,197 $ 54,299 $ 54,383 $ 56,045 $ 55,889 $ 59,471 $ 62,876 $ 64,551 $ 70,930
Gross profit... 16,534 20,046 20,035 19,175 14,844 17,561 18,276 18,156 23,360
Operating
income....... 6,122 9,747 9,724 8,866 4,552 7,206 7,689 1,342(1) 11,078
Interest
expense
(net)........ 3,096 3,169 3,247 4,340 7,086 7,726 7,713 8,021 8,471
Extraordinary
(loss) net of
tax
benefit...... -- -- -- -- (1,268) -- -- -- --
Net income
(loss)....... 1,640 3,944 3,886 2,614 (3,205) (623) (372) (4,457) 1,236
<CAPTION>
<S> <C> <C>
JUNE 30 SEPT. 30
----------- -----------
<S> <C> <C>
Total
revenues..... $ 82,526 $ 86,139
Gross profit... 27,572 29,699
Operating
income....... 13,508 15,119
Interest
expense
(net)........ 9,768 9,942
Extraordinary
(loss) net of
tax
benefit...... --
Net income
(loss)....... 1,906 2,845
</TABLE>
- ------------------------------
(1) Reflects the write-off of noncompete recorded at 1994 Acquisition. See Note
5 to the Consolidated Financial statements.
34
<PAGE>
OTHER MATTERS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
SFAS 121, which is effective for fiscal years beginning after December 15, 1995,
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Prime adopted SFAS 121 at the beginning of 1996, without a material
effect on the financial statements.
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 123, entitled "ACCOUNTING FOR STOCK-BASED
COMPENSATION" ("SFAS No. 123"), in October 1995. Prime will adopt the new
disclosure rules of SFAS No. 123 in 1997.
35
<PAGE>
BUSINESS
GENERAL
Prime is the second largest rental equipment company in the United States,
based upon 1995 rental equipment revenues, and currently operates 101 rental
equipment yards in 13 states. The Company rents over 100 different types of
equipment, such as aerial manlifts, portable air compressors, forklifts and
light earth moving equipment and small equipment such as lawnmowers, plumbing
equipment and hand tools, to commercial construction, industrial and residential
users. The Company also sells complementary parts and merchandise and used
equipment, and acts as a distributor of new equipment on behalf of nationally
known equipment manufacturers. At September 30, 1996, the Company had an
equipment rental fleet with a book value of $255.8 million ($360.7 million at
original price) comprised of over 40,000 pieces of equipment. Over the period
from 1991 to 1995, Prime's total revenues increased from $146.2 million to
$242.8 million, a compound annual growth rate of 13.5%. Total 1995 revenues on a
pro forma basis for two acquisitions completed in 1996 would have been $307.2
million, an increase of 45% over the 1994 historical result.
Prime seeks to be the market leader in the regions it services while
maximizing its profitability and cash flow. The Company attributes its success
to its operating strategy which includes, among other things, a focus on
customer service, a modern and diverse rental fleet, and a proprietary POS
system. Management believes that the consistent delivery of high quality
service, including 24 hour on-call maintenance, repair and support services
differentiates Prime from its competitors. Prime believes it also offers one of
the most comprehensive and well-maintained fleets of equipment in the rental
equipment industry. The Company employs an extensive preventive maintenance
program for its rental fleet, increasing the dependability, useful life and
resale value of the equipment. In addition, the Company's proprietary POS system
enables each rental equipment yard manager on a real-time basis to search the
Company's entire rental fleet for needed equipment, determine its location and
arrange for delivery to customers using the Company's radio-dispatched fleet of
trucks and trailers and independent carriers. The Company believes that its
extensive, well maintained rental fleet, coupled with its ability to redeploy
equipment rapidly and efficiently among its yards, allows it to optimize fleet
utilization and return on fleet investment.
Prime has a diverse base of over 40,000 active customers, ranging from
"Fortune 500" companies to small contractors and homeowners. Commercial
construction and industrial customers accounted for approximately 50% and 40%,
respectively, of the Company's total revenues in 1995, with subcontractors,
homeowners and other customers generating the remaining 10%.
Prime's 101 rental equipment yards cover 52 markets within the 13 states in
which Prime operates. Although Prime operates in several regions, Prime
considers its principal markets to be in the southern Unites States.
Primeco was purchased from W.R. Grace & Co. in 1989 by Compagnie Francaise
de l'Afrigue Occidentale, a French company which, in turn, was acquired by an
affiliate of Artemis in 1993. In December 1994, affiliates of Investcorp and a
group of international investors formed Prime Service, Inc. to acquire Primeco
from Artemis.
INDUSTRY
According to a survey conducted for the AED, the equipment rental industry
has grown from approximately $600 million in 1982 to approximately $13 billion
in 1993, the last period for which such data are available. This increase
represents a compound annual growth rate of 32%. In addition, according to the
RER, rental revenues for the top 100 equipment rental companies increased
approximately 25% to $2.5 billion in 1995 from approximately $2.0 billion in
1994. Management believes that this growth reflects, in part, increased
outsourcing trends by industrial corporations related to an increased emphasis
on minimizing capital invested to purchase low usage equipment as well as
reducing the labor costs associated
36
<PAGE>
with maintaining and servicing such equipment. While equipment users
traditionally have rented equipment for specific purposes, such as supplementing
capacity during peak periods in connection with special projects, the
convenience and cost-saving factors of utilizing rental equipment have
encouraged customers to look to suppliers such as the Company as ongoing
comprehensive sources of equipment. Management believes that demand for rental
equipment by the industrial segment will continue to increase as these
industrial companies continue to outsource many non-core operations. According
to recent surveys conducted by the CIT Group, commercial construction
contractors intend to increase the percentage of equipment they rent without a
purchase option to an estimated 8% of their total equipment requirements in 1996
from less than 5% in 1994.
The rental equipment industry is highly fragmented and primarily consists of
a large number of relatively small, independent businesses serving discrete
local markets and a small number of multi-yard regional and multi-regional
operators. Management believes that the rental equipment industry offers
substantial consolidation opportunities for large, well-capitalized rental
businesses such as the Company. Relative to smaller competitors, multi-regional
operators such as the Company benefit from several competitive advantages,
including purchasing power, the ability to service national accounts, the
ability to transfer equipment among rental equipment yards in response to
changing patterns of customer demand and sophisticated management information
systems. In addition, multi-regional operators such as the Company are less
sensitive to localized cyclical downturns.
STRATEGY
Prime's strategy is to become the largest and most profitable rental
equipment company in the United States. Since the 1994 Acquisition, the Company
has pursued an aggressive growth strategy primarily by: (i) increasing the
rental fleet at its existing rental equipment yards to satisfy current and
anticipated demands; (ii) expanding its rental equipment yard network both in
existing and new geographic markets by either acquiring existing yards or, to a
lesser extent, opening new yards; (iii) increasing revenues from industrial
customers; and (iv) maximizing the utilization and profitability of its rental
fleet. The Company plans to continue implementing these strategies, with
increased emphasis on expanding its rental equipment yard network and increasing
its revenues from industrial customers.
INCREASE RENTAL FLEET AT EXISTING RENTAL EQUIPMENT YARDS. From 1991 to
1995, Prime experienced a significant increase in the demand for its rental
equipment, as evidenced by a decline in Prime's percentage of equipment not
rented within the last 90 days (non-rental rate) from an average monthly rate of
7.0% in 1991 to an average monthly rate of 3.4% in 1994, 3.6% in 1995 and 3.5%
for the first nine months of 1996, despite increasing the rental fleet (based on
average original price) from $172.9 million in 1991 to $335.4 million for the
nine month period ended September 30, 1996. The Company targets a non-rental
rate of 5%, which it believes minimizes lost revenue opportunities resulting
from having insufficient equipment to meet demand, while maximizing the
Company's return on equity. Prior to the 1994 Acquisition, the Company's capital
expenditure program was limited by the Company's prior owners. From 1991 to
1994, the Company did not make any material acquisitions and purchased an
aggregate of $33.7 million of equipment (exclusive of amounts required to
replace used equipment sold in the ordinary course of business and inclusive of
rental equipment purchases for new yards). Despite revenues increasing during
this period from $146.2 million in 1991 to $211.9 million in 1994, management
believes that its capital expenditures program and resulting rental equipment
fleet were not adequate to meet the market demand. Since the 1994 Acquisition,
the Company has significantly increased its rental fleet by purchasing
approximately $56.3 million of equipment through December 31, 1995, and $31.0
million during the nine months ended September 30, 1996 (exclusive of amounts
required to replace used equipment sold in the ordinary course of business and
recent acquisitions, but inclusive of rental equipment purchases for new yards).
Management expects its total 1996 rental equipment purchases to be $42.9 million
(in each case exclusive of amounts required to replace used equipment sold in
the ordinary course of business and recent acquisitions, but inclusive of rental
equipment purchases for new yards).
37
<PAGE>
EXPAND RENTAL EQUIPMENT YARD NETWORK. Prime intends to selectively expand
its network of rental equipment yards through a combination of acquisitions of
suitable existing rental equipment yards and to a lesser extent by opening new
rental equipment yards. Management believes that its management information
systems, size and operating expertise provide a competitive advantage in making
acquisitions as these strengths allow Prime to (i) integrate targets quickly
into its information and operating structure, (ii) realize significant synergies
in the form of reduced overhead and lower cost of goods through greater
purchasing power, (iii) enhance revenue by supplying acquired yards with
additional equipment to optimize the rental fleet mix and add new business lines
at those yards and (iv) enhance revenue by expanding coverage of national
accounts. The Company primarily targets acquisitions of stable equipment
businesses in new or existing markets where an existing owner has limited
resources to expand the rental equipment fleet. Pursuant to this strategy, in
February 1996 Prime acquired American Hi-Lift Corporation, adding a net of 12
yards in seven states, and in July 1996 Prime acquired the assets of Alpine,
adding a net six yards in the state of Washington and expanding Prime's presence
in the Northwest. In the case of the 1996 Acquisitions, Prime completed the
integration of the acquired equipment yards and the acquired fleet into the
Company's management information systems on the closing date of each
acquisition. In connection with the integration of the business of American
Hi-Lift, Prime's management reduced on an annualized basis the selling, general,
administrative and other expenses associated with American Hi-Lift by
approximately $5 million, as compared to $15.2 million incurred by American
Hi-Lift for the year ended March 31, 1995.
INCREASE REVENUES FROM INDUSTRIAL CUSTOMERS. Prime believes that it is one
of the largest suppliers of rental equipment to industrial companies in the
southern United States, based upon revenues from equipment rentals to such
customers. The demand for rental equipment from Prime's industrial customers
generally has been less sensitive to economic cycles than that of its commercial
and residential customers and is, therefore, more stable. Management attributes
this relative stability to the fact that a major part of rental equipment use by
industrial customers is related to ongoing and periodic maintenance work on
existing facilities. Since many of the facilities operate 24 hours a day, such
maintenance is essential to industrial customers in order to avoid costly
shutdowns that result from equipment failures. Prime has taken a number of steps
to increase revenues from industrial customers, including focusing its national
marketing program on the industrial market segment and offering services that
meet the specific needs of industrial customers such as its Integrated Rental
Management-TM- program. Under its Integrated Rental Management-TM- program,
Prime typically enters into exclusive contracts with large industrial customers,
generally "Fortune 500" companies, to supply rental equipment, to provide 24
hours a day maintenance and repair services, and to provide sophisticated
equipment management services required for a particular facility or facilities.
Prime believes that it is well-positioned to take advantage of the trend of
companies outsourcing their rental equipment needs due to its formalized
Integrated Rental Management-TM- program, customized POS system and strong
national account relationships.
MAXIMIZE UTILIZATION AND PROFITABILITY OF RENTAL FLEET. Prime believes that
it maintains customer loyalty by maintaining a diverse modern fleet. During the
first nine months of 1996, the average age of Prime's rental fleet was 36
months. Prime's proprietary POS system allows it to monitor the demand for and
actual usage of its equipment on a real-time basis. The Company, taking
advantage of its presence in numerous markets, can allocate new equipment and
transfer current equipment to yards with high rental activity. In addition, if
utilization of equipment declines, management is able to quickly react by
decreasing purchases of new equipment or replacement of used rental equipment
sold. The Company believes its comprehensive preventative maintenance program
allows it to increase the useful life of its equipment and obtain premium values
when it is sold.
The Company is a Delaware corporation. Its principal executive offices are
located at 16225 Park Ten Place, Suite 200, Houston, Texas 77084. Its telephone
number is (713) 578-5600.
38
<PAGE>
OPERATIONS
Typically, Prime's rental equipment yards occupy approximately 2.2 acres and
include (i) a service center, (ii) a customer showroom displaying selected
rental equipment, new equipment offered for sale and related merchandise, (iii)
an equipment service area and (iv) storage facilities for equipment requiring
protection from inclement weather. Each rental equipment yard is staffed by, on
average, approximately 15 full-time employees and one part-time employee,
including a manager, assistant manager, sales assistants, truck drivers,
mechanics and other personnel. Currently, the Company's yard managers have been
with the Company for an average of seven years. Most of the rental equipment
yards offer a full range of equipment for rental and sale, with the actual mix
designed to meet the anticipated needs of the customers in each location. Prime
continues to expand its network of rental equipment yards selectively through a
combination of acquisitions of suitable existing rental equipment yards in new
and existing markets and, to a lesser extent, openings of new rental equipment
yards in its existing markets. Prime increased its yard count from 74 in 1994 to
101 as of August 31, 1996, for a net increase of 27 rental facilities. The
Company operates all of its yards, including acquired yards, under the name
PRIME EQUIPMENT-Registered Trademark-.
CUSTOMERS
Prime has developed a diverse base of over 40,000 customers who have done
business with Prime in the last 12 months, ranging from "Fortune 500" companies
operating nationwide to subcontractors and homeowners. During 1995, no single
customer accounted for more than 3.0% of total revenues, and the ten largest
customers accounted for less than 9.5% of total revenues. Generally, Prime's
customer base includes three broad categories: (i) commercial construction
companies, (ii) industrial companies and (iii) subcontractors, homeowners and
others. Commercial construction and industrial customers accounted for
approximately 50% and 40%, respectively, of Prime's total revenues in 1995, with
subcontractors, homeowners and other customers generating the remaining 10%.
COMMERCIAL CONSTRUCTION. Prime's commercial construction customers include
national and regional contractors and subcontractors involved in commercial
construction projects, such as office and apartment buildings, roads, bridges
and highways, and plants and other manufacturing facilities. Prime's equipment
is used in each phase of a commercial construction project, and includes
backhoes used for digging, compaction equipment used for compacting earth,
trowels used for laying concrete, and welding machines, booms and lifts used in
the construction of buildings. Although the commercial construction market is
cyclical on a regional basis, Prime's geographic diversity makes it less
sensitive to downturns in any one region.
INDUSTRIAL. Management believes Prime is one of the largest suppliers of
rental equipment to industrial companies in the southern United States, based
upon equipment rental revenues. Prime's industrial customers, many of which
operate 24 hours per day and seven days per week, use equipment rented from
Prime to perform work required to construct, maintain and repair major
industrial and manufacturing facilities. Prime's industrial customers represent
a broad range of industries including pulp and paper, chemical, petrochemical,
steel, aluminum and textiles. In addition, Prime serves several public
utilities. Aerial equipment such as boom lifts and platforms is used by
industrial customers to conduct safety inspections and routine maintenance,
while equipment such as air tools and air compressors is used in combustible
environments where the risk of explosion prevents the use of electrical tools
and equipment. Prime has benefited from the growing trend of large industrial
corporations towards outsourcing many non-core components of their businesses
and heightened safety and environmental standards that require compliance and
ongoing maintenance by industrial customers.
SUBCONTRACTORS, HOMEOWNERS AND OTHERS. Primarily through 11 yards in Texas,
Prime rents landscaping, plumbing, remodeling and home improvement tools to
subcontractors, homeowners and other customers. Equipment rentals to
subcontractors and homeowners generally are for shorter periods (often one to
two days) and provide higher gross margins relative to other market segments,
but require greater
39
<PAGE>
maintenance and management time than commercial and industrial rentals. Revenues
from subcontractors, homeowners and others accounted for approximately 10% of
Prime's total revenues in 1995, and Management does not anticipate any material
expansion in this business segment.
PRODUCTS AND SERVICES
Equipment rental, including the Integrated Rental Management-TM- program and
shutdown and turnaround services, represents Prime's principal line of business.
In 1995, rental equipment together with rental-related revenue (such as damage
waiver income, delivery charges, labor charges and warranty income), accounted
for 62.9% of Prime's total revenues. Prime also acts as a distributor of new
equipment on behalf of nationally known equipment manufacturers. Revenues from
the sale of new equipment accounted for approximately 14.3% of Prime's total
revenues in 1995. The balance of Prime's 1995 revenues were derived from the
sale of parts and related merchandise such as diamond saw blades, coolers,
gloves and safety equipment (13.3%) and the sale of used rental equipment
(9.5%).
RENTAL EQUIPMENT. Prime believes it offers one of the most comprehensive
and well-maintained fleets of equipment in the rental equipment industry. Prime
believes that its new-equipment distribution relationships, together with the
volume of its equipment purchases, help it to achieve favorable pricing and
terms on its rental fleet equipment purchases. Prime's rental fleet consists of
approximately 40,000 pieces of equipment. Five categories of equipment
represented approximately 75.7% (based on original cost) of Prime's total rental
equipment fleet as of December 31, 1995: (i) platforms and booms (28.7%), (ii)
forklifts (14.4%), (iii) air compressors and dryers (13.4%), (iv) loaders and
backhoes (11.8%) and (v) scissors and vertical platforms (7.4%). The mix of
equipment at each of Prime's rental equipment yards is tailored to meet the
demands of the local customer base.
Prime seeks to maintain a modern efficient rental fleet through regular
sales of used rental equipment and ongoing capital investment in new rental
equipment. In addition, Prime believes it has one of the most advanced
preventive maintenance programs in the rental equipment industry. This program
extends the useful life of Prime's rental equipment and produces higher resale
prices. Management attempts to balance the objective of obtaining acceptable
prices from equipment sales against the revenues obtainable from used equipment
rentals. As of September 30, 1996, the weighted average age of the various
categories of Prime's rental equipment was 36 months. Over the last five years,
Prime received an average of 58% of the original cost of equipment upon resale,
largely due to the ongoing preventative maintenance of the equipment and its
significant remaining useful life at the time of resale. The weighted average
age of equipment sold was 66 months for 1995, and 67 months for the first nine
months of 1996.
Prime believes that many customers choose to rent equipment rather than to
purchase or lease it in order to minimize capital requirements and maintenance
costs and to maximize the flexibility of equipment utilization and availability.
Accordingly, Prime offers flexible rental terms and conditions to its customers.
Customers may rent equipment by the day, week or month, with the daily rental
rate declining as the duration of the rental term increases. During 1995 and the
first nine months of 1996, the average rental was for a period of 13 days.
Generally, Prime's industrial customers tend to rent for longer periods of time
than commercial construction customers, subcontractors or homeowners. Prime
provides 24 hour maintenance, repair and support services to customers,
including service at the customer's job site.
INTEGRATED RENTAL MANAGEMENT-TM- PROGRAM. Prime believes that the
Integrated Rental Management-TM- program offers an attractive opportunity for
growth by capitalizing on Prime's customized POS system and strong national
account relationships. Prime has entered into agreements with certain "Fortune
500" industrial companies to act as the exclusive supplier and manager of
industrial rental equipment used by each such customer, its contractors and
subcontractors in connection with repair, maintenance and construction at
certain of such customers' plants. Prime believes that customers benefit from
this arrangement in a number of ways, including cost savings, reduced capital
investment in equipment and related maintenance costs, and increased ability to
focus on their core operations through outsourcing
40
<PAGE>
equipment needs. Prime benefits through increased revenues, as well as the
reduction of operating costs, and improved fleet utilization rates as a result
of the sole-source arrangement with the customer. The existing Integrated Rental
Management-TM- contracts generally require several months notice for
termination. There can be no assurance that Prime will be able to maintain its
existing Integrated Rental Management-TM- contracts or obtain additional
Integrated Rental Management-TM- contracts in the future. If Prime's existing
Integrated Rental Management-TM- contracts were to be terminated by the
customers, Prime would redeploy the rental equipment dedicated to servicing
those contracts among its existing rental equipment yards and, if necessary,
proportionately reduce its purchases of new rental equipment. Management
believes that the Integrated Rental Management-TM- program affords significant
growth opportunities due to the trend by industrial companies toward outsourcing
non-core components of their businesses.
SHUTDOWN AND TURNAROUND SERVICES. Prime's "Turnaround Central" operation,
located in Houston, Texas, is dedicated to providing industrial customers with
the equipment, tools and supplies needed to perform scheduled periodic
maintenance and repairs ("turnarounds") as well as required repairs resulting
from accidents or emergencies that curtail operations ("shutdowns"). In
addition, Prime assists the customer in managing and monitoring the location and
utilization of the equipment and tools by utilizing a bar-code scanning system
that enables Prime's personnel to track the equipment and identify the employees
of the customer using such equipment. The lost production experienced as a
consequence of turnarounds and shutdowns make these procedures costly to
manufacturers who therefore place a premium on efficiency and speed in
accomplishing the required maintenance or repairs. Turnaround Central is
generally able to deliver its comprehensive package to a customer anywhere in
the United States in less than 24 hours. Management believes that few of Prime's
competitors offer specialized services tailored to meet the demands of
turnarounds and shutdowns. The Turnaround Central operation helps to promote
Prime's relationships with its industrial customers by efficiently providing
them with a critical, value-added service.
SALES OF NEW EQUIPMENT. Prime is a distributor for over 30 major equipment
manufacturers, including JLG Industries, Inc., Simon Aerials, Inc.,
Snorkel-Economy and Genie Industries (booms and high-reach equipment), Lull
Industries, Inc. and Gehl Construction (rough terrain forklifts and skid-steer
loaders), Sullair Corporation (air compressors), Chicago Pneumatic Tool Company
(air tools), Target Products, Inc. (concrete saws) and Wacker Corporation (earth
compaction equipment). Prime is the leading distributor of various lines of
equipment for several of these manufacturers. During 1995, five categories of
equipment, consisting of air compressors and dryers, platform booms, saws,
compaction equipment and forklifts, accounted for approximately 55.9% of Prime's
sales of new equipment. Prime believes that its distribution relationships,
together with the volume of its purchases, help it to achieve favorable prices
and terms on equipment purchased for its rental fleet. Sales of new equipment
offer flexibility to the customer and also provide Prime with improved
relationships and visibility with its customers.
SALES OF USED EQUIPMENT. Prime maintains a regular program of selling used
equipment in order to adjust the size and composition of its rental fleet to
changing market conditions and to maintain the quality of its available rental
fleet. Prime is generally able to achieve favorable sales prices for its used
equipment due to its strong preventive maintenance program and its practice of
selling used equipment before it becomes obsolete or irreparable. Management is
also able to adjust and balance the rate of used equipment sales and new
equipment purchases to deal with changing economic conditions and thereby
minimize the short-term adverse effects of declines in economic activity. In
general, Prime seeks to sell approximately 12-15% of its used equipment rental
fleet each year based on original cost. The weighted average age of equipment
sold in 1995 was 66 months. Sales of used equipment are accomplished by Prime in
several ways, including: (i) directly from rental equipment yards; (ii) from
Prime's two dedicated used equipment yards (one in Texas and one in Florida);
(iii) through advertising; and (iv) through auctions.
41
<PAGE>
RELATED PARTS AND MERCHANDISE SALES. Prime also sells parts, supplies and
merchandise, including diamond and regular saw blades, drill bits, shovels,
goggles, hard hats and other safety gear and coolers, as a complement to its
equipment rental and sale business.
OTHER SERVICES. Prime also offers maintenance service to its customers that
own equipment and generates revenues from damage waiver charges, delivery
charges (particularly for larger pieces of equipment) and warranty income.
Although these services comprised only 6% of Prime's total revenues for 1995,
they provide relatively high margins and contribute to Prime's profitability.
PURCHASING AND SUPPLIERS
Prime's size, purchasing volume and new equipment distribution relationships
enable it to purchase equipment directly from manufacturers at prices and on
terms that Prime believes to be more favorable than are available to its smaller
competitors. All of Prime's purchasing is coordinated through its central
purchasing department. All suppliers of Prime must meet specified standards of
quality and experience. Prime participates in dealer quality councils and
training programs with certain of its suppliers. The favorable pricing, service,
training and information that Prime receives from its suppliers represent a
competitive advantage that Prime believes is significant. Prime's Product
Evaluation Committee meets quarterly to analyze the effectiveness, quality and
profitability of Prime's equipment and to address equipment procurement issues.
The Product Evaluation Committee is composed of corporate management and yard
employees whose experience with specific equipment brands and models,
supplemented by performance data captured by Prime's POS system, provides the
basis for equipment procurement decisions. Prime believes that it could replace
any of its existing suppliers if it were to lose its ability to purchase
equipment from such suppliers.
MAINTENANCE PROGRAM
Prime's preventive maintenance program establishes a schedule of preventive
maintenance customized to each category of equipment. To administer this
program, Prime employs a full-time staff of 468 trained mechanics, who perform
equipment maintenance at Prime's yards and at customers' job sites. In contrast,
Prime believes that many of its competitors do not practice preventive
maintenance to the same extent as Prime and tend to focus a greater portion of
their maintenance efforts on repairing damaged or inoperable equipment. As a
result of this program, Prime believes that it is able to obtain more dependable
performance from its rental equipment fleet, extend the useful life of its
rental equipment fleet and obtain more favorable prices when used rental
equipment is sold.
POS SYSTEM
Prime's advanced proprietary POS system, which has been in place in all of
Prime's rental equipment yards since October 1992, is used by Prime for the
day-to-day management of approximately 40,000 pieces of rental equipment. This
computer system links all of Prime's rental equipment yards, headquarters and
other facilities, permitting universal access to real-time data concerning the
location, rental status and maintenance history of each piece of equipment in
the rental fleet. In addition, the POS system provides information concerning
customer sales and credit histories, generates rental contracts and processes
more than 65,000 invoices per month. The POS system is linked to Prime's
management information system, which provides management with access to
up-to-date financial information concerning Prime's performance. Prime's systems
professionals also developed the customized, proprietary software used in
Prime's Integrated Rental Management-TM- program, as well as software programs
for specific customer needs. Prime's data center, located at its headquarters in
Houston, Texas, employs an IBM mainframe computer system for its flexibility and
capacity to accommodate Prime's systems needs for the near future. In the event
Prime's POS system becomes disabled, Prime has retained disaster recovery
back-up services which will provide computer systems at several off-site
locations. The Company believes that its current
42
<PAGE>
information systems, along with its internal development staff and outside
consultants, will provide the necessary flexibility to accommodate changing
customer needs and future growth of the Company.
SALES, MARKETING AND ADVERTISING
Prime markets its services in four principal ways, the most important of
which is marketing through its sales force. Prime also has developed a national
accounts program, a telemarketing program and certain promotional activities to
supplement and support the efforts of Prime's sales force.
SALES FORCE. Prime markets its products and value-added services primarily
through its 196 member sales force, consisting of the Vice President of Sales
and Marketing, three Directors of Sales, and ten sales managers who oversee 178
sales representatives. Prime's sales force is knowledgeable about all of Prime's
services and products, including the rental of equipment, sales of new and used
equipment, sales of parts and merchandise, and Prime's value-added rental
services, including Integrated Rental Management-TM- and Turnaround Central.
Operating directly from the local rental equipment yards, sales managers and
representatives call regularly on contractors' job sites and industrial
facilities in their sales territories, often assisting customers in planning for
their equipment requirements. Prime also provides its sales force with extensive
training, including frequent in-house training by supplier representatives
regarding the operating features and maintenance requirements of new equipment.
Members of Prime's sales force earn commissions on all equipment rentals and
sales that they generate.
NATIONAL ACCOUNTS. Prime's national accounts department is dedicated
exclusively to marketing to large customers with a nationwide presence in order
to develop regional or multi-regional relationships. The national accounts
department supplements the efforts of the sales force whose members deal
directly with management of the local production facilities of national firms.
National account marketers call on the corporate headquarters of Prime's main
industrial and commercial construction customers in order to expand existing
business relationships to include additional production facilities or
construction sites. Multi-facility arrangements are covered by "blanket"
contracts with the national accounts department. The terms of these blanket
contracts typically designate Prime as the preferred supplier of rental
equipment at designated customer facilities. Since the national accounts program
was initiated in 1991, the number of national account customers has increased
from 42 to 86 (representing approximately 350 operating facilities to which
Prime rents and sells equipment under blanket contracts). In 1995, national
account customers represented approximately 13.4% of Prime's total revenues, and
Prime's top ten national accounts represented over 7.6% of Prime's total
revenues.
RENTAL CRITERIA. Prime's rental criteria differ from those of a traditional
leasing company, in that the duration of a rental period is shorter and
therefore credit exposure is lower. Prime's rental periods range from an average
of four days for a smaller subcontractor or residential user to 18 days for
industrial customers, with an overall average rental period of 13 days. Other
than customers who pay by cash, check or credit card, potential customers who
are applying for open account status must receive credit approval from the
Company's credit department prior to the delivery of any rental equipment.
TELEMARKETING. Management believes that Prime's telemarketing program is
one of the most advanced programs currently in use in the rental equipment
industry. Prime's telemarketing department, which was established in 1991,
employs four full-time telemarketers who are based at Prime's headquarters in
Houston and make approximately 2,200 targeted telephone calls per month, or 100
telephone calls per day per telemarketer. The telemarketers are aided by
in-house, custom-designed software, which contains an extensive database
providing access to over 250,000 active or potential customers. This database
enables the telemarketers to understand each prospect's activities and their
potential equipment needs before placing a call. The primary objectives of the
telemarketers are: (i) to generate leads and open new accounts for sales
personnel in the field by calling on companies in a targeted geographical area;
(ii) to call on inactive accounts to review whether they have current or
near-term equipment needs; and (iii) to perform market research.
43
<PAGE>
PROMOTIONAL ACTIVITIES. Prime actively promotes its services by direct mail
and advertising in the yellow pages of telephone directories in the markets it
serves. Prime also hosts open houses, customer appreciation events and other
special promotional events. Prime provides a toll-free telephone number that
automatically connects the caller to Prime's rental equipment yard closest to
that caller. Furthermore, Prime also prints its marketing materials in Spanish
to address the Hispanic customer base in many of its markets in the southwestern
United States.
INTERNET WEB PAGE. In addition to its principal marketing methods, the
Company is currently in the process of creating an internet web page that is
anticipated to be used as a marketing tool to describe the Company's locations,
product lines, and used rental equipment available for sale, which went on-line
in October 1996.
PROPERTIES
Prime owns 47 of its rental locations and leases 47 rental locations as well
as its approximately 23,000 square foot headquarters space in Houston, Texas,
with the majority of its leases having multiple five- or ten-year renewal
options. These figures do not include the seven Integrated Rental Management-TM-
service centers that are located on-site at customer-owned locations. As part of
its 101 yards, Prime also operates a used rental equipment yard in each of Texas
and Florida, equipment service centers at various sites, a national warranty
center, and the Turnaround Central facility. Prime has granted mortgages on 40
of its owned real property sites to the lenders under its credit facility to
secure Prime's obligations thereunder. The total investment in owned facilities
is approximately $25.5 million at September 30, 1996, while the average base
rent on leased facilities is approximately $66,000 annually. Management believes
that none of Prime's leased facilities, individually, is material to the
operations of Prime. In addition, Prime maintains a fleet of 892 trucks and 174
trailers, of which 137 trucks and 112 trailers are owned by Prime as of
September 30, 1996.
COMPETITION
The rental equipment industry is fragmented and highly competitive. Each
market in which Prime operates is served by numerous competitors, ranging from
large multi-regional or regional companies, such as Hertz Equipment Rental
(currently the largest rental equipment company), to small, independent
businesses with a limited number of locations. Prime believes that participants
in the rental equipment market compete on the basis of service, breadth of
product line, quality and price. In general, Prime believes that regional and
multi-regional operators, especially larger operators such as Prime, enjoy
substantial competitive advantages over small, independent rental businesses who
cannot afford to maintain the broad and extensive rental equipment fleet and
high level of maintenance and service that Prime offers. In its markets, Prime
believes that its POS system, its commitment to customer service and fleet
maintenance and its centralized management systems enable it to compete
successfully with other large regional and multi-regional operators.
EMPLOYEES
At September 30, 1996, Prime had a total of 1,848 employees, of which 726
were salaried and 1,122 were hourly personnel. Of these, 157 were involved in
administration, 205 in sales and marketing, and 1,486 in operations and rental
equipment yard management. Prime is committed to, and has realized significant
benefits from, its formal employee training programs including the Quality
Improvement Program and management and salesforce training programs. Prime
believes that this investment in its employees, in conjunction with services
such as safety awareness programs for both customers and employees and drug- and
alcohol-free workplace policies, is a competitive advantage that positions Prime
to be responsive to customer needs. None of Prime's work force is unionized and
management believes that its relationship with employees is satisfactory.
44
<PAGE>
TRADE NAMES
Primeco is the owner of the trademark PRIME EQUIPMENT-Registered Trademark-
registered with the U.S. Patent and Trademark Office for use in connection with
the rental of light to medium construction equipment. Prime has also filed with
the U.S. Patent and Trademark Office a declaration of intent to use the
trademark Integrated Rental Management-TM-. Although management believes that
the PRIME EQUIPMENT-Registered Trademark- name is recognized among customers in
the industry, it does not believe that Prime's operations are dependent to any
significant extent on any single trade name. Primeco has granted its lenders
under its credit facility a lien on its intellectual property, including the
PRIME EQUIPMENT-Registered Trademark- trademark.
ENVIRONMENTAL REGULATION
Prime is subject to various evolving Federal, state and local environmental
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of hazardous substances and wastes. These laws and regulations provide
for substantial fees and sanctions for violations, and, in many cases, could
require Prime to remediate a site to meet applicable legal requirements.
In 1995, Prime spent approximately $1.3 million on environmental matters,
including costs related to remediation, compliance, and capital requirements,
and has budgeted expenditures of approximately $4.4 million in 1996 for such
matters. At September 30, 1996, Prime had a reserve for environmental
remediation of $7.0 million and a related receivable from state trust fund
programs and a seller of certain yards of $2.0 million. The actual cost of
remediating environmental conditions may be different than that accrued by Prime
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
maintain an insurance policy for environmental matters.
Management believes that the amounts required to correct any identified
environmental condition and to maintain compliance with applicable environmental
regulations will not have a material adverse effect on the financial condition
or results of operations of Prime. See Note 9 to Consolidated Financial
Statements.
LEGAL PROCEEDINGS
From time to time, the Company has been and is involved in various legal
proceedings, all of which management believes are routine in nature and
incidental to the conduct of its business. The ultimate legal and financial
liability of the Company with respect to such proceedings cannot be estimated
with certainty, but the Company believes, based on its examination of such
matters, that none of such proceedings, if determined adversely to the Company,
would have a material adverse effect on the financial condition or results of
operations of the Company.
45
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth the name, age and position of each of the
directors, executive officers and certain key employees of the Company and
Primeco. Each director of the Company will hold office until the next annual
meeting of shareholders of the Company or until his successor has been elected
and qualified. Officers of the Company are elected by the Board of Directors of
the Company and serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- -------------------------------------------------- --- --------------------------------------------------------
<S> <C> <C>
Thomas E. Bennett................................. 51 President, Chief Executive Officer, Director
Brian Fontana..................................... 38 Executive Vice President, Chief Financial Officer
Kevin L. Loughlin................................. 46 Director of Finance, Treasurer, Secretary
John D. Latimer................................... 50 Controller, Assistant Treasurer, Assistant Secretary
Peter A. Post..................................... 52 Vice President Operations
James O. York..................................... 53 Vice President of Sales and Marketing
Gerald E. Lane.................................... 55 Director of Central Division
Michael Gordon.................................... 44 Director of Eastern Division
Rick L. McCurry................................... 49 Director of Western Division
Christopher J. O'Brien............................ 38 Director
Charles J. Philippin.............................. 45 Director
Jon P. Hedley..................................... 35 Director
Christopher J. Stadler............................ 32 Director
</TABLE>
Thomas E. Bennett joined the Company in 1975 as Equipment Manager. He became
a Rental Equipment Yard Manager in 1978 of the Company's largest distribution
location, and was named Regional Manager in 1979. In 1987, Mr. Bennett was
promoted to Vice President of the Southwest Division. In 1988, he was selected
as the Vice President of Operations and of the Company and was named President,
Chief Executive Officer and a director in 1990. Prior to joining the Company,
Mr. Bennett worked for the Tool Crib, Inc. for 11 years.
Brian Fontana joined Primeco on April 1, 1996 as Executive Vice President
and Chief Financial Officer. Mr. Fontana was employed previously with National
Convenience Stores, Incorporated (NCS), a company traded on the New York Stock
Exchange until it was acquired by Diamond Shamrock in 1995. Mr. Fontana joined
NCS in 1990 as Assistant Treasurer and was appointed to Treasurer in February
1992. In August 1993, he was promoted to Vice President and Treasurer of NCS, a
position he held until December 1993, when Mr. Fontana was named Vice President
and Chief Financial Officer of NCS.
Kevin L. Loughlin joined the Company in 1980 as Controller and Vice
President of Finance and held this position until 1990, when he was named
Executive Vice President, Chief Financial Officer, Secretary and Treasurer. He
was elected a director of the Company in January 1995. From 1973 to 1979, Mr.
Loughlin was employed by W.R. Grace where he served in various accounting and
financial capacities. Prior to joining W.R. Grace, Mr. Loughlin was an
accounting supervisor for Dun & Bradstreet from 1971 to 1973.
John D. Latimer served as Assistant Controller of the Company from 1979 to
1989. In 1982, he was elected to the office of Assistant Secretary of the
Company. In December 1989, he was named Controller and Assistant Treasurer of
the Company.
Peter A. Post joined the Company in 1979 as a Rental Equipment Yard Manager.
In December 1979, Mr. Post was promoted to Regional Manager for East Texas,
Louisiana and Alabama, where he served until 1988 when he was named Vice
President of Operations for the Southwest Division. In January 1990, Mr. Post
became Vice President, Southwest Division.
46
<PAGE>
James O. York joined the Company in April, 1996 as the Vice President of
Sales and Marketing. Prior to joining Primeco, Mr. York held similar positions
during the past 17 years with Tate, Inc. and Trak International, both of which
are manufacturers of construction and industrial equipment.
Gerald E. Lane joined the Company in 1981 as a Rental Equipment Yard
Manager. In 1983, he was promoted to Regional Manager and in October 1992, was
named Vice President, Southeast Division. Prior to joining the Company, Mr. Lane
worked for Hertz Equipment Rental Company for 18 years.
Michael Gordon joined the Company in 1981 as a sales representative. In
1982, he was promoted to Rental Equipment Yard Manager. In 1988, Mr. Gordon was
promoted to Regional Manager for the Houston area. In 1993 he became Regional
Manager for the Company's California Region. Mr. Gordon was promoted to Director
of the Eastern Division in September 1995. Prior to joining the Company, Mr.
Gordon was employed by JLG Industries for three years.
Rick L. McCurry joined the Company in 1989 as Regional Manager for North
Texas and Oklahoma. He remained in this position until September 1995 when he
was named Director of Operations Western Division. Prior to joining the Company,
Mr. McCurry served as General Manager at Zuni Rental in Albuquerque, New Mexico
for six years.
Christopher J. O'Brien became director of Prime in December 1994. He has
been an executive of Investcorp, its predecessor or one or more of its
wholly-owned subsidiaries since November 1993. Mr. O'Brien is a director of
Simmons Company.
Charles J. Philippin became a director of Prime in December 1994. He has
been an executive of Investcorp, its predecessor or one or more of its
wholly-owned subsidiaries since October 1994. Prior to joining Investcorp, Mr.
Philippin was a partner with Coopers & Lybrand L.L.P. Mr. Philippin is a
director of Saks Holdings, Inc. and Simmons Company.
Jon P. Hedley became a director of Prime in September 1996. He has been an
executive of Investcorp, its predecessor or one of more of its wholly-owned
subsidiaries since April 1990. Mr. Hedley is a director of Saks Holdings, Inc.
and Simmons Company.
Christopher J. Stadler became a director of Prime in September 1996. He has
been an executive of Investcorp, its predecessor or one or more of its
wholly-owned subsidiaries since April 1, 1996. Prior to joining Investcorp, Mr.
Stadler was a Director with CS First Boston Corporation.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. Promptly following the consummation of the Offering, the
Board of Directors of the Company will establish an audit committee (the "Audit
Committee"). The Audit Committee will make recommendations concerning the
engagement of independent public accountants, review with the independent public
accountants the scope and results of the audit engagement, approve professional
services provided by the independent public accountants, review the independence
of the independent public accountants, consider the range of audit and non-audit
fees and review the adequacy of the Company's internal accounting controls. The
Audit Committee initially will consist of an independent director who the
Company intends to elect prior to the consummation of the Offering.
COMPENSATION COMMITTEE. Promptly following the consummation of the
Offering, the Board of Directors of the Company will establish a compensation
committee (the "Compensation Committee") to establish remuneration levels for
executive officers of the Company and oversee implementation of the Company's
stock option plans and any other incentive programs.
47
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1995, the Company had no compensation committee or other committee of the
Board of Directors performing similar functions. Decisions concerning
compensation of executive officers were made by the Company's Board of
Directors.
DIRECTOR COMPENSATION
The Company pays no additional remuneration to its employees or to
executives of Investcorp for serving as directors. Other directors will receive
an annual retainer of $25,000 in cash and incentive compensation, including but
not limited to restricted stock, $1,500 for each regular or special meeting and
reimbursement of out-of-pocket expenses incurred in attending meetings of the
Board of Directors and any committees of the Board on which they serve.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation earned in the previous
three years by the Company's Chief Executive Officer and each of the other four
most highly compensated executive officers whose remuneration exceeded $100,000
(collectively, the "Named Executive Officers"). The current compensation
arrangements for each of these officers are described in "Employment
Arrangements".
<TABLE>
<CAPTION>
PRIME
LTIP (OPTIONS) ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) PAYOUTS(2) (#)(3) COMPENSATION(4)
- ---------------------------------------------------- --------- ---------- ---------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Bennett................................... 1995 $ 225,000 $ 330,000 -- 58,352 $ 4,620
Chief Executive Officer 1994 172,500 95,757 $74,000 -- 4,620
1993 161,000 93,980 -- -- 4,497
Kevin L. Loughlin................................... 1995 140,000 160,000 -- 19,438 4,620
Director of Finance, 1994 135,600 63,544 47,017 -- 4,620
Treasurer and Secretary 1993 130,000 61,750 -- -- 4,497
Peter A. Post....................................... 1995 130,625 140,000 -- 16,861 4,620
Vice President of Operations 1994 110,500 41,387 38,040 -- 4,620
1993 105,000 30,975 -- -- 4,122
Gerald E. Lane...................................... 1995 110,000 110,000 -- 14,520 4,620
Director of Central Division 1994 96,700 56,441 14,080 -- 4,620
1993 86,000 51,887 -- -- 2,944
John D. Latimer..................................... 1995 97,983 29,792 -- 10,363 3,863
Controller 1994 94,650 30,288 490 -- 3,673
1993 91,000 27,300 -- -- 3,218
</TABLE>
- ------------------------
(1) Earned in year shown but paid in subsequent year.
(2) Amounts paid upon termination of Artemis's phantom stock plan pursuant to
the 1994 Acquisition.
(3) Following the closing of the 1994 Acquisition, certain members of management
were offered the opportunity to purchase shares of Common Stock from the
original investors at a price of $3.86 per share (the price per share paid
by the original participants in the 1994 Acquisition). The number of shares
purchased by the Named Executive Officers were as follows: Thomas E. Bennett
(58,352); Kevin L. Loughlin (19,438); Peter A. Post (16,861); Gerald E. Lane
(14,520); and John D. Latimer (10,363).
(4) Amounts paid pursuant to the Company's defined contribution 401(k) plan
matching program.
48
<PAGE>
The following table provides information with respect to stock options
granted during the fiscal year ended December 31, 1995 to the Named Executive
Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (D)
------------------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OF
OPTIONS GRANTED EMPLOYEES IN BASE PRICE PER EXPIRATION
NAME (A) FISCAL YEAR SHARE DATE 5% (B) 10% (C)
- ------------------------------ --------------- ----------------- --------------- -------------- ---------- ----------
Thomas E. Bennett............. 58,352 26.3% $ 3.86 Dec. 2, 2004 $ 141,524 $ 358,665
Kevin L. Loughlin............. 19,438 8.7 3.86 Dec. 2, 2004 $ 47,145 $ 119,481
Peter A. Post................. 16,861 7.6 3.86 Dec. 2, 2004 $ 40,895 $ 103,639
Gerald E. Lane................ 14,520 6.5 3.86 Dec. 2, 2004 $ 35,216 $ 89,248
John D. Latimer............... 10,363 4.7 3.86 Dec. 2, 2004 $ 25,135 $ 63,701
</TABLE>
- ------------------------
(a) The options are for shares of Common Stock and were granted on December 2,
1994, and vest at 20% per year over five years upon achievement of certain
objectives. Prime achieved its 1995 objective and 20% of the options for
each Named Executive Officer vested on March 30, 1996. To the extent not
earlier vested or terminated, all options will vest on the tenth anniversary
of the date of grant and will expire 30 days thereafter if not exercised.
All options will also vest upon certain changes in control. Upon
consummation of the Offering, the vesting schedule for these options has
accelerated such that an additional 20% of the options will vest upon
closing of the Offering and 30% of such options will vest on each of
December 31, 1997 and 1998.
(b) Represents an assumed market price per share of $6.29.
(c) Represents an assumed market price per share of $10.00.
(d) The dollar amounts under columns headed 5% and 10% represent the
hypothetical gain or "option spread" that would exist for the options based
on assumed 5% and 10% annual compounded rates of share price appreciation
over the full option term. These assumed rates for a 5% hypothetical gain
would result in a price per share on December 2, 2004 of $6.29 and for a 10%
hypothetical gain would result in a price per share on December 2, 2004 of
$10.00.
The following table contains certain information regarding options to
purchase shares of Common Stock held as of December 31, 1995 be each of the
Named Executive Officers. None of such Named Executive Officers exercised any
options during fiscal 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED HOLDINGS OPTIONS AT
FY-END
------------------------------------
<S> <C> <C>
NAME EXERCISABLE UNEXERCISABLE (A)
- --------------------------------------------------------------- ----------------- -----------------
Thomas E. Bennett.............................................. 0 58,352
Kevin L. Loughlin.............................................. 0 19,438
Peter A. Post.................................................. 0 16,861
Gerald E. Lane................................................. 0 14,520
John D. Latimer................................................ 0 10,363
</TABLE>
- ------------------------
(a) Options are for shares of Common Stock and vest 20% per year over five years
upon achievement of certain objectives. Prime achieved its 1995 objective
and 20% of the options for each Named Executive Officer vested on March 30,
1996. Upon consummation of the Offering, the vesting
49
<PAGE>
schedule for these options will accelerate such that an additional 20% of
the options will vest upon closing of the Offering and 30% of such options
will vest on each of December 31, 1997 and 1998.
EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan (the "Plan")
covering substantially all of its employees. The following table sets forth the
estimated annual benefits payable upon retirement under the Plan based on
retirement at age 65 and 1995 covered compensation of $25,920:
<TABLE>
<CAPTION>
YEARS OF SERVICE
REMUNERATION -----------------------------------------------------
(I.E. FINAL EARNINGS) 15 20 25 30 35
- ----------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$125,000................................................... $ 24,971 $ 33,055 $ 41,319 $ 49,583 $ 57,846
$150,000 and above......................................... 30,041 40,055 50,069 60,083 70,096
</TABLE>
For each of the individuals listed above, the Plan covers total compensation
as listed in the Summary Compensation Table, but limited to $150,000 as required
by the Employee Retirement Income Security Act of 1974. Each of the five
officers listed in the Summary Compensation Table has credited service as of
December 31, 1995 of 6.3 years. Benefits under the Plan are based on (i) final
earnings (the highest five consecutive years' earnings out of the last ten years
before retirement date or average earnings received in the last five full years
before early retirement or termination of employment), (ii) covered compensation
(the average of the Social Security Taxable Wage Bases for the 35-year period
ending at Social Security Retirement Age) and (iii) years of credited service.
Benefits under the Plan are determined by a formula which multiplies (x) the sum
of 1% of final earnings up to covered compensation and 1.4% of final earnings in
excess of covered compensation by (y) the years of credited service up to 35
years. There is no reduction for early retirement at age 62. The Company's
policy is to fund all current and prior service costs. Plan assets are invested
in various segregated accounts with an insurance company. Benefits under the
Plan are not subject to any offset.
The Company also sponsors a defined contribution 401(k) plan that covers
substantially all employees. The Company matches 50 percent of employee
contributions limited to a maximum equal to three percent of eligible employee
compensation. Company contributions to the plan were approximately $471,000,
$588,000 and $633,000 in 1993, 1994 and 1995, respectively.
EMPLOYMENT ARRANGEMENTS
Primeco has entered into employment agreements with Thomas E. Bennett, Brian
Fontana, Kevin L. Loughlin, Peter A. Post and Gerald E. Lane. Mr. Bennett's
agreement, effective as of December 2, 1994, provides that he shall serve as
President and Chief Executive Officer. Upon the expiration of the initial seven
year term, Mr. Bennett's agreement shall automatically be extended for an
additional term of one year, unless either party has notified the other party of
its election to terminate the agreement, not later than 90 days prior to the
scheduled expiration date. During the term of employment, the agreement provides
for an annual base salary of $225,000 subject to annual review by the Board
provided that the level of base salary shall not be subject to reduction. Mr.
Bennett's current annual base salary is $240,000. Mr. Bennett is entitled to
participate in the management cash incentive bonus program, and in all fringe
benefit programs maintained by Primeco. Mr. Bennett's employment agreement also
provides that in the event that Primeco terminates his employment or elects to
not renew the agreement other than for cause, Mr. Bennett will receive monthly
one-twelfth of his annual base salary at the time of such termination for the
period ending on the earlier of the expiration date of the employment agreement
or the first anniversary of the date of termination. If Mr. Bennett's employment
is terminated by death, Primeco shall pay to Mr. Bennett's estate or legal
representative a lump sum payment equal to 25% of Mr. Bennett's annual base
salary in effect at such time. If Mr. Bennett's employment is terminated based
upon a permanent disability, Primeco shall pay to Mr. Bennett a lump sum of 50%
of Mr. Bennett's annual base salary in effect at such time.
50
<PAGE>
Mr. Fontana, Mr. Loughlin, Mr. Post and Mr. Lane's employment agreements are
substantially identical to Mr. Bennett's except that the annual base salaries
differ, the initial term for Mr. Lane is three years, and the initial term for
Messrs. Fontana, Post and Loughlin is five years. The initial annual base
salaries for Messrs. Fontana, Loughlin, Post and Lane were $160,000, $140,000,
$125,000 and $110,000, respectively. The current annual base salaries for
Messrs. Fontana, Loughlin, Post and Lane are $160,000, $150,000, $150,000 and
$115,000, respectively.
Upon his employment, Mr. Fontana also purchased 25,918 shares of Common
Stock at a purchase price of $3.86 per share and was awarded options for 25,918
shares of Common Stock with an exercise price of $3.86 per share. Mr. Fontana
will also participate in Prime's bonus plan. Bonuses awarded under the plan for
1996 would be paid in 1997.
Upon his employment, Mr. York purchased 12,959 shares of Common Stock at a
purchase price of $3.86 per share and was awarded options for 12,959 shares of
Common Stock with an exercise price of $3.86 per share. The options for Messrs.
Fontana and York shall vest 20% at the consummation of the Offering, 20% at
December 31, 1997, and 30% at each December 31, 1998 and 1999.
The Company currently intends to enter into an employment agreement on
substantially the same terms as Mr. Bennett's with James O. York, except that
Mr. York's agreement would have an initial term of five years and Mr. York's
initial base salary would be $125,000, his current annual salary.
MANAGEMENT STOCK INCENTIVE PLANS
The Old Stock Plan provides incentives to employees and directors of Prime
and Primeco by granting them awards tied to the Common Stock. The Old Stock Plan
will be administered by the Compensation Committee, which will have broad
authority in administering and interpreting the Old Stock Plan. Awards to
employees are not restricted to any specified form or structure and may include,
without limitation, sales or bonuses of stock, restricted stock, stock options
or stock appreciation rights. Options granted under the Old Stock Plan may be
options intended to qualify as incentive stock options ("ISOs") under Section
422 of the Internal Revenue Code of 1986, as amended, or options not intended to
so qualify. An award granted under the Old Stock Plan to an employee may include
a provision terminating the award upon termination of employment under certain
circumstances or accelerating the receipt of benefits upon the occurrence of
specified events, including, at the discretion of the Compensation Committee,
any change of control of Prime. Upon consummation of the Offering, the Company
does not contemplate making any further awards under the Old Stock Plan.
In connection with the Offering, Prime has adopted the New Stock Plan. The
New Stock Plan will be administered by the Compensation Committee, which will
have broad authority in administering the New Stock Plan. Awards to employees
may take the form of options, sales or grants of restricted stock, or stock
appreciation rights. Options granted under the New Stock Plan may be options
intended to qualify as ISOs, and those not intended to so qualify. An award
granted under the New Stock Plan to an employee may include a provision
terminating the award upon termination of employment under certain circumstances
or accelerating the receipt of benefits upon the occurrence of specified events.
The Company has reserved 1,500,000 shares of Common Stock for issuance under the
New Stock Plan.
51
<PAGE>
The Company has approved the grant to its executive officers of options
under the New Stock Plan to purchase the following number of shares of Common
Stock:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ------------------------------------------------------------ -----------------
<S> <C>
Thomas E. Bennett 154,275
Brian Fontana 36,300
Kevin L. Loughlin 25,410
Pete A. Post 19,965
James O. York 19,965
</TABLE>
Such options will be granted at the Offering price upon the consummation of
the Offering. After consummation of the Offering, the options will vest over
five years at 20% per year.
The Company has also approved the grant of options upon consummation of the
Offering for 90,750 shares of Common Stock in the aggregate on substantially the
same terms to its management other than the executive officers listed above.
52
<PAGE>
CERTAIN TRANSACTIONS
The Company was capitalized with $70.0 million of equity contributed by
Investcorp, its affiliates and other international and domestic investors and
$10.0 million aggregate principal amount of Subordinated Notes acquired for $9
million by Invifin S.A., an affiliate of Investcorp, and other international
investors. The Subordinated Notes are due on March 31, 2006 and bear interest at
a fixed annual rate of 14%. See Note 8 to Consolidated Financial Statements. The
Company capitalized Primeco with $79.0 million in exchange for 100% of the
outstanding common and preferred stock of Primeco in connection with the
consummation of the 1994 Acquisition. This capital contribution to Primeco, in
addition to borrowings under the credit facility and the subordinated loan
facility, provided the sources of the consideration for the 1994 Acquisition and
related costs and fees. The Company paid $150,000 in fees to Invifin in
connection with the Subordinated Notes. The Company intends to repay the
Subordinated Notes with the proceeds from the Offering. Following repayment of
the Subordinated Notes, the Company intends to contribute to Primeco the
outstanding preferred stock of Primeco.
In connection with the 1994 Acquisition, Primeco paid Investcorp
International, Inc. ("III") fees of $2.7 million for arranging Primeco's credit
facility. Primeco also entered into an agreement for management advisory,
strategic planning and consulting services (the "Management Agreement") with III
pursuant to which Primeco agreed to pay III $1.5 million per year for a five
year term. Primeco prepaid III $4.5 million for the first three years of the
term and agreed to make quarterly payments during the fourth and fifth years. In
connection with the 1994 Acquisition, Primeco also entered into an agreement
with Investcorp Bank E.C. ("EC") for a term of five years pursuant to which
Primeco paid EC approximately $7.6 million in exchange for EC's assistance in
arranging financing for the 1994 Acquisition and for EC's covenant not to
arrange or facilitate the acquisition of a competitor of Primeco without
Primeco's consent. These two agreements will be terminated in connection with
the Offering.
In connection with the purchase of American Hi-Lift, Equipment Rental
Limited, Arlington Limited, Freeport Limited, LaPorte Limited and Plano Limited
made a capital infusion of $9.4 million into the Company which, in turn, paid
$1.0 million to III on February 26, 1996 for financial advisory services related
to the purchase of American Hi-Lift. This capital contribution, plus borrowing
from Prime's credit facility, provided funds for the completion of the American
Hi-Lift purchase.
The Company paid legal fees of approximately $197,000 and $82,000 in 1993
and 1994, respectively, to a law firm with which John Hyland, a former director
of the Company who resigned upon the closing of the 1994 Acquisition, was
affiliated during that time.
53
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock immediately prior to and immediately following
completion of the Offering, by (i) each person who is known by the Company to
own beneficially more than 5% of the outstanding shares of the Common Stock,
(ii) each director and executive officer named in the Summary Compensation
Table, (iii) all executive officers and directors as a group, and (iv) each
Selling Stockholder. Unless otherwise indicated, each person has sole voting
power and investment power with respect to the shares attributed to them.
<TABLE>
<CAPTION>
PRIOR TO THE OFFERING AFTER THE OFFERING(1)
------------------------ NUMBER OF SHARES -------------------------
NUMBER OF SUBJECT TO OVER- NUMBER OF
NAME OF BENEFICIAL OWNER SHARES PERCENT ALLOTMENT OPTION SHARES PERCENT
- ---------------------------------------------- ----------- ----------- ----------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Investcorp (2)................................ 7,585,863 36.6% -- 7,200,460 24.7%
SIPCO Limited (3)............................. 7,585,863 36.6 -- 7,200,460 24.7
Arlington Limited (5)......................... 616,594 2.9 33,579 583,015 2.0
Ballet Limited (5)............................ 8,349 * 455 7,894 *
Denary Limited (5)............................ 8,349 * 455 7,894 *
Equipment Equity Limited (4).................. 607,889 2.9 33,105 574,784 2.0
Equipment Holdings Limited (4)................ 1,197,900 5.7 65,237 1,132,663 3.9
Equipment Investment Limited (4).............. 1,787,910 8.5 97,369 1,690,541 5.8
Equipment Rental Limited (4).................. 1,094,380 5.2 59,600 1,034,780 3.5
Equity PEA Limited (4)........................ 901,863 4.3 49,115 852,748 2.9
Equity PEB Limited (4)........................ 901,863 4.3 49,115 852,748 2.9
Equity PEC Limited (4)........................ 1,240,062 5.9 67,533 1,172,529 4.0
Equity PED Limited (4)........................ 370,416 1.8 20,173 350,243 1.2
Fleet Equity Limited (4)...................... 1,197,900 5.7 65,237 1,132,663 3.9
Freeport Limited (5).......................... 616,594 2.9 33,579 583,015 2.0
Gleam Limited (5)............................. 8,349 * 455 7,894 *
Highlands Limited (5)......................... 8,349 * 455 7,894 *
Investcorp Investment Equity Limited (4)...... 14,520 * 791 13,729 *
Laporte Limited (5)........................... 616,594 2.9 33,579 583,015 2.0
New Prime Equity Limited (4).................. 459,757 2.2 25,038 434,719 1.5
New Prime Investments Limited (4)............. 457,198 2.2 24,899 432,299 1.5
Noble Limited (5)............................. 8,349 * 455 7,894 *
Outrigger Limited (5)......................... 8,349 * 455 7,894 *
PE Holdings Limited (4)....................... 1,197,900 5.7 65,237 1,132,663 3.9
PE Investments Limited (4).................... 1,197,900 5.7 65,237 1,132,663 3.9
Plano Limited (5)............................. 616,594 2.9 33,579 583,015 2.0
Prime Equity Limited (4)...................... 1,197,900 5.7 65,237 1,132,663 3.9
Prime Holdings Limited (4).................... 1,197,900 5.7 65,237 1,132,663 3.9
Quill Limited (5)............................. 8,349 * 455 7,894 *
Radial Limited (5)............................ 8,349 * 455 7,894 *
Rental Equity Limited (4)..................... 1,197,900 5.7 65,237 1,132,663 3.9
Rental Holdings Limited (4)................... 1,197,900 5.7 65,237 1,132,663 3.9
Shoreline Limited (5)......................... 8,349 * 455 7,894 *
Zinnia Limited (5)............................ 8,349 * 455 7,894 *
Thomas E. Bennett (6)......................... 70,022 * -- 81,692(7) *
Brian Fontana (6)............................. 25,918 * -- 31,101(7) *
Kevin L. Loughlin (6)......................... 23,326 * -- 27,213(7) *
Peter A. Post (6)............................. 20,233 * -- 23,605(7) *
Gerald E. Lane (6)............................ 17,424 * -- 20,328(7) *
John D. Latimer (6)........................... 12,436 * -- 14,508(7) *
Jon P. Hedley................................. 7,107 * -- 7,107 *
Christopher J. O'Brien........................ 2,222 * -- 2,222 *
Charles J. Philippin.......................... 14,958 * -- 14,958 *
Christopher J. Stadler........................ -- * -- -- *
All directors and executive officers
as a group (10 people)...................... 198,830 * -- 222,736 *
</TABLE>
- ------------------------
* Less than 1%.
(1) Assumes exercise of the over-allotment option.
(2) Investcorp does not own any shares of the Common Stock. The number of shares
shown as owned by Investcorp includes all of the shares owned by Arlington
Limited, Ballet Limited, Chase Nominees (Guernsey) Limited, Denary Limited,
Equipment Rental Limited, Equity PEA Limited, Equity PEB Limited, Equity PEC
Limited, Equity PED Limited, Freeport Limited, Gleam Limited, Highlands
Limited, Investcorp Investment Equity Limited, LaPorte
54
<PAGE>
Limited, Noble Limited, Outrigger Limited, Plano Limited, Quill Limited,
Radial Limited, Shoreline Limited and Zinnia Limited. Other than Equipment
Rental Limited and Investcorp Investment Equity Limited, which are indirect
wholly owned subsidiaries of Investcorp, Investcorp owns no stock in such
entities. Investcorp may be deemed to share beneficial ownership of the
shares of Common Stock held by such entities because such entities or their
shareholders or principals have entered into revocable management agreements
with a wholly owned subsidiary of Investcorp pursuant to which each such
entity has granted such subsidiary the authority to direct the voting and
disposition of the stock owned by such entity for so long as such agreement
is in effect. No shares are listed for Investcorp in the column indicating
shares subject to the over-allotment option because Investcorp does not
directly own any such shares. The number of shares shown as owned by
Investcorp after the Offering gives effect to the sale of the shares subject
to the over-allotment option by the foregoing entities. Investcorp is a
Luxembourg corporation, with its registered address at 37 rue Notre-Dame,
Luxembourg.
(3) SIPCO Limited ("SIPCO") does not directly own any Common Stock. The number
of shares shown as owned by SIPCO consists of the shares Investcorp is
deemed to beneficially own. SIPCO may be deemed to control Investcorp
through its ownership of a majority of the stock of a company which
indirectly owns a majority of Investcorp's outstanding stock. No shares are
listed for SIPCO in the column indicating shares subject to the
over-allotment option because SIPCO does not directly own any such shares.
The number of shares shown as owned by SIPCO after the Offering gives effect
to the sale of the shares subject to the over-allotment option by the
entities set forth in note (1) hereto. SIPCO is a Cayman Islands corporation
with its address at P.O. Box 1111, West Wind Building, George Town, Grand
Cayman, British West Indies.
(4) PO Box 1111, West Wind Building, Harbour Drive, George Town, Grand Cayman,
British West Indies.
(5) PO Box 2197, West Wind Building, Harbour Drive, George Town, Grand Cayman,
British West Indies.
(6) Includes the following shares of Common Stock, purchasable within 60 days of
October 9, 1996, upon exercise of Stock Options granted prior to the closing
of the Offering, by the following individuals: Thomas E. Bennett (11,670
Shares), Brian Fontana (0 Shares), Kevin L. Loughlin (3,887 Shares), Peter
A. Post (3,372 Shares), Gerald E. Lane (2,904 Shares) and John D. Latimer
(2,073 Shares).
(7) Includes the following shares of Common Stock, purchasable within 60 days of
the closing of the Offering, upon exercise of stock options granted prior to
the closing of the Offering, by the following individuals: Thomas E. Bennett
(23,340 Shares), Brian Fontana (5,184 Shares), Kevin L. Loughlin (7,774
Shares), Peter A. Post (6,774 Shares), Gerald E. Lane (5,808 Shares) and
John D. Latimer (4,146 Shares).
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of the Offering, the Company's authorized capital stock will
consist of ten million shares of preferred stock, of which no shares will be
issued and outstanding, and 100 million shares of Common Stock, $.01 par value
per share, of which 27,991,544 shares will be issued and outstanding. The
material terms of the Company's Certificate of Incorporation and Bylaws are
discussed below.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters on which stockholders are entitled or
permitted to vote. Holders of Common Stock are not entitled to vote cumulatively
for the election of directors. Holders of Common Stock have no redemption,
conversion, preemptive or other subscription rights. There are no sinking fund
provisions relating to the Common Stock. In the event of the liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all of the assets of the Company, if any, remaining after
satisfaction of the debts and liabilities of the Company. The outstanding shares
of Common Stock are, and the shares of Common Stock offered hereby will be, upon
payment therefor as contemplated herein, validly issued, fully paid and
nonassessable.
Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors of the Company out of funds legally available
therefor. The Company does not anticipate paying cash dividends on the Common
Stock in the foreseeable future. See "Dividend Policy."
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, to issue the preferred stock in one or more classes or series
and to fix the designations, powers, preferences, rights, qualifications,
limitations or restrictions of any such class or series. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
current plans to issue shares of preferred stock.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is incorporated under the Delaware General Corporation law (the
"DGCL"). The Company is subject to Section 203 of the DGCL, which restricts
certain transactions and "business combinations" between a Delaware corporation
and an "interested stockholder" (in general, a stockholder owning 15% or more of
the corporation's outstanding voting stock) or an affiliate or associate of an
interested stockholder, for a period of three years from the date the
stockholder becomes an interested stockholder. A "business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. Subject to certain exceptions, unless the
transaction is approved by the board of directors and the holders of at least
66 2/3% of the outstanding voting stock of the corporation (excluding shares
held by the interested stockholder), Section 203 prohibits significant business
transactions such as a merger with, disposition of assets to or receipt of
disproportionate financial benefits by the interested stockholder, or any other
transaction that would increase the interested stockholder's proportionate
ownership of any class or series of the corporation's stock. The statutory ban
does not apply if, upon consummation of the transaction in which any person
becomes an interested stockholder, the interested stockholder owns at least 85%
of the outstanding voting stock of the corporation (excluding shares held by
persons who are both directors and officers or by certain employee stock plans).
56
<PAGE>
The Company's Certificate of Incorporation contains certain provisions
permitted under the DGCL relating to the liability of directors. The Certificate
of Incorporation provides that, to the fullest extent permitted by the DGCL, no
director of the Company will be liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director. The Certificate of
Incorporation and Bylaws of the Company also contain provisions indemnifying the
directors and officers of the Company to the fullest extent permitted by the
DGCL.
Section 203 and the provisions of the Company's Certificate of Incorporation
and Bylaws described above may make it more difficult for a third party to
acquire, or discourage acquisition bids for, the Company. Section 203 and these
provisions could have the effect of inhibiting attempts to change the membership
of the Board of Directors of the Company. In addition, the limited liability
provisions in the Certificate of Incorporation and the indemnification
provisions in the Certificate of Incorporation and Bylaws may discourage
stockholders from bringing a lawsuit against directors for breach of their
fiduciary duty (including breaches resulting from grossly negligent conduct) and
may have the effect of reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise have benefited the Company and its stockholders. Furthermore, a
stockholder's investment in the Company may be adversely affected to the extent
the Company pays the costs of settlement and damage awards against directors and
officers of the Company pursuant to the indemnification provisions in the
Company's Bylaws. The limited liability provisions in the Certificate of
Incorporation will not limit the liability of directors under Federal securities
laws.
SHARES RESERVED FOR ISSUANCE
The Company has 1,759,727 shares of Common Stock reserved for issuance upon
the exercise of options granted or to be granted under the Stock Plans. Upon
consummation of the Offering, options for the purchase of 606,392 shares will
have been granted. Upon the closing of the Offering, options for the purchase of
94,042 shares of Common Stock will be fully vested.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services.
LISTING
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "PRS," subject to official notice of issuance.
57
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENT
GENERAL. The Company has received commitments from its lenders to amend and
restate its credit facility in connection with the Offering (although the
Offering is not conditioned on such amendment and restatement). The credit
agreement, as so amended and restated in connection with the Offering (the
"Credit Facility") among Primeco, the several lenders from time to time parties
thereto (collectively, the "Lenders"), The Chase Manhattan Bank, formerly
Chemical Bank, as administrative agent (the "Administrative Agent"), and The CIT
Group/Business Credit, Inc., as collateral agent (the "Collateral Agent")
provides for a $123.5 million term loan facility maturing on December 31, 2002
(the "Term Loan Facility"), and a $175.0 million revolving credit facility
maturing on December 31, 2001 (the "Revolving Loan Facility"), of which $10
million is available in the form of standby or trade letters of credit.
Primeco utilized all of the proceeds of the Term Loan Facility, and $25.0
million of the $175.0 million Revolving Loan Facility, in connection with the
1994 Acquisition. Subject to borrowing base limitation, the remaining
availability under the Revolving Loan Facility may be utilized to meet Primeco's
current working capital requirements, including the issuance of standby and
trade letters of credit. Primeco can also utilize the remaining availability to
fund capital expenditures, subject to borrowing base limitations and certain
limits on annual capital expenditure. As of September 30, 1996, $244.0 million
in principal amount is outstanding under the Credit Facility. In connection with
the Offering, the Company will apply $110.2 million of the net proceeds thereof
to reduce the outstanding principal amount of the Revolving Loan Facility
without effecting a permanent reduction of the commitments thereunder, leaving
$10.3 million outstanding. Primeco from time to time has amended covenants
contained in the Credit Facility to accommodate acquisitions and increases in
capital expenditure levels.
The Loans under the Credit Facility are secured by a first priority security
interest in substantially all of the personal property of Primeco. In addition,
the Loans are guaranteed by the Company. The Company's guarantee is secured by a
pledge of all of the issued and outstanding capital stock of Primeco. Primeco is
also required to grant mortgages in after acquired real property acquired for
consideration in excess of $1 million.
Borrowings under the Credit Facility will accrue interest at either the
Alternate Base Rate (the "Alternate Base Rate") or an adjusted Eurodollar Rate
(the "Eurodollar Rate"), at the option of the Company, plus the applicable
interest margin. The Alternate Base Rate at any time is determined to be the
highest of (i) the Federal Funds Rate plus 1/2 of 1% per annum, (ii) the Base CD
Rate (as defined below) plus 1% per annum and (iii) The Chase Manhattan Bank's
prime rate. The applicable interest margins will be determined according to the
Company's debt coverage ratio for each measurement period. The interest margin
with respect to loans made under the revolving credit facility will be between
0% and 1% per annum with respect to loans that accrue interest at the Alternate
Base Rate and 1.00% and 2.25% per annum with respect to loans that accrue
interest at the Eurodollar Rate. The applicable interest margin will be between
0.50% and 1.50% with respect to term loans that accrue interest at the Alternate
Base Rate and will be between 1.75% and 2.75% per annum for term loans that
accrue interest at the Eurodollar Rate. As used herein, "Base CD Rate" means the
secondary market rate for three-month certificates of deposit of money center
banks, adjusted for reserves and assessments.
The Credit Facility contains certain covenants and restrictions that, among
other things, restrict: (i) consolidations, mergers and sales of assets of
Primeco and its subsidiaries; (ii) the incurrence of liens or other
encumbrances; (iii) the incurrence of contingent obligations; (iv) the payment
of dividends; (v) prepayments and amendments of subordinated debt instruments
and equity; (vi) investments, loans and advances; (vii) certain transactions
with affiliates; (viii) capital expenditures and (ix) incurrence of
indebtedness. The Credit Facility will allow Primeco to pay dividends to the
Company in amounts required for the Company to pay certain operating costs in
the normal course of business. The Company is also permitted to pay other cash
dividends in an amount limited to 25% of Primeco's consolidated net income
58
<PAGE>
from the effective date of the amended and restated Credit Facility, not to
exceed $3 million in any fiscal year.
The Credit Facility also requires that Primeco satisfy the following
financial tests: (i) Primeco is required to generate a minimum consolidated
EBITDA (tested on a rolling four-quarter basis) of $81.0 million for fiscal
1996, increasing to $142.0 million for the four quarters ended September 30,
2002; (ii) the Company is required to maintain a maximum debt to Consolidated
EBITDA (tested on a rolling four-quarter basis) ratio of 5.00 to 1.0 beginning
in the fourth quarter of fiscal 1996, decreasing to 3.5 to 1.0 in the third
quarter of fiscal 2002; and (iii) the Company is required to maintain a minimum
Interest Coverage Ratio (tested on a rolling four-quarter basis) of 2.0 to 1.0
in the third quarter of fiscal 1996, increasing to 2.7 to 1.0 in the third
quarter of fiscal 2002. The Company is currently in compliance with all
financial tests set forth in the Credit Facility.
Upon the occurrence of certain Events of Default (as defined), all amounts
owing under the Credit Facility may become immediately due and payable. Events
of Default under the Credit Facility include, among other things: (1) failure to
pay principal when due or interest within five days after due; (2) any material
inacurracy in any representation or warranty; (3) certain cross-defaults under
other indebtedness, in each case provided that the aggregate other indebtedness
is at least $5.0 million; (4) certain insolvency events; (5) certain prohibited
ERISA events; (6) judgments aggregating $5.0 million or more (excluding amounts
covered by insurance), not stayed, discharged, vacated or bonded within the
applicable time for such action; or (7) a change of control, which is deemed to
occur if any person (other than Investcorp, any of its affiliates or
subsidiaries, senior management of the Company or Primeco, any entity that is
majority-owned by such senior management of the Company or Primeco, or any
person acting in the capacity of an underwriter) directly or indirectly acquires
25% or more, on a fully diluted basis, of the outstanding voting power of the
common stock of the Company or Primeco.
SUBORDINATED DEBT
On March 6, 1995, $100.0 million aggregate principal amount of 12.75% Senior
Subordinated Notes due March 1, 2005 (the "Senior Notes") were issued by Primeco
pursuant to an Indenture (the "Indenture"), between Primeco and Texas Commerce
Bank National Association, as Trustee (the "Trustee"). The Senior Notes are
unsecured senior subordinated obligations of Primeco.
Upon 30 days' prior notice by Primeco, the Senior Notes will be redeemable
in whole or in part, on or after March 1, 2000, and prior to maturity, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date.
If redeemed during the 12-month period commencing on or after March 1 of the
years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2000........................................................................ 106.375%
2001........................................................................ 104.250
2002........................................................................ 102.125
2003 and thereafter......................................................... 100.000
</TABLE>
The Company intends to contribute approximately $37.5 million of the net
proceeds from the Offering to Primeco to enable Primeco, in accordance with the
terms of the Indenture, to redeem approximately $33.3 million aggregate
principle amount of Senior Notes, together with the accrued but unpaid interest
and premium thereon, at a redemption price of $37.5 million.
The Indenture contains various restrictive covenants that, among other
things, limit: (i) the incurrence of certain additional indebtedness by Primeco;
(ii) the creation of senior indebtedness of Primeco which is, by its terms,
subordinated in right of payment to other indebtedness of Primeco; and (iii) the
payment of dividends on capital stock of Primeco. See "Risk Factors--No
Dividends".
59
<PAGE>
Each holder will have the right to require Primeco to repurchase all or any
part of such holder's Senior Notes at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase upon the occurrence of a change in control, which is deemed to
occur (i) if any person (other than Investcorp, any of its affiliates or
subsidiaries, senior management of the Company or Primeco (collectively, the
"Permitted Holders"), or any person acting in the capacity of an underwriter)
directly or indirectly acquires 35% or more of the total voting power of the
Company or Primeco, provided that Permitted Holders do not hold at least the
same percentage of such total voting power as such person and cannot designate
for election a majority of the board members, or (ii) if any person other than
Permitted Holders nominates a majority of the directors of the Company or
Primeco, and such directors are elected.
An Event of Default is defined in the Indenture as, among other things, (i)
a default in any payment of interest when due, continued for 30 days, (ii) a
default in the payment of principal when due, (iii) the failure to comply with
certain covenants, (iv) a cross-default of other indebtedness in excess of $10.0
million, (v) bankruptcy, insolvency or reorganization of Primeco or a
significant subsidiary, or (vi) a judgment in excess of $10.0 million.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, assuming no exercise of the over-allotment
option, 27,991,544 shares of Common Stock will be outstanding. Of these shares,
the 7,250,000 shares of Common Stock sold in the Offering will be available for
resale in the public market without restriction or further registration under
the Securities Act, except that shares purchased by an "affiliate" of the
Company (in general, any person who has a control relationship to Primeco) may
be resold only if registered under the Securities Act or if transferred pursuant
to an exemption from registration, including resales pursuant to Rule 144
promulgated under the Securities Act ("Rule 144") and Regulation S promulgated
under the Securities Act ("Regulation S"). Of the remaining outstanding shares
of Common Stock, 1,287,371 were sold in offshore distributions under Regulation
S within the past year, 15,022,787 were sold in offshore distributions under
Regulation S more than one year ago, and 4,431,386 are deemed to be "restricted
securities" as that term is defined in Rule 144. Pursuant to Rule 701 under the
Securities Act, 115,836 of the restricted securities will be available for
resale in the public market without restriction commencing 90 days after the
date of this Prospectus. Commencing 90 days after the date of this Prospectus,
all of the remaining restricted securities are eligible for sale in the public
market in compliance with Rule 144. The existing stockholders of the Company
have agreed, subject to certain exceptions, that they will not offer, sell or
otherwise dispose of any of the shares of Common Stock owned by them for a
period of 180 days after the date of this Prospectus without the prior written
consent of CS First Boston Corporation. Additionally, the Company has agreed
that, during the period of 180 days from the date of this Prospectus, subject to
certain exceptions, they will not issue, sell, offer or agree to sell, grant any
options for the sale of (other than employee stock options) or otherwise dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable for Common Stock, other than pursuant to the
Offering.
In addition, up to 259,727 shares of Common Stock may be issued upon
exercise of certain employee stock options that Prime has granted, of which
options to purchase 94,042 shares of Common Stock will be exercisable upon the
closing of the Offering. Also, the Company will grant, conditioned upon the
closing of the Offering, options for the purchase of 346,665 shares of Common
Stock, which will vest. The Company intends to file a registration statement on
Form S-8 under the Securities Act to register the 1,759,727 shares of Common
Stock reserved for issuance under the Management Stock Incentive Plans. As a
result, any shares issued upon exercise of stock options granted under such
plans will be available, subject to special rules for affiliates, for resale in
the public market after the effective date of such registration statement,
subject to applicable lock-up arrangements. See "Underwriting" and
"Management--Stock Incentive Plan."
60
<PAGE>
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) owning restricted securities issued by the Company
or last sold by an affiliate of the Company more than two years ago is entitled
to sell, within any three-month period, a number of restricted securities which
does not exceed the greater of 1% of the then-outstanding shares of the
Company's Common Stock (279,915 shares immediately after the Offering) or the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 also may be subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. The volume of sale limitations and other provisions of Rule 144 (other
than the two year holding period requirement) also apply to any shares that are
not restricted securities but that are beneficially owned by an affiliate of the
Company. Any person (or persons whose shares are aggregated) who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and owning restricted securities issued by the Company or last
sold by an affiliate of the Company more than three years ago, is entitled to
sell such shares under Rule 144(k) without regard to the volume limitation,
manner of sale provisions, public information requirements or notice
requirements. Regulation S permits the sale by issuers, affiliates and others of
shares in an "offshore transaction" (as defined in Regulation S), subject to
certain other conditions including the requirement that the purchaser not resell
the shares to a U.S. person during a one year restricted period (or a 40-day
restricted period if the shares are distributed in reliance on Regulation S
after the Company's securities are registered under the Exchange Act). After
such one year (or 40-day) holding period, shares of Common Stock that were sold
under Regulation S and which are not held by an affiliate of the Company are
available for resale in the public market without restriction.
Prior to the Offering, there has been no public market for the Common Stock.
No prediction can be made as to the effect, if any, that market sales of shares
of Common Stock that are restricted securities or the availability of such
shares will have on the market price of the Common Stock prevailing from time to
time. Nevertheless, sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock and could impair the Company's future ability to
raise capital through an offering of equity securities.
Certain holders of the Common Stock, including the Selling Stockholders,
have, subject to certain conditions and restrictions, the right to include their
shares of Common Stock in registered public offerings of Common Stock (or
securities exchangeable for a convertible into Common Stock) undertaken by the
Company for its own account, as well as require the Company to register the sale
of their shares of Common Stock upon demand.
61
<PAGE>
CERTAIN U.S. TAX CONSIDERATIONS APPLICABLE TO
NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of the principal United States Federal
tax consequences of the ownership and disposition of Common Stock by a holder of
Common Stock that, for United States Federal income tax purposes, is a
non-United States holder. This discussion is not intended to be exhaustive and
is based on statutes, regulations, rulings and court decisions as currently in
effect, all of which may be changed either retroactively or prospectively. This
discussion does not consider any specific facts or circumstances that may apply
to a particular non-United States holder and applies only to non-United States
holders that hold Common Stock as a capital asset. No opinion is being rendered
in respect of the United States tax consequences to a holder of Common Stock who
is a non-United States holder. Prospective investors are urged to consult their
tax advisors regarding the United States Federal tax consequences of acquiring,
holding and disposing of Common Stock (including such investor's status as a
United States person or non-United States holder), as well as any tax
consequences that may arise under the laws of any state, municipality or other
taxing jurisdiction.
For purposes of this discussion, a "non-United States holder" is any person
who, for United States Federal income tax purposes, is a foreign corporation, a
non-resident alien individual, a foreign partnership or a foreign estate or
trust.
DIVIDENDS
Dividends paid to a non-United States holder generally will be subject to
withholding of United States Federal income tax at the rate of 30%, unless the
withholding rate is reduced under an applicable income tax treaty between the
United States and the country of tax residence of the non-United States holder.
Under current law, qualification for reduced rate of withholding under an
applicable income tax treaty generally is based on the holder's address of
record (unless the payor has knowledge to the contrary). The 30% withholding tax
will not apply if the dividend is effectively connected with a trade or business
conducted within the United States by the non-United States holder (and, where
an income tax treaty applies, if the dividend is effectively connected with a
permanent establishment maintained with the United States by the non-United
States holder) but, instead, the dividend will be subject to the United States
Federal income tax on net income that applies to United States persons (and,
with respect to corporate holders, also may be subject to the branch profits
tax). A non-United States holder will be required to satisfy certain
certification requirements in order to claim an exemption from withholding under
the foregoing rules. A non-United States holder that is eligible for a reduced
rate of United States withholding tax pursuant to a tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for refund
with the United States Internal Revenue Service (the "Service").
GAIN ON DISPOSITION OF COMMON STOCK
Subject to special rules described below, a non-United States holder
generally will not be subject to United States Federal income tax on gain
recognized on a sale or other disposition of Common Stock unless the gain is
effectively connected with a trade or business conducted within the United
States by the non-United States holder (and, where an income tax treaty applies,
unless the gain is effectively connected with a permanent establishment
maintained within the United States by the non-United States holder). Any such
effectively connected gain would be subject to the United States Federal income
tax on net income that applies to United States persons (and, with respect to
corporate holders, also may be subject to the branch profits tax). Such tax is
not collected by withholding. In addition, a non-United States holder who is an
individual generally would be subject to a tax at a 30% rate on any gain
recognized on the disposition of Common Stock if such individual is present in
the United States for 183 days or more in the taxable year of disposition and
either (i) has a "tax home" in the United States (as specifically defined for
purposes of the United States Federal income tax) or (ii) maintains an office or
other fixed place of business in the United States and the gain from the sale of
the stock is attributable to such office or other
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fixed place of business. Individual non-United States holders also may be
subject to tax pursuant to provisions of United States Federal income tax law
applicable to certain United States expatriates.
A non-United States holder may also be subject to United States Federal
income tax in respect of gain on disposition of the Common Stock if the Company
is or has been a "United States real property holding corporation" for Federal
income tax purposes and the non-United States holder held, directly or
indirectly at any time during the five-year period ending on the date of
disposition, more than 5% of the Common Stock. The Company believes that since
its inception it has not been and that it is not currently a United States real
property holding corporation. Further, the Company currently plans on conducting
its future business in a manner such that it will not be deemed to be a United
States real property holding corporation.
UNITED STATES FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specifically defined for United States Federal estate tax
purposes) of the United States at the date of death, or Common Stock subject to
certain lifetime transfers made by such an individual, will be included in such
individual's estate for United States Federal estate tax purposes and may be
subject to United States Federal estate tax, unless an applicable estate tax
treaty provides otherwise. Estates of nonresident aliens generally are allowed a
credit that is equivalent to an exclusion of $60,000 of assets from the estate
for United States Federal estate tax purposes.
PROPOSED CHANGES IN LAW
On April 22, 1996, the Treasury Department proposed regulations (the
"Proposed Regulations") which would eliminate reliance upon the mailing address
of a payee to establish qualification for a reduced rate of withholding under an
applicable income tax treaty. The Proposed Regulations would require the payee
to certify on the appropriate form its permanent residence address in order to
qualify for such treaty benefits. In addition, under the Proposed Regulations,
in the case of common stock held by a foreign partnership, (i) the certification
requirement generally would be applied to the partners of the partnership; and
(ii) the partnership would be required to provide certain information, including
a United States taxpayer identification number. The Proposed Regulations also
provide look-through rules for tiered partnerships. The Proposed Regulations
generally would be effective for payments made after December 31, 1997, for
accounts established more than 60 days after the proposed Regulations are
finalized, and for accounts established before such date, the proposed
Regulations would be effective for payments made after December 31, 1999. It is
not certain whether, or in what form, the Proposed Regulations will be adopted
as final regulations.
Legislation was proposed in 1990, 1992 and again in 1995 that, if enacted,
would have resulted under certain circumstances in the imposition of United
States Federal income tax on gain realized from the disposition of Common Stock
by certain Non-United States holders who own or owned, directly or by
attribution, 10% or more of the Common Stock. It is impossible to predict
whether or in what form any such legislation or other legislation might be
enacted and what the scope or effective date of any such legislation might be.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Service and to each non-United
States holder the amount of dividends paid to, and the tax withheld with respect
to, such holder, regardless of whether any tax was actually withheld. That
information may also be made available to the tax authorities of the country in
which a non-United States holder resides.
United States Federal backup withholding tax (which generally is imposed at
the rate of 31% on certain payments to persons not otherwise exempt who fail to
furnish information required under United
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States information reporting requirements) generally will not apply to dividends
paid to a non-United States holder either at an address outside the United
States under temporary United States Treasury regulations (provided that the
payor does not have actual knowledge that the payee is a United States person),
or if the dividends are subject to withholding at the 30% rate (or lower treaty
rate). As a general matter, information reporting and backup withholding also
will not apply to a payment made outside the United States of the proceeds of a
sale of Common Stock by a foreign office of a foreign broker. However, United
States information reporting requirements (but not backup withholding) will
apply to a payment made outside the United States of the proceeds of a sale of
Common Stock by a foreign office of a broker that is a United States person, or
by a foreign office of a foreign broker that derives 50% or more of its gross
income for certain periods effectively connected with a trade or business in the
United States, or that is a "controlled foreign corporation," as to the United
States, unless the broker has documentary evidence in its records that the
holder is a non-United States holder and certain conditions are met, or the
holder otherwise establishes an exemption. Payment by a United States office of
a broker of the proceeds of a sale of Common Stock is subject to both United
States backup withholding and information reporting unless the holder certifies
as to its non-United States status under penalties of perjury or otherwise
establishes an exemption.
The backup withholding tax is not an additional tax and may be credited
against the non-United States holders' United States Federal income tax
liability or refunded to the extent excess amounts are withheld, provided that
the required information is supplied to the Service.
The backup withholding rules are currently under review by the Treasury
Department and their application to the Common Stock could be changed by future
regulations.
64
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated October , 1996 (the "U.S. Underwriting Agreement"), the
Underwriters named below (the "U.S. Underwriters"), for whom CS First Boston
Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon
Brothers Inc are acting as representatives (the "Representatives"), have
severally but not jointly agreed to purchase from the Company the following
respective numbers of U.S. Shares:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER U.S. SHARES
- --------------------------------------------------------------------------------- -----------
<S> <C>
CS First Boston Corporation......................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................................
Salomon Brothers Inc.............................................................
-----------
Total....................................................................... 5,800,000
-----------
-----------
</TABLE>
The U.S. Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all of the U.S. Shares offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The U.S. Underwriting Agreement provides that, in the
event of a default by a U.S. Underwriter, in certain circumstances the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
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The Company and the Selling Stockholders have entered into a Subscription
Agreement (the "Subscription Agreement") with the Managers of the International
Offering (the "Managers" and, together with the U.S. Underwriters, the
"Underwriters") providing for the concurrent offer and sale of the International
Shares outside the United States and Canada. The closing of the U.S. Offering is
a condition to the closing of the International Offering and vice versa.
The Selling Stockholders have granted to the U.S. Underwriters and the
Managers an option, exercisable by CS First Boston Corporation, expiring at the
close of business on the 30th day after the date of this Prospectus, to purchase
up to 1,087,500 additional outstanding shares from the Selling Stockholders at
the initial public offering price less the underwriting discounts and
commissions, all as set forth on the cover page of this Prospectus. Such option
may be exercised only to cover over-allotments in the sale of the shares of
Common Stock offered hereby. To the extent such option is exercised, each U.S.
Underwriter and each Manager will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares being sold to the U.S. Underwriters and the Managers as the number of
U.S. Shares set forth next to such U.S. Underwriter's name in the preceding
table and as the number set forth next to such Manager's name in the
corresponding table in the prospectus relating to the International Offering
bears to the sum of the total number of shares of Common Stock in such tables.
The Company has been advised by the Representatives that the U.S.
Underwriters propose to offer the U.S. Shares in the United States and Canada to
the public initially at the public offering price set forth on the cover page of
this Prospectus and, through the Representatives, to certain dealers at such
price less a concession of $ per share, and the U.S. Underwriters and
such dealers may allow a discount of $ per share on sales to certain
other dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.
The public offering price, the aggregate underwriting discounts and
commissions per share and per share concession and discount to dealers for the
U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and Managers (the
"Intersyndicate Agreement" relating to the Offering, changes in the public
offering price, concession and discount to dealers will be made only upon the
mutual agreement of CS First Boston Corporation, as representative of the U.S.
Underwriters, and CS First Boston Limited ("CSFBL"), on behalf of the Managers.
Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters has
agreed that, as part of the distribution of the U.S. Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Stock or distribute any prospectus
relating to the Common Stock to any person outside the United States or Canada
or to any other dealer who does not so agree. Each of the Managers has agreed or
will agree that, as part of the distribution of the International Shares and
subject to certain exceptions, it has not offered or sold, and will not offer or
sell, directly or indirectly, any shares of Common Stock or distribute any
prospectus relating to the Common Stock in the United States or Canada or to any
other dealer who does not so agree. The foregoing limitations do not apply to
stabilization transactions or to transactions between the U.S. Underwriters and
the Managers pursuant to the Intersyndicate Agreement. As used herein, "United
States" means the United States of America (including the States and the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction, "Canada" means Canada, its provinces, territories, possessions
and other areas subject to its jurisdiction, and an offer or sale shall be in
the United States or Canada if it is made to (i) any individual resident in the
United States or Canada or (ii) any corporation, partnership, pension, profit-
sharing or other trust or other entity (including any such entity acting as an
investment adviser with discretionary authority) whose office most directly
involved with the purchase is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the U.S.
Underwriters and the Managers of such number of shares of Common Stock as may be
mutually agreed upon. The price of any shares so sold will be the public
offering price, less such amount as may be mutually agreed upon by CS First
Boston Corporation, as representative of the U.S. Underwriters, and CSFBL, on
behalf of the
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<PAGE>
Managers, but not exceeding the selling concession applicable to such shares. To
the extent there are sales between the U.S. Underwriters and the Managers
pursuant to the Intersyndicate Agreement, the number of shares of Common Stock
initially available for sale by the U.S. Underwriters or by the Managers may be
more or less than the amount appearing on the cover page of the Prospectus.
Neither the U.S. Underwriters nor the Managers are obligated to purchase from
the other any unsold shares of Common Stock.
The Representatives and CS First Boston Limited have informed the Company
that they do not expect discretionary sales by the U.S. Underwriters and the
Managers to exceed 5% of the shares of Common Stock being offered hereby.
Each of the Company, the Selling Stockholders and certain other stockholders
has agreed that it will not offer, sell, contract to sell, announce its
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to, any additional shares of the Company's Common
Stock or securities convertible into or exchangeable or exercisable for any
shares of the Company's Common Stock without the prior written consent of CS
First Boston Corporation for a period of 180 days after the date of this
Prospectus, except in the case of the Company, issuances pursuant to the
exercise of employee stock options granted under the Company's existing
incentive plans or pursuant to the Company's dividend reinvestment plan.
At the request of the Company, the U.S. Underwriters have reserved up to
575,000 shares of Common Stock for sale, at the initial public offering price
less the underwriting discount, to officers and employees of Investcorp S.A. and
its subsidiaries and directors, officers and employees of the Company and its
subsidiaries. The number of shares available for sale to the general public will
be reduced to the extent such persons purchase such reserved shares. Any
reserved shares not so purchased will be offered by the U.S. Underwriters to the
general public on the same terms as the other shares offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the Managers against certain liabilities, including civil
liabilities under the Securities Act, or contribute to payments which the U.S.
Underwriters or the Managers may be required to make in respect thereof.
The Common Stock has been approved for listing on the New York Stock
Exchange, under the symbol "PRS," subject to official notice of issuance. In
connection with the listing of the Common Stock on the New York Stock Exchange,
the U.S. Underwriters and the Managers will undertake to sell round lots of 100
shares or more to a minimum of 2,000 beneficial owners.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial price to the public for the Common Stock offered
hereby has been determined by negotiation among the Company, the Managers and
the Representatives. The factors considered in determining the initial price to
the public include the history of and the prospects for the industry in which
the Company competes, the ability of the Company's management, the past and
present operations of the Company, the historical results of operations of the
Company, the prospects for future earnings of the Company, the general condition
of the securities markets at the time of the Offering and the recent market
prices of securities of generally comparable companies. There can be no
assurance, however, that the prices at which the Common Stock will sell in the
public market after this Offering will not be lower than the price at which they
are sold by the U.S. Underwriters or the Managers.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the shares of Common Stock in Canada is being made only
on a private placement basis exempt from the requirement that the Company
prepare and file a prospectus with the securities regulatory authorities in each
province where trades of the Common Stock are effected. Accordingly, any resale
of the Common Stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
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<PAGE>
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent and (iii) such purchaser has reviewed
the text above under "Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The Common Stock being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
Company or such persons. All or a substantial portion of the assets of the
Company and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the Company or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such Company
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the Common Stock to whom the SECURITIES ACT (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Common Stock acquired by such purchaser pursuant to this Offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from the Company. Only
one such report must be filed in respect of the Common Stock acquired on the
same date and under the same prospectus exemption.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Gibson, Dunn & Crutcher LLP, New York, New York, and for
the U.S. Underwriters by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The (i) consolidated financial statements of the Company as of December 31,
1994 and 1995, for the year ended December 31, 1995 for the period January 1,
1994, to December 1, 1994, and for the period December 2, 1994, to December 31,
1994, and (ii) financial statements of Alpine Equipment Rentals and Supply
Company as of December 31, 1994 and 1995, and for the years then ended, have
been included herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The (i) financial statements of the Company for the year ended December 31,
1993, and (ii) financial statements of Vibroplant U.S., Inc., as of March 31,
1995 and February 25, 1996, and for each of the years in the two-year period
ended March 31, 1995, and the period from April 1, 1995, through February 25,
1996, have been included herein and in the registration statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The report of KPMG Peat Marwick LLP
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<PAGE>
covering the Vibroplant U.S., Inc. financial statements contains an explanatory
paragraph that states that Vibroplant U.S., Inc. changed its method of computing
depreciation in 1995 and its method of accounting for income taxes in 1994.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the shares of Common Stock
offered hereby on Form S-1 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract,
agreement, indenture or other document referred to are not necessarily complete.
With respect to each such contract, agreement, indenture or other document filed
as an Exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description thereof, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and the
exhibits and schedules thereto may be inspected and copied (at prescribed rates)
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the
Commission's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, New
York, New York 10048. The Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
The Company's wholly-owned subsidiary, Primeco, is subject to the reporting
requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934,
as amended, and in accordance therewith Primeco separately files reports and
other information with the Commission. Such reports and other information are
available and may be inspected and copied (at prescribed rates) at the
Commission's facilities referenced above, or accessed via the Commission's Web
site.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRIME SERVICE, INC.
Reports of Independent Accountants................................................. F-2
Consolidated Balance Sheet......................................................... F-4
Consolidated Statement of Operations............................................... F-5
Consolidated Statement of Stockholder's Equity..................................... F-6
Consolidated Statement of Cash Flows............................................... F-7
Notes to Consolidated Financial Statements......................................... F-8
VIBROPLANT U.S., INC.
Independent Auditors' Report....................................................... F-25
Balance Sheets..................................................................... F-26
Statements of Operations........................................................... F-27
Statements of Stockholder's Equity................................................. F-28
Statements of Cash Flows........................................................... F-29
Notes to Financial Statements...................................................... F-30
ALPINE EQUIPMENT RENTALS AND SUPPLY COMPANY
Report of Independent Accountants.................................................. F-38
Balance Sheet...................................................................... F-39
Statement of Operations............................................................ F-40
Statement of Stockholders' Equity.................................................. F-41
Statement of Cash Flows............................................................ F-42
Notes to Financial Statements...................................................... F-43
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Prime Service, Inc.:
We have audited the accompanying consolidated balance sheet of Prime
Service, Inc. and Subsidiary (the "Company") as of December 31, 1995 and 1994
and the related consolidated statements of operations, stockholders' equity and
cash flows of the Company for the year ended December 31, 1995 and for the
period from December 2, 1994 through December 31, 1994, and of the Predecessor
(as defined in Note 1) for the period from January 1, 1994 through December 1,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The financial statements of the Predecessor for
the year ended December 31, 1993 were audited by other auditors whose report
dated January 28, 1994 expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As explained in Note 1 to the financial statements, controlling ownership of
the Predecessor was acquired by the Company in a purchase transaction as of
December 2, 1994. The acquisition was accounted for as a purchase and,
accordingly, the purchase price was allocated to the assets and liabilities of
the Predecessor based upon their estimated fair value at December 2, 1994.
Accordingly, the financial statements of the Company are not comparable to those
of the Predecessor.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of December 31, 1995 and 1994, and the consolidated results of the Company's
operations and its cash flows for the year ended December 31, 1995 and for the
period from December 2, 1994 through December 31, 1994, and the results of the
Predecessor's operations and its cash flows for the period from January 1, 1994
through December 1, 1994, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
August 30, 1996, except as to
the information regarding
the Stock Split in
October 1996 presented
in Note 17, for which the
date is October 9, 1996.
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Primeco Inc.:
We have audited the accompanying statements of operations, common
stockholder's equity and cash flows of Primeco Inc. (the Predecessor) for the
year ended December 31, 1993. These financial statements are the responsibility
of Primeco's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the operations and the cash flows of
Primeco Inc. for the year ended December 31, 1993, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
January 28, 1994
F-3
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------ SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................................ $ 12,090 $ 178 $ 1,225
Accounts receivable, net............................................. 30,175 36,467 49,646
Inventories.......................................................... 12,689 17,399 24,410
Rental equipment, net................................................ 153,818 181,798 255,752
Property, plant and equipment, net................................... 20,768 22,334 31,228
Cost in excess of fair value of net assets acquired, net............. 117,713 115,084 130,441
Other assets......................................................... 22,150 18,719 18,739
------------ ------------ -------------
Total assets..................................................... $ 369,403 $ 391,979 $ 511,441
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................................................... $ 12,122 $ 14,968 $ 11,796
Accrued expenses..................................................... 20,478 24,507 25,390
Debt................................................................. 235,000 265,000 354,000
Deferred income taxes................................................ 27,594 21,876 34,660
Other liabilities.................................................... 4,576 4,652 9,237
Commitments and contingencies (Notes 8 and 9)
Common stock (Note 11)............................................... 182 182 208
Paid-in capital...................................................... 69,818 69,818 79,192
Accumulated deficit.................................................. (367) (9,024) (3,037)
Less Treasury Stock at cost.......................................... -- -- (5)
------------ ------------ -------------
Stockholders' equity............................................. 69,633 60,976 76,358
------------ ------------ -------------
Total liabilities and stockholders' equity....................... $ 369,403 $ 391,979 $ 511,441
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
FOR THE YEAR JANUARY 1, DECEMBER 2, FOR THE YEAR FOR THE NINE
ENDED 1994 THROUGH 1994 THROUGH ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 1, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1993 1994 1994 1995 1995
------------ ------------ ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
PREDECESSOR PREDECESSOR SUCCESSOR SUCCESSOR SUCCESSOR
------------ ------------ ------------- ------------ ----------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Rental revenue........................... $ 100,829 $ 108,272 $ 10,321 $ 138,983 $ 101,108
New equipment sales...................... 26,162 29,728 2,668 34,601 24,796
Rental equipment sales................... 13,498 18,718 1,641 23,144 17,911
Parts and merchandise sales.............. 23,874 26,551 2,236 32,223 24,168
Service revenue and other income......... 9,886 10,806 983 13,836 10,253
------------ ------------ ------------- ------------ --------
174,249 194,075 17,849 242,787 178,236
------------ ------------ ------------- ------------ --------
Cost of sales:
Depreciation--rental equipment........... 17,456 17,365 2,822 37,427 26,364
Cost of new equipment sales.............. 22,211 25,269 2,251 28,960 20,747
Cost of rental equipment sales, net of
accumulated depreciation............... 7,999 11,809 1,134 22,853 17,716
Cost of parts and merchandise sales...... 17,902 20,175 1,736 24,157 18,263
Direct operating expenses................ 46,288 48,981 4,592 60,553 44,465
------------ ------------ ------------- ------------ --------
111,856 123,599 12,535 173,950 127,555
------------ ------------ ------------- ------------ --------
62,393 70,476 5,314 68,837 50,681
------------ ------------ ------------- ------------ --------
Selling, general, administrative and
other.................................... 28,248 28,030 2,871 36,821 26,141
Depreciation and amortization:
Noncompete agreements.................... 7,260 5,008 123 5,877 1,127
Cost in excess of fair value of assets
required............................... 3,254 2,983 232 2,955 2,216
Property, plant and equipment............ 1,980 1,893 191 2,395 1,758
Interest expense, net...................... 12,753 11,605 2,247 30,546 22,526
------------ ------------ ------------- ------------ --------
53,495 49,519 5,664 78,594 53,768
------------ ------------ ------------- ------------ --------
Income (loss) before income taxes...... 8,898 20,957 (350) (9,757) (3,087)
Income tax expense (benefit)............... 4,350 8,506 17 (2,368) (155)
------------ ------------ ------------- ------------ --------
Net income (loss) before extraordinary
item................................. 4,548 12,451 (367) (7,389) (2,932)
------------ ------------ ------------- ------------ --------
Extraordinary item--loss on early
extinguishment of debt, net of tax
benefit of $794.......................... -- -- -- (1,268) (1,268)
------------ ------------ ------------- ------------ --------
------------ ------------ ------------- ------------ --------
Net income (loss).......................... $ 4,548 $ 12,451 $ (367) $ (8,657) $ (4,200)
------------ ------------ ------------- ------------ --------
------------ ------------ ------------- ------------ --------
Income (loss) per common share:
Net income (loss) before extraordinary
item................................. $ (.02) $ (.41) $ (.16)
Extraordinary item..................... -- (.07) (.07)
------------- ------------ --------
Net income (loss)...................... $ (.02) $ (.48) $ (.23)
------------- ------------ --------
------------- ------------ --------
Weighted average common shares
outstanding.............................. 18,150 18,150 18,150
------------- ------------ --------
------------- ------------ --------
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
1996
----------------
<S> <C>
SUCCESSOR
----------------
(UNAUDITED)
<S> <C>
Revenue:
Rental revenue........................... $ 138,259
New equipment sales...................... 33,268
Rental equipment sales................... 25,940
Parts and merchandise sales.............. 28,398
Service revenue and other income......... 13,730
--------
239,595
--------
Cost of sales:
Depreciation--rental equipment........... 27,874
Cost of new equipment sales.............. 27,928
Cost of rental equipment sales, net of
accumulated depreciation............... 21,266
Cost of parts and merchandise sales...... 20,526
Direct operating expenses................ 61,370
--------
158,964
--------
80,631
--------
Selling, general, administrative and
other.................................... 36,006
Depreciation and amortization:
Noncompete agreements.................... 19
Cost in excess of fair value of assets
required............................... 2,463
Property, plant and equipment............ 2,438
Interest expense, net...................... 28,181
--------
69,107
--------
Income (loss) before income taxes...... 11,524
Income tax expense (benefit)............... 5,537
--------
Net income (loss) before extraordinary
item................................. 5,987
--------
Extraordinary item--loss on early
extinguishment of debt, net of tax
benefit of $794.......................... --
--------
--------
Net income (loss).......................... $ 5,987
--------
--------
Income (loss) per common share:
Net income (loss) before extraordinary
item................................. $ .29
Extraordinary item..................... --
--------
Net income (loss)...................... $ .29
--------
--------
Weighted average common shares
outstanding.............................. 20,389
--------
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL STOCK TOTAL
---------------------- PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
SHARES PAR VALUE CAPITAL DEFICIT STOCK EQUITY
--------- ----------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Predecessor:
Balance at January 1, 1993...................... 1,000 $ 1 $ 128,736 $ (23,010) $ -- $ 105,727
Net income...................................... -- -- -- 4,548 -- 4,548
--------- ----- ---------- ------------ ----- ------------
Predecessor:
Balance at December 31, 1993.................... 1,000 $ 1 128,736 (18,462) -- 110,275
Net income...................................... -- -- -- 12,451 -- 12,451
--------- ----- ---------- ------------ ----- ------------
Predecessor:
Balance at December 1, 1994..................... 1,000 $ 1 $ 128,736 $ (6,011) $ -- $ 122,726
--------- ----- ---------- ------------ ----- ------------
--------- ----- ---------- ------------ ----- ------------
Successor:
Balance at December 2, 1994..................... $ -- $ -- $ -- $ -- $ -- $ --
Sale of common stock on December 2, 1994........ 18,150 182 69,818 -- -- 70,000
Net loss........................................ -- -- -- (367) -- (367)
--------- ----- ---------- ------------ ----- ------------
Successor:
Balance at December 31, 1994.................... 18,150 182 69,818 (367) -- 69,633
Net loss........................................ -- -- -- (8,657) -- (8,657)
--------- ----- ---------- ------------ ----- ------------
Successor:
Balance at December 31, 1995.................... 18,150 182 69,818 (9,024) -- 60,976
--------- ----- ---------- ------------ ----- ------------
Sale of common stock (unaudited)................ 2,593 26 9,374 -- -- 9,400
Purchase of Treasury Stock (unaudited).......... -- -- -- -- (5) (5)
Net income (unaudited).......................... -- -- -- 5,987 -- 5,987
--------- ----- ---------- ------------ ----- ------------
Successor:
Balance at September 30, 1996 (unaudited)....... 20,743 208 79,192 $ (3,037) $ (5) $ 76,358
--------- ----- ---------- ------------ ----- ------------
--------- ----- ---------- ------------ ----- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM FOR THE
FOR THE JANUARY 1, DECEMBER 2, FOR THE NINE MONTHS
YEAR ENDED 1994 THROUGH 1994 THROUGH YEAR ENDED ENDED
DECEMBER 31, DECEMBER 1, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1993 1994 1994 1995 1995
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
PREDECESSOR PREDECESSOR SUCCESSOR SUCCESSOR SUCCESSOR
------------ ------------ ------------- ------------ -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)................................... $ 4,548 $ 12,451 $ (367) $ (8,657) $ (4,200)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 29,949 27,249 3,368 48,656 31,465
Deferred income tax provision (benefit)........... 4,351 4,465 9 (4,924) (926)
Net (gain) loss on disposal of rental equipment,
and property, plant and equipment............... (4,817) (6,701) (363) 508 267
Provision for doubtful accounts................... 928
Extraordinary loss on extinguishment of debt...... 1,268 1,268
Effect of changes in operating assets and
liabilities:
Decrease (increase) in accounts receivable...... (3,656) (6,611) 730 (6,291) (4,035)
Decrease (increase) in inventories.............. 3,084 (182) 22 (4,710) (5,300)
Decrease (increase) in other assets............. 225 597 (232) (572) (1,162)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities................ 5,859 2,668 (385) 6,945 (1,317)
------------ ------------ ------------- ------------ -------------
Net cash provided by operating activities........... 39,543 34,864 2,782 32,223 16,060
------------ ------------ ------------- ------------ -------------
Investing activities:
Additions to rental equipment....................... (38,088) (48,830) (3,984) (89,372) (66,612)
Additions to property, plant and equipment.......... (1,980) (2,627) (223) (3,736) (2,982)
Payment to seller for the 1994 Acquisition.......... (138,000)
Payments for acquisition costs...................... (13,667) (328) (328)
Purchase of AHL and Alpine, net of cash acquired
Proceeds from sales of rental equipment............. 13,497 18,862 1,680 23,079 17,829
Proceeds from disposals of property, plant and
equipment......................................... 240 1,075 4 154 104
Payments for noncompete agreement related to
acquisition....................................... (200)
------------ ------------ ------------- ------------ -------------
Net cash used in investing activities............... (26,531) (31,520) (154,190) (70,203) (51,989)
------------ ------------ ------------- ------------ -------------
Financing activities:
Proceeds from Predecessor revolving line of credit.. 2,000 10,000
Payments of Predecessor revolving line of credit.... (10,000)
Proceeds from revolving line of credit.............. 26,000 6,000
Payments of revolving line of credit................ (20,000)
Payments of Predecessor debt........................ (15,000) (133,000)
Proceeds from Successor debt........................ 225,000 100,000 100,000
Payments of Successor debt.......................... (76,000) (75,500)
Payments of financing costs......................... (13,974) (3,932) (3,906)
Proceeds from issuance of common stock.............. 70,000
Proceeds from issuance of Subordinated Notes........ 10,000
Purchase of Treasury Stock..........................
------------ ------------ ------------- ------------ -------------
Net cash provided (used) by financing activities.... (13,000) 158,026 26,068 26,594
------------ ------------ ------------- ------------ -------------
Net (decrease) increase in cash and cash equivalents.. 12 3,344 6,618 (11,912) (9,335)
Cash and cash equivalents at beginning of period...... 2,116 2,128 5,472 12,090 12,090
------------ ------------ ------------- ------------ -------------
Cash and cash equivalents at end of period............ $ 2,128 $ 5,472 $ 12,090 $ 178 $ 2,755
------------ ------------ ------------- ------------ -------------
------------ ------------ ------------- ------------ -------------
<CAPTION>
FOR THE
NINE MONTHS
ENDED
SEPTEMBER 30,
1996
-------------
<S> <C>
SUCCESSOR
-------------
(UNAUDITED)
<S> <C>
Operating activities:
Net income (loss)................................... $ 5,987
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 32,794
Deferred income tax provision (benefit)........... 5,469
Net (gain) loss on disposal of rental equipment,
and property, plant and equipment............... (4,106)
Provision for doubtful accounts...................
Extraordinary loss on extinguishment of debt......
Effect of changes in operating assets and
liabilities:
Decrease (increase) in accounts receivable...... (5,403)
Decrease (increase) in inventories.............. (3,662)
Decrease (increase) in other assets............. 1,889
Increase (decrease) in accounts payable, accrued
expenses and other liabilities................ (2,761)
-------------
Net cash provided by operating activities........... 30,207
-------------
Investing activities:
Additions to rental equipment....................... (69,419)
Additions to property, plant and equipment.......... (4,521)
Payment to seller for the 1994 Acquisition..........
Payments for acquisition costs...................... (1,439)
Purchase of AHL and Alpine, net of cash acquired (77,853)
Proceeds from sales of rental equipment............. 25,868
Proceeds from disposals of property, plant and
equipment......................................... 108
Payments for noncompete agreement related to
acquisition.......................................
-------------
Net cash used in investing activities............... (127,256)
-------------
Financing activities:
Proceeds from Predecessor revolving line of credit..
Payments of Predecessor revolving line of credit....
Proceeds from revolving line of credit.............. 89,500
Payments of revolving line of credit................
Payments of Predecessor debt........................
Proceeds from Successor debt........................
Payments of Successor debt.......................... (500)
Payments of financing costs......................... (299)
Proceeds from issuance of common stock.............. 9,400
Proceeds from issuance of Subordinated Notes........
Purchase of Treasury Stock.......................... (5)
-------------
Net cash provided (used) by financing activities.... 98,096
-------------
Net (decrease) increase in cash and cash equivalents.. 1,047
Cash and cash equivalents at beginning of period...... 178
-------------
Cash and cash equivalents at end of period............ $ 1,225
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
The consolidated financial statements of Prime Service, Inc. ("Prime"),
formerly Prime Holding, Inc., include the accounts of Prime and its subsidiary.
Intercompany accounts and transactions are eliminated in consolidation. On
December 2, 1994, Prime acquired Primeco Inc. (the "1994 Acquisition") from a
subsidiary of Artemis S.A. (the "Seller") through Prime's subsidiary Prime
Acquisition Corp. ("PAC"). Immediately following the completion of the
Acquisition, PAC merged into Primeco Inc. ("Primeco"), as a result of which
Primeco became a wholly-owned subsidiary of Prime. Prime has substantially no
assets or investments other than the shares of stock of Primeco. Prime was
initially capitalized with $70.0 million of equity contributed by Investcorp
S.A. ("Investcorp"), its affiliates and other international investors and $10.0
million in principal amount of subordinated indebtedness (the "Subordinated
Notes") provided by Invifin S.A. ("Invifin"), an affiliate of Investcorp. For
purposes of identification and description, Prime is referred to as the
"Predecessor" for the period prior to the 1994 Acquisition, the "Successor" for
the period subsequent to the Acquisition and the "Company" for both periods.
The Company's operations primarily consist of renting equipment and, to a
lesser extent, selling complementary parts, merchandise and used equipment to
commercial construction, industrial and residential users. The Company also acts
as a distributor of new equipment on behalf of major equipment manufacturers.
The total purchase price for the 1994 Acquisition, including fees and
expenses relating to its financing, and the covenant-not-to-compete payment, was
approximately $305.0 million (repayment of $133.0 million of the Predecessor's
debt, cash payment of $138.0 million to the Seller and $34.0 million of
transaction and financing fees) and was accounted for by the purchase method.
Accordingly, the assets and liabilities of the Predecessor were adjusted to
reflect the allocation of the purchase price based on estimated fair values.
The following selected pro forma financial information presents the year
ended December 31, 1994, as though the controlling ownership of the Predecessor
had been acquired on January 1, 1994, and assumes that there were no other
changes in the operations of the Predecessor. The pro forma results are not
necessarily indicative of the financial results that might have occurred had the
1994 Acquisition actually taken place on January 1, 1994, or of future results
of operations (in thousands).
<TABLE>
<CAPTION>
PRO FORMA
FOR THE YEAR
ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
(UNAUDITED)
Revenues................................................................... $ 211,924
Net loss................................................................... (546)
Net loss per share......................................................... (.03)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RENTAL AGREEMENTS
The Company rents equipment primarily to the construction, industrial and
homeowner markets. Rental agreements are structured as operating leases, and
rental revenue is recognized in the period in which it is earned.
F-8
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
New equipment held for sale is valued at the lower of cost or market, with
cost being determined on the specific identification method. Parts and
merchandise are valued at lower of cost or market, with cost determined by the
retail method.
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Depreciation for rental equipment
acquired prior to January 1, 1995 is computed using the straight-line method
over the estimated four-year useful life of the assets, after giving effect to
an estimated salvage value of 33 1/3%. Rental equipment acquired subsequent to
January 1, 1995 is depreciated over the estimated five year useful life of the
assets, after giving effect to an estimated salvage value of 50%. Accumulated
depreciation was $2.8 million, $38.9 million and $64.1 million at December 31,
1994, 1995, and September 30, 1996, respectively.
Expenditures for additions or improvements which extend asset lives are
capitalized in the period incurred. Normal repairs and maintenance costs are
expensed as incurred. When rental equipment is disposed of, the related cost and
accumulated depreciation are removed from the respective accounts, and any gains
or losses are included in results of operations.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
giving effect to an estimated salvage value.
The estimated useful lives for buildings and improvements range from 15 to
30 years and the estimated useful lives for equipment and furniture and fixtures
range from 5 to 10 years.
Expenditures for additions or improvements which extend asset lives are
capitalized in the period incurred. Normal repairs and maintenance costs are
expensed as incurred. When property, plant and equipment are disposed of, the
related cost and accumulated depreciation are removed from the respective
accounts, and any gains or losses are included in results of operations.
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED
Goodwill represents the excess of the cost over the fair value of net assets
acquired. At each balance sheet date, management assesses whether there has been
a permanent impairment in the value of goodwill by comparing anticipated
undiscounted future cash flows from operating activities with the carrying value
of the goodwill. The amount of any resulting impairment is calculated by
discounting the same undiscounted cash flows from operating activities. The
factors considered by management in this assessment include operating results,
trends and prospects as well as the effects of obsolescence, demand, competition
and other economic factors.
Goodwill is amortized on a straight-line basis over the estimated life of 40
years. Accumulated amortization was $232,000, $3.1 million and $5.7 million at
December 31, 1994 and 1995, and September 30, 1996, respectively.
F-9
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Predecessor filed a consolidated income tax return with the Seller for
the period ended December 2, 1994. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to the differences
between the financial statement carrying value of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured by using enacted tax rates that are applicable to the future years
in which deferred tax assets or liabilities are expected to be realized or
settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in net earnings in the period in which the tax rate
change was enacted. The Company establishes a valuation allowance when it is
more likely than not that a deferred tax asset will not be recovered.
CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and all highly liquid investment instruments purchased with original
maturities of three months or less.
INTEREST RATE SWAP AGREEMENTS
The existing interest swaps effectively convert a portion of the Company's
variable-rate debt to a fixed rate. The income earned or expense incurred as a
result of the interest paid exceeding interest received (or vice versa) under
terms of interest rate swap agreements is accrued in the period incurred or
earned, as the notional amounts of the swap agreements were designated to
specific debt (Note 8). Therefore, the related income and expense is accounted
for as an adjustment to the interest expense related to that debt.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, accounts receivable and
interest rate swaps. As of December 31, 1994 and 1995, and September 30, 1996,
the Company had no significant concentrations of credit risk except for the
interest rate swaps discussed in Note 8.
The Company maintains cash and cash equivalents with various financial
institutions located throughout the country in order to limit exposure. The
Company's periodic evaluations of the relative credit standing of these
financial institutions are considered in the Company's investment strategy.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
base and their geographic dispersion. The Company generally does not require
collateral on accounts receivable. At December 31, 1994 and 1995, and September
30, 1996, the Company had an allowance for doubtful accounts of approximately
$925,000.
EARNINGS PER SHARE
The Company's earnings per share calculation is based upon the weighted
average number of common shares outstanding during the period for all classes of
common stock. Stock Options are considered common stock equivalents if their
inclusion is dilutive.
F-10
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from estimates. Significant
estimates used by the Company relate to estimated salvage values and remediation
of environmental matters.
UNAUDITED INTERIM FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited interim
consolidated financial statements contain all adjustments (consisting only of
normal recurring items) necessary to present fairly the consolidated financial
position of the Company as of September 30, 1996 and the consolidated results of
its operations and cash flows for the nine months ended September 30, 1995 and
1996. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the Securities
and Exchange Commission's rules and regulations. The results of operations for
all interim periods presented are not necessarily indicative of the results to
be expected for the full year.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
New equipment held for sale.............................. $ 4,662 $ 6,882 $ 9,785
Merchandise.............................................. 4,571 6,328 7,085
Parts.................................................... 3,121 4,008 6,957
Other.................................................... 335 181 583
--------- --------- -------------
$ 12,689 $ 17,399 $ 24,410
--------- --------- -------------
--------- --------- -------------
</TABLE>
F-11
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Property, plant and equipment at cost:
Land................................................... $ 5,932 $ 6,068 $ 7,707
Buildings and improvements............................. 9,737 11,160 15,700
Transportation equipment............................... 1,238 1,817 4,079
Furniture and fixtures................................. 2,759 3,594 5,071
Shop and other equipment............................... 1,293 1,954 3,379
--------- --------- -------------
20,959 24,593 35,936
Accumulated depreciation................................. (191) (2,259) (4,708)
--------- --------- -------------
Net property, plant and equipment.................. $ 20,768 $ 22,334 $ 31,228
--------- --------- -------------
--------- --------- -------------
</TABLE>
5. OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Deferred financing costs, less accumulated amortization of $158, $2,764 and
$6,626, respectively....................................................... $ 13,825 $ 13,804 $ 12,241
Noncompete agreement, less accumulated amortization of $123 and $19,
respectively............................................................... 5,877 -- 331
Prepaid expenses and other................................................... 1,248 840 2,362
Estimated reimbursements related to environmental remediation obligations
(see Note 9)............................................................... 1,200 1,200 2,055
Prepaid management fee (see Note 6).......................................... -- 2,875 1,750
--------- --------- -------------
$ 22,150 $ 18,719 $ 18,739
--------- --------- -------------
--------- --------- -------------
</TABLE>
In connection with the 1994 Acquisition, the Company paid the Seller $6.0
million for a noncompete agreement. During 1995 and in January 1996, the Seller
divested itself of all its rental equipment operations which significantly
reduced the Seller's ability to compete against the Company. Consequently, the
Company determined that the noncompete agreement provided no future benefit to
the Company, and accordingly, the unamortized balance of approximately $4.5
million was written off and is included in depreciation and amortization expense
in the December 31, 1995 consolidated statement of operations.
The costs incurred in obtaining long-term financing are amortized over the
terms of the agreement using the effective interest method. Amortization of
deferred financing costs included in interest expense for the year ended
December 31, 1993, the period from January 1 to December 1, 1994, the period
from December 2, 1994 to December 31, 1994, and for the year ended December 31,
1995, approximated $399,000, $319,000, $158,000 and $2.8 million, respectively.
Amortization of deferred financing costs
F-12
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. OTHER ASSETS (CONTINUED)
included in interest expense for the nine month periods ended September 30, 1995
and 1996 approximated $2.0 million and $1.9 million, respectively.
6. RELATED PARTY TRANSACTIONS
Under the terms of a management agreement, the Company will pay an annual
management fee to Investcorp of $1.5 million. During 1995, the Company prepaid
the management fee for the next three years.
In connection with the 1994 Acquisition, the Successor paid Investcorp and
its affiliates approximately $11.5 million in exchange for Investcorp's
assistance in arranging the Acquisition, the bank financing, and issuing the
Subordinated Notes.
The Predecessor paid the Seller an annual management fee of $500,000. The
Predecessor also paid legal fees of approximately $82,000 to a law firm with
which one of the directors of the Predecessor was affiliated.
7. EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan covering
substantially all of its employees. Benefits are based on years of service and
the employees' highest average earnings received in any five consecutive years
during the last ten years before retirement. The Company funds the plan in
accordance with the Employee Retirement Income Security Act of 1974 and the
Internal Revenue Code. Plan assets are invested in various segregated accounts
with an insurance company, the underlying investments of which are cash
equivalents, marketable equity securities, government securities and other
corporate securities.
The assumptions used in accounting for the defined benefit plan for the
Successor and Predecessor periods are as follows: weighted-average discount rate
is 6.75% for 1993, 8% for 1994 and 7% for 1995; rates of increase in
compensation levels is 5.5% for all periods; and the expected long-term rate of
return on plan assets is 9.5% for all periods.
Net periodic pension cost consisted of the following components (in
thousands):
<TABLE>
<CAPTION>
FOR THE
PERIOD FOR THE PERIOD
FROM FROM
FOR THE YEAR JANUARY 1, DECEMBER 2, FOR THE YEAR
ENDED 1994 THROUGH 1994 THROUGH ENDED
DECEMBER 31, DECEMBER 1, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
PREDECESSOR PREDECESSOR SUCCESSOR SUCCESSOR
------------- ------------- --------------- ------------
Service cost........................................ $ 1,180 $ 1,235 $ 113 $ 1,524
Interest cost....................................... 304 379 34 549
Actual return on plan assets........................ (377) (173) (3) (1,111)
Net total of other components....................... 225 (98) (21) 749
------ ------ ----- ------------
Net periodic pension cost........................... $ 1,332 $ 1,343 $ 123 $ 1,711
------ ------ ----- ------------
------ ------ ----- ------------
</TABLE>
F-13
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The actuarial present value of the accumulated benefit of the plan is as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1994 1995
--------- ---------
Vested..................................................................... $ 2,557 $ 3,808
Nonvested.................................................................. 382 1,152
--------- ---------
Total...................................................................... $ 2,939 $ 4,960
--------- ---------
--------- ---------
</TABLE>
The reconciliation of the funded status of the plan is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
Projected benefit obligation.............................................. $ 5,784 $ 9,880
Plan assets at fair value................................................. 4,287 6,740
--------- ---------
Projected benefit obligation in excess of plan assets..................... 1,497 3,140
Unrecognized net loss..................................................... -- (1,142)
--------- ---------
Net pension liability..................................................... $ 1,497 $ 1,998
--------- ---------
--------- ---------
</TABLE>
The Company sponsors a defined contribution 401(k) plan that covers
substantially all employees. The Company matches 50 percent of employee
contributions limited to a maximum equal to 3 percent of eligible employee
compensation. Company contributions to the plan in the Predecessor and Successor
periods ending December 31, 1993, December 1, 1994, December 31, 1994 and
December 31, 1995 approximated $471,000, $540,000, $48,000, and $633,000,
respectively.
8. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
-------------------- 30,
1994 1995 1996
--------- ---------
(UNAUDITED)
-----------
<S> <C> <C> <C>
Senior term loan............................ $ 125,000 $ 124,000 $ 123,500
Senior revolving credit loan................ 25,000 31,000 120,500
Subordinated loan facility.................. 75,000 -- --
Senior subordinated notes................... -- 100,000 100,000
Subordinated Notes to related party......... 10,000 10,000 10,000
--------- --------- -----------
$ 235,000 $ 265,000 $ 354,000
--------- --------- -----------
--------- --------- -----------
</TABLE>
The Successor's bank credit agreement provides for a $300 million senior
credit facility including a $125 million term loan and a $175 million revolving
credit facility. The term loan requires semiannual payments which began June 30,
1995, and extend through December 31, 2000. The outstanding balance under the
revolving credit facility and any amounts owed as a result of letters of credit
being funded (see Note 9) become due December 31, 1999. The senior term loan and
the senior revolving credit loan are collateralized by substantially all the
assets of the Company.
F-14
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. DEBT (CONTINUED)
On March 6, 1995 the Company issued $100 million of 12.75% senior
subordinated notes due March 1, 2005. The Company received net proceeds of
approximately $96 million, which were used to repay $75 million of indebtedness
under the subordinated loan facility plus accrued interest and $20 million of
indebtedness under the revolving credit portion of the senior credit facility.
The loss incurred on the early extinguishment of the subordinated loan facility,
resulting from the write off of deferred financing costs, has been reflected as
an extraordinary loss on the consolidated statement of operations.
The interest rate under the senior bank credit agreement is based, at the
Company's option, on the lead lending bank's alternate base rate or the bank's
Eurodollar deposit rate, plus margins as follows:
<TABLE>
<CAPTION>
REVOLVING
TERM LOAN CREDIT LOAN
----------- -----------
<S> <C> <C>
Alternate base rate margin.......................................... 1.75% 1.25%
Eurodollar deposit rate margin...................................... 3.00% 2.50%
</TABLE>
The interest rates in effect at December 31, 1995 for the term loan and the
revolving credit loan were 8.8% and 8.4%, respectively. The interest rates in
effect at December 31, 1994 for the term loan, revolving credit loan and
subordinated loan facility were 9.2%, 9.3%, and 12.5%, respectively.
A commitment fee of 1/2 of 1% per annum is charged on the unused portion of
the revolving credit facility.
With respect to Eurodollar deposit (LIBOR-based) rate loans, the Company can
elect interest rate periods ending one, two, three or six months from the
expiration of the preceding period.
The bank credit agreement requires the maintenance of certain financial
ratios and places restrictions on capital expenditures, leases, additional
borrowings, mergers and acquisitions, and payments of dividends. Certain of
these loan requirements change during the term of the agreement and some become
more restrictive.
The Predecessor bank credit agreement required the Company to maintain
interest rate swap agreements covering a portion of its outstanding and
available credit facility including that portion related to letters of credit.
At December 1, 1994, the Predecessor had outstanding interest rate swap
agreements with two financial institutions which effectively converted floating
rate debt to fixed rate debt. The Successor's bank credit agreement also has
requirements for interest rate swaps. Accordingly, the interest rate swaps that
were in effect at Acquisition were continued by the Successor. A fee of $250,000
was paid in connection with this arrangement. The terms of the interest rate
swaps and the unrealized losses at December 31, 1994 and 1995 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1994 1995
NOTIONAL PAY UNREALIZED UNREALIZED
AMOUNT MATURITY DATE RATE RECEIPT RATE LOSSES LOSSES
- --------- -------------------- --------- ------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 40,000 February 27, 1997 9.13% 6 month LIBOR $ (2,200) $ (1,405)
40,000 March 21, 1997 8.99% 6 month LIBOR (1,900) (1,317)
</TABLE>
The Company is exposed to credit losses for amounts receivable from
counterparties for interest to the extent variable interest rates exceed fixed
interest rates per the swap agreements (an average of 9.06%) each quarter in the
event of nonperformance by the counterparties to the agreements. In addition,
cancellation of the agreements due to nonperformance by the counterparties would
also cause an increase
F-15
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. DEBT (CONTINUED)
in interest expense in future periods to the extent that the fixed interest
rates per the swap agreements were less than variable interest rates during such
periods. However, the Company does not anticipate nonperformance by the
counterparties. A 1% increase in interest rates on $80.0 million would increase
interest expense by $800,000 per annum. The Company is subject to market loss in
the event of falling interest rates on both swaps. Unrealized losses are the net
amounts of money that would be paid for equal and offsetting interest rate
swaps.
As part of the Company's initial capitalization, the Company issued $10.0
million in subordinated notes to Invifin, an affiliate of Investcorp. The notes
are due on March 31, 2006 and bear interest at 14%. The Company incurred a fee
of $1.2 million in connection with the issuance of these notes. This fee has
been capitalized as a deferred financing cost and is being amortized over the
term of the note using the effective interest method.
Maturities of debt are as follows at September 30, 1996 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
- ---------------------------------------------------------------------------------
<S> <C>
(UNAUDITED)
1996............................................................................. $ 500
1997............................................................................. 1,000
1998............................................................................. 12,000
1999............................................................................. 155,500
2000 and thereafter.............................................................. 185,000
-----------
$ 354,000
-----------
-----------
</TABLE>
Outstanding debt of the Predecessor included a term loan of $71.0 million, a
revolving credit facility of up to $80.0 million and a $6.0 million commitment
for the issuance of letters of credit. As part of the 1994 Acquisition, the
Company replaced this debt with the securities detailed above.
Cash paid for interest, including cash paid under interest rate swaps,
totaled $25.3 million for the year ended December 31, 1995. Cash paid for
interest in 1994 was $1.3 million in the Successor period, and approximately
$12.3 million in the Predecessor period. Cash paid for interest in 1993
approximated $11.4 million.
F-16
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases facilities, computer equipment, rental equipment, autos
and trucks under operating leases. Minimum future obligations for operating
leases in effect at December 31, 1995 are (in thousands):
<TABLE>
<S> <C>
DECEMBER 31,
- -------------------------------------------------------------------
1996............................................................... $ 5,979
1997............................................................... 5,031
1998............................................................... 3,829
1999............................................................... 2,116
2000............................................................... 1,205
Thereafter......................................................... 1,608
---------
Total minimum obligations.......................................... $ 19,768
---------
---------
</TABLE>
Lease expense charged to operations in the accompanying statements of
operations was approximately $7.2 million for the year ended December 31, 1995.
Lease expense charged to operations for 1994 was $537,000 in the Successor
period, and $5.1 million in the Predecessor period. Lease expense charged to
operations for 1993 was approximately $4.2 million.
LEGAL MATTERS
The Company is party to legal proceedings and potential claims arising in
the ordinary course of its business. In the opinion of management based on
discussions with legal counsel, the Company has adequate legal defense and/or
insurance coverage with respect to these matters, and management does not
believe that the ultimate resolution of these matters will materially affect the
Company's operations, financial position or cash flows for any period.
ENVIRONMENTAL MATTERS
The Company is subject to various evolving federal, state and local
environmental laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous substances and wastes. These laws and
regulations provide for substantial fees and sanctions for violations, and, in
many cases, could require Prime to remediate a site to meet applicable legal
requirements.
In 1995, the Company spent approximately $1.3 million on environmental
matters, including remediation and compliance costs, and has budgeted
expenditures of approximately $4.4 million in 1996 for such matters. At
September 30, 1996, the Company had a reserve for environmental remediation of
$7.0 million and a related receivable from state trust fund programs and a
seller of certain yards of $2.1 million related to environmental matters that
are at least probable of creating liabilities. The Company's environmental
remediation expenditures principally relate to the clean-up of contaminated soil
caused by leaking underground gasoline storage tanks. The Company estimates
total remediation costs based on the estimated cost of remediation of known
environmental issues at specific sites and records a liability based on that
estimate. Pursuant to the 1994 Acquisition agreement, the Seller has agreed to
indemnify the Company for 80% of any environmental remediation costs paid by the
Company (and not refunded) in
F-17
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
excess of $5.8 million, subject to certain defined limitations. It is reasonably
possible that the actual cost of remediating contaminated sites and removing
tanks may be different than that accrued due to the difficulty in estimating
such costs and due to potential changes in the status of regulation and state
reimbursement programs. Any additional amounts will be reflected as a charge to
operations when and if such amounts become probable and can be reasonably
estimated. No estimate can be made of the possible loss or range of possible
loss, if any, in excess of current amounts accrued.
Management believes that the amounts required to correct any identified
environmental condition and to maintain compliance with applicable environmental
regulations will not have a material adverse effect on the financial condition
or results of operations of the Company.
RISK MANAGEMENT
The Company is self-insured for physical damage or loss to its rental
equipment. Presently, the Company has an insurance deductible of $250,000 per
occurrence for claims related to workers' compensation, vehicle liability, and
general liability. The annual deductible related to employee health benefit
claims is $100,000 per employee.
In February 1994, the Company settled a dispute with W.R. Grace & Co., a
former owner, regarding general liability and workers' compensation insurance.
Accordingly, a liability of $2.0 million, originally recorded in 1990, was
reversed and recorded as a reduction of selling, general and administrative
expenses in the statements of operations in the Predecessor period.
LETTERS OF CREDIT
As of December 31, 1994 and 1995, and September 30, 1996, the Company had
letters of credit outstanding totaling $5.1 million, $8.7 million and $6.5
million, respectively. These letters of credit guarantee the funding of
environmental remediation and the Company's share of insured claims. None of the
Company's assets are pledged as collateral for these letters of credit.
F-18
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
The components of the provision (benefit) for income taxes consist of the
following (in thousands):
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE PERIOD PERIOD FOR THE
YEAR FROM FROM YEAR
ENDED JANUARY 1, DECEMBER 2, ENDED
DECEMBER 1994 THROUGH 1994 THROUGH DECEMBER
31, DECEMBER 1, DECEMBER 31, 31,
1993 1994 1994 1995
----------- ------------- ------------- -----------
PREDECESSOR PREDECESSOR SUCCESSOR SUCCESSOR
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Tax provision/(benefit) at statutory rate
(35%)................................... $ 3,025 $ 7,335 $ (123) $ (3,415)
Amortization of cost in excess of fair
value net assets acquired............... 1,106 1,044 96 1,138
Utilization of net operating loss
carryforwards........................... -- -- -- (668)
Change in estimate of prior year net
operating loss and alternative minimum
tax credit carryforward................. -- -- -- (509)
Change in valuation allowance............. -- -- -- 478
Increase in alternative minimum tax credit
carryforward............................ -- -- -- 600
Other..................................... 219 127 44 8
----------- ------ ------ -----------
4,350 8,506 17 (2,368)
Tax benefit from extraordinary item--loss
on extinguishment of debt............... -- -- -- (794)
----------- ------ ------ -----------
$ 4,350 $ 8,506 $ 17 $ (3,162)
----------- ------ ------ -----------
----------- ------ ------ -----------
</TABLE>
The classification of the provision (benefit) for income taxes consists of
the following (in thousands):
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE PERIOD PERIOD FOR THE
YEAR FROM FROM YEAR
ENDED JANUARY 1, DECEMBER 2, ENDED
DECEMBER 1994 THROUGH 1994 THROUGH DECEMBER
31, DECEMBER 1, DECEMBER 31, 31,
1993 1994 1994 1995
----------- ------------- ------------- -----------
PREDECESSOR PREDECESSOR SUCCESSOR SUCCESSOR
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Current:
Federal................................. $ -- $ 3,787 $ -- $ 2,194
State................................... -- 254 8 362
Deferred.................................. 4,350 4,465 9 (5,718)
----------- ------ ------ -----------
Total................................. $ 4,350 $ 8,506 $ 17 $ (3,162)
----------- ------ ------ -----------
----------- ------ ------ -----------
</TABLE>
Income taxes payable as of December 31, 1994 and 1995 were $2.0 million and
$1.1 million, respectively.
F-19
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
The components of deferred tax liability are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of book...................... $ 31,782 $ 28,897
Other................................................... 820
--------- ---------
32,602 28,897
Deferred tax assets:
Accrued casualty losses................................. 1,342 1,708
Allowance for doubtful accounts......................... -- 356
Accrued interest........................................ -- 334
Accrued pension costs................................... 1,158 785
Accrued medical expenses................................ 280 539
Accrued environmental costs............................. 860 1,116
Accrued bonus........................................... 1,284 --
Non-compete agreements.................................. -- 2,143
Net operating losses.................................... 3,679 33
Investment tax credits.................................. 47 --
Alternative minimum tax credit carryforwards............ -- 3,100
Other................................................... -- 40
--------- ---------
8,650 10,154
Less: valuation allowance................................. (3,642) (3,133)
--------- ---------
Net deferred tax liability........................ $ 27,594 $ 21,876
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1995, the Company has state income tax net operating loss
carryforwards of approximately $962,000. Substantially all of the Company's net
operating loss carryforwards expire in the year 2004. Additionally, the Company
has federal alternative minimum tax credit carryforwards of approximately $3.1
million. Cash paid for income taxes during the year ended December 31, 1995
amounted to approximately $3.5 million. The Company paid no cash for income
taxes during 1994 in the Successor period and approximately $2.9 million in the
Predecessor period. Cash paid for income taxes approximated $156,000 during
1993. At December 31, 1995 and 1994 the Company had a valuation allowance
established which eliminates the deferred tax asset associated with the net
operating losses and alternative minimum tax credit carryforwards. The allowance
was established since it is not likely that the benefit of these assets will be
realized due to the Company's high level of interest expense.
F-20
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. STOCKHOLDER'S EQUITY (IN THOUSANDS, EXCEPT FOR PER-SHARE AMOUNTS)
CAPITALIZATION:
The following is a summary of the capitalization of the Company:
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS D COMMON TOTAL
SHARES SHARES SHARES SHARES SHARES
--------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994
Authorized.......................................... 18,604 10,527 182 29,312 58,625
Issued.............................................. 16,140 1,828 182 -- 18,150
Outstanding......................................... 16,140 1,828 182 -- 18,150
Balance at December 31, 1995
Authorized.......................................... 18,604 10,527 182 29,312 58,625
Issued.............................................. 16,140 1,919 91 -- 18,150
Outstanding......................................... 16,140 1,919 91 -- 18,150
Balance at September 30, 1996
Authorized (unaudited).............................. 18,604 10,527 182 29,312 58,625
Issued (unaudited).................................. 18,555 2,097 91 -- 20,743
Outstanding (unaudited)............................. 18,555 2,095 91 -- 20,741
</TABLE>
All of the stock has a $.01 par value per share. The transfer of any shares
of stock is restricted as specified in the Company's Certificate of Designation
(the "Certificate").
CONVERSION OF STOCK:
In the event of an initial public offering or sale of the Company, as
defined in the Certificate, all issued and outstanding shares of Class A, Class
C and Class D Stock not otherwise redeemed by the Company shall automatically
convert into shares of Common Stock on a one-for-one basis.
VOTING RIGHTS:
Holders of shares of Class D Stock and Common Stock are entitled to one vote
for each share of such stock held. Until a change of control of the Company, as
defined in the Certificate, holders of Class A and Class C Stock have no voting
rights, except that the holders of these shares shall have the right to one vote
for each share held as to the approval of any change to the Certificate of
Incorporation that would increase or decrease the par value of such stock, or
change the powers, preferences or special rights of such stock so as to have a
material adverse effect on such holders.
Effective upon a change of control, holders of shares of Class A and Class C
Stock shall be entitled to one vote for each share of stock held.
Currently, affiliates of Investcorp S.A. ("Investcorp") own all of the
outstanding voting stock of the Company. Investcorp owns no voting stock and
less than 10% of the Company's total outstanding stock.
LIQUIDATION RIGHTS:
In the event of liquidation of the Company, each holder of Class A and Class
C Stock shall be entitled to receive $.001 per share before any payment or
distribution shall be made or set aside for payment on the Class D Stock or
Common Stock. Any remaining assets or proceeds therefrom are to be distributed
to all stockholders on a pro rata basis.
F-21
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. STOCKHOLDER'S EQUITY (IN THOUSANDS, EXCEPT FOR PER-SHARE AMOUNTS)
(CONTINUED)
DIVIDEND RIGHTS:
Dividends are payable to all stockholders on a pro rata basis upon
declaration of such dividends by the Board of Directors.
12. MANAGEMENT STOCK INCENTIVE PLAN (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
At the 1994 Acquisition, Prime adopted a Management Stock Incentive Plan
(the "Plan"), in order to provide incentives to employees and directors of Prime
and Primeco by granting them option awards of Class C Stock of Prime. The Plan
is administered by a committee of the Board of Directors of Prime (the
"Compensation Committee"), which has broad authority in administering and
interpreting the Plan and in determining the type and amounts of awards granted
under the Plan. The exercise price of each option is $3.86 per share, which is
the same price per share paid by existing holders of Class C stock to acquire
Class C stock. Each option is subject to certain vesting provisions. To the
extent not earlier vested or terminated, all options will vest on the tenth
anniversary of the date of grant and will expire 30 days thereafter if not
exercised.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
-----------
<S> <C>
Options Outstanding December 2, 1994.......................................... --
Granted..................................................................... 222,174
Exercised................................................................... --
Forfeited................................................................... --
-----------
Options Outstanding December 31, 1994......................................... 222,174
Granted..................................................................... --
Exercised................................................................... --
Forfeited................................................................... --
-----------
Options Outstanding December 31, 1995......................................... 222,174
Granted (unaudited)......................................................... 38,877
Exercised (unaudited).......................................................
Forfeited (unaudited)....................................................... (1,324)
-----------
Options Outstanding September 30, 1996........................................ 259,727
-----------
-----------
</TABLE>
Of the options outstanding, none were exercisable as of December 31, 1995
and 44,435 were exercisable as of September 30, 1996.
13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has the following types of financial instruments:
- Cash and cash equivalents
- Accounts receivable
- Accounts payable
- Interest rate swaps
- Debt
F-22
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Due to the short maturity of these instruments, their carrying values
approximate their fair values, except for debt and interest rate swaps.
Management believes that the carrying value of debt approximates its fair value
as of December 31, 1995 and 1994. The fair value of the interest rate swaps is
disclosed in Note 8.
14. ACQUISITION OF AMERICAN HI-LIFT AND ALPINE:
On February 26, 1996, Prime completed the purchase of all of the outstanding
stock of Vibroplant U.S., Inc. for $66.5 million, which included repayment of
the outstanding bank debt of Vibroplant U.S. After the closing, Vibroplant U.S.
merged into Primeco. Vibroplant U.S. (which operated as American Hi-Lift)
operated 17 rental locations in California, Texas, Florida, Louisiana, Ohio,
Alabama, South Carolina and Georgia. American Hi-Lift specialized in renting and
selling aerial lift equipment to industrial and commercial customers. In
conjunction with this transaction, certain existing Prime stockholders purchased
approximately 134,000 shares of Class A Common Stock, for net proceeds of $9.4
million ($.6 million was paid to Investcorp). Prime then used these funds, as
well as borrowings under its Senior Credit Facility, to fund the transaction.
On July 29, 1996, Prime completed the purchase of substantially all of the
assets of Alpine Equipment Rentals & Supply Company, Inc. ("Alpine") for
approximately $11.0 million, and also paid $350,000 in respect of covenants not
to compete for two senior executives of Alpine. Alpine operated six rental yards
oriented toward industrial equipment in the state of Washington. The Company
used borrowings under its revolving credit agreement to fund the transaction.
The following condensed pro forma statement of operations presents the
results of operations for the year ended December 31, 1995 and for the nine
month periods ended September 30, 1995 and 1996 as though the acquisitions of
American Hi-Lift and Alpine had been completed on January 1, 1995, and assumes
that there were no other changes in the operations of Prime. The pro forma
results are not necessarily indicative of the financial results that might have
occurred had the transactions included in the condensed pro forma statements
actually taken place on January 1, 1995, or of future results of operations (in
thousands, except for earnings per share).
<TABLE>
<CAPTION>
PRO FORMA FOR
PRO FORMA FOR NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------
1995 1995 1996
-------------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues........................................... $ 307,192 $ 226,646 $ 254,172
Net (loss) income before extraordinary item........ (3,760) (253) 6,713
Net (loss) income before extraordinary item per
share............................................ ($ .21) .00 $ .33
</TABLE>
The purchase price of the American Hi-Lift and Alpine acquisitions was
allocated as follows:
<TABLE>
<S> <C>
Accounts receivable and Inventories.................................. $ 16.1
Rental equipment..................................................... 59.0
Other assets......................................................... 2.0
Cost in excess of fair value......................................... 17.5
Other liabilities.................................................... (9.4)
Deferred income tax.................................................. (7.3)
</TABLE>
F-23
<PAGE>
PRIME SERVICE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
SFAS 121, which is effective for fiscal years beginning after December 15, 1995,
requires that long-lived assets and certain identifiable intangibles be held and
used by an entity to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company adopted SFAS 121 at the beginning of 1996. The impact
of adopting this statement did not have a material effect on the financial
statements.
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 123, entitled "ACCOUNTING FOR STOCK-BASED
COMPENSATION" ("SFAS No. 123"), in October 1995. The Company will adopt the new
disclosure rules of SFAS No. 123 in fiscal year 1997.
16. INITIAL PUBLIC OFFERING
The Company is in the process of filing an initial public offering for the
issuance of shares of Common Stock. This offering is expected to be completed
during the fourth quarter of 1996. Upon completion of the initial public
offering, the Company will (i) terminate its management agreement with
Investcorp, and (ii) use a portion of the net proceeds to retire a portion of
its current debt. As a result of the above, the Company will write-off the
unamortized prepaid management fee ($1.8 million at September 30, 1996) and a
portion of the deferred financing costs ($1.2 million at September 30, 1996),
and incur redemption penalty expense of $4.6 million (not accrued at September
30, 1996). In addition, Prime will grant to certain members of management,
conditioned upon the closing of the initial public offering, options for the
purchase of 346,665 shares of Common Stock.
17. STOCK SPLIT
In October 1996, Prime effected a 18.15 to one stock split for all classes
of Common Stock in the form of a common stock dividend (the "Stock Split").
Prime also increased the number of authorized shares of its Common Stock to
100,000,000 and authorized 10,000,000 shares of preferred stock. All share and
per share information has been restated to reflect the Stock Split.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Vibroplant U.S., Inc.:
We have audited the accompanying balance sheets of Vibroplant U.S., Inc. as
of February 25, 1996 and March 31, 1995, and the related statements of
operations, stockholder's equity and cash flows for the period from April 1,
1995 through February 25, 1996, and for each of the years in the two-year period
ended March 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vibroplant U.S., Inc. as of
February 25, 1996 and March 31, 1995, and the results of its operations and its
cash flows for the period from April 1, 1995 through February 25, 1996, and for
each of the years in the two-year period ended March 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in note 3 to the financial statements, the Company changed its
method of computing depreciation in 1995. As discussed in note 2(e) to the
financial statements, the Company changed its method of accounting for income
taxes in 1994 to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes."
KPMG PEAT MARWICK LLP
Fort Worth, Texas
April 8, 1996
F-25
<PAGE>
VIBROPLANT U.S., INC.
BALANCE SHEETS
MARCH 31, 1995 AND FEBRUARY 25, 1996
<TABLE>
<CAPTION>
MARCH 31, FEBRUARY 25,
1995 1996
------------- -------------
<S> <C> <C>
ASSETS (NOTE 7)
Current assets:
Cash and cash equivalents........................................................ $ 3,003,586 $ 3,693,078
Trade accounts receivable, less allowance for doubtful accounts of approximately
$610,000 in 1995 and $601,000 in 1996 (note 2 (f))............................. 9,114,993 7,186,288
Income taxes receivable (note 8)................................................. 436,899 424,622
Inventories (notes 4 and 12)..................................................... 3,146,086 3,717,727
Prepaid expenses................................................................. 492,778 321,929
Deferred income taxes (note 8)................................................... 891,634 723,696
------------- -------------
Total current assets......................................................... 17,085,976 16,067,340
Property and equipment, net (notes 5 and 12)....................................... 53,803,575 57,484,172
Other assets, net.................................................................. -- 163,155
------------- -------------
Total assets................................................................. $ 70,889,551 $ 73,714,667
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current installments of long-term debt (note 7).................................. $ 7,500,000 $ 7,500,000
Current installments of obligations under capital leases (note 6)................ 145,086 226,000
Accounts payable................................................................. 1,060,433 697,971
Accrued expenses................................................................. 2,899,085 2,910,724
Accrued dividends (note 1)....................................................... -- 15,000,000
------------- -------------
Total current liabilities.................................................... 11,604,604 26,334,695
Long-term debt, excluding current installments (note 7)............................ 17,000,000 13,250,000
Obligations under capital leases, excluding current installments (note 6).......... 163,543 325,069
Accrued environmental costs (note 11).............................................. -- 3,000,000
Deferred income taxes (note 8)..................................................... 8,994,367 10,181,154
------------- -------------
Total liabilities............................................................ 37,762,514 53,090,918
------------- -------------
Stockholder's equity (note 1):
Common stock, $.01 par value, 700,000 shares authorized, 489,691 shares issued
and outstanding................................................................ 4,897 4,897
Additional paid-in capital....................................................... 21,881,396 21,881,396
Retained earnings................................................................ 12,897,384 394,096
Less treasury stock, 14,691 shares, at cost (note 9)............................. (1,656,640) (1,656,640)
------------- -------------
Total stockholder's equity................................................... 33,127,037 20,623,749
Commitments and contingencies (notes 6 and 11)
------------- -------------
$ 70,889,551 $ 73,714,667
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
VIBROPLANT U.S., INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1994 AND 1995 AND
THE PERIOD FROM APRIL 1, 1995 THROUGH FEBRUARY 25, 1996
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, FEBRUARY 25,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Rental revenue (note 2 (f))......................................... $ 40,442,447 $ 38,584,141 $ 37,203,561
Equipment sales..................................................... 9,332,918 8,116,332 8,848,837
Less cost of sales (note 3)......................................... (6,646,228) (6,971,298) (6,083,250)
------------- ------------- -------------
2,686,690 1,145,034 2,765,587
------------- ------------- -------------
Parts and labor sales............................................... 3,017,420 3,592,854 3,559,906
Less cost of sales.................................................. (1,786,999) (2,085,990) (1,901,780)
------------- ------------- -------------
1,230,421 1,506,864 1,658,126
------------- ------------- -------------
Operating profits............................................. 44,359,558 41,236,039 41,627,274
------------- ------------- -------------
Selling, general and administrative expenses
(notes 6, 9 and 10)............................................... 15,703,727 15,207,889 12,760,387
Depreciation and amortization (note 3).............................. 12,595,813 7,716,029 7,372,818
Operating salaries, wages and benefits.............................. 5,783,733 5,798,864 5,709,057
Other operating expenses (notes 5 and 6)............................ 7,456,803 7,927,021 9,876,408
------------- ------------- -------------
Total operating expenses...................................... 41,540,076 36,649,803 35,718,670
------------- ------------- -------------
Operating income.............................................. 2,819,482 4,586,236 5,908,604
------------- ------------- -------------
Other expenses (income);
Interest expense (note 7)......................................... 2,212,715 1,828,363 1,517,196
Other, net........................................................ 419,029 (166,059) (224,381)
------------- ------------- -------------
Total other expenses.......................................... 2,631,744 1,662,304 1,292,815
------------- ------------- -------------
Income before income taxes and cumulative effect of changes in
accounting methods.......................................... 187,738 2,923,932 4,615,789
Income taxes (note 8)............................................... 133,200 1,578,469 2,119,077
------------- ------------- -------------
Income before cumulative effect of changes in accounting
methods..................................................... 54,538 1,345,463 2,496,712
Cumulative effect at April 1, 1994 of change in accounting for
depreciation (note 3)............................................. -- 4,782,132 --
Cumulative effect at April 1, 1993 of change in accounting for
income taxes (note 2 (e))......................................... (139,218) -- --
------------- ------------- -------------
Net income (loss)............................................. $ (84,680) $ 6,127,595 $ 2,496,712
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
VIBROPLANT U.S., INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED MARCH 31, 1994 AND 1995 AND
THE PERIOD FROM APRIL 1, 1995 THROUGH FEBRUARY 25, 1996
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL
NUMBER OF PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
----------- --------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1993............... 489,691 $ 4,897 $ 21,881,396 $ 6,854,469 $ -- $ 28,740,762
Net loss.............................. -- -- -- (84,680) -- (84,680)
Acquisition of 14,691 shares of common
stock (note 9)...................... -- -- -- -- (1,656,640) (1,656,640)
----------- --------- ------------- -------------- ------------- --------------
Balance, March 31, 1994............... 489,691 4,897 21,881,396 6,769,789 (1,656,640) 26,999,442
Net income............................ -- -- -- 6,127,595 -- 6,127,595
----------- --------- ------------- -------------- ------------- --------------
Balance, March 31, 1995............... 489,691 4,897 21,881,396 12,897,384 (1,656,640) 33,127,037
Net income............................ -- -- -- 2,496,712 -- 2,496,712
Dividend.............................. -- -- -- (15,000,000) -- (15,000,000)
----------- --------- ------------- -------------- ------------- --------------
Balance, February 25, 1996............ 489,691 $ 4,897 $ 21,881,396 $ 394,096 $ (1,656,640) $ 20,623,749
----------- --------- ------------- -------------- ------------- --------------
----------- --------- ------------- -------------- ------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
VIBROPLANT U.S., INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1994 AND 1995 AND
FOR THE PERIOD FROM APRIL 1, 1995 THROUGH FEBRUARY 25, 1996
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, FEBRUARY 25,
1994 1995 1996
------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $ (84,680) $ 6,127,595 $ 2,496,712
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Cumulative effect of change in accounting for depreciation.... -- (4,782,132) --
Depreciation and amortization................................. 12,683,697 7,716,029 7,372,818
Provision for bad debts....................................... 300,934 1,055,639 462,715
Provision for loss on real property........................... -- 340,000 --
Deferred income taxes, including $139,218 cumulative effect of
change in accounting for income taxes in 1994............... 11,856 1,630,216 1,354,725
Changes in operating assets and liabilities:
Trade accounts receivable..................................... (573,708) 32,422 1,465,990
Income taxes receivable....................................... 192,763 (307,375) 12,277
Inventories................................................... 4,310,272 3,658,797 3,176,459
Prepaid expenses.............................................. (105,787) 107,995 170,849
Other assets.................................................. -- -- (163,155)
Accounts payable.............................................. (387,489) 421,454 (362,462)
Accrued environmental costs................................... -- -- 3,000,000
Accrued expenses.............................................. (48,912) (232,904) 11,639
------------- -------------- --------------
Net cash provided by operating activities................... 16,298,946 15,767,736 18,998,567
------------- -------------- --------------
Cash flows used in investing activities:
Purchases of property and equipment............................. (6,877,795) (10,941,427) (14,344,316)
Decrease in other assets........................................ 21,624 434,016 --
------------- -------------- --------------
Net cash used in investing activities....................... (6,856,171) (10,507,411) (14,344,316)
------------- -------------- --------------
Cash flows from financing activities:
Proceeds from long-term debt.................................... 2,500,000 24,750,000 --
Payments on long-term debt...................................... (10,159,576) (22,275,344) (3,750,000)
Payments under capital lease obligations........................ -- -- (214,759)
Payments on advances from Parent................................ -- (5,000,000) --
Decrease in bank overdraft...................................... (454,641) (392,366) --
Purchases of treasury stock..................................... (985,269) (671,371) --
------------- -------------- --------------
Net cash used in financing activities....................... (9,099,486) (3,589,081) (3,964,759)
------------- -------------- --------------
Net increase in cash and cash equivalents......................... 343,289 1,671,244 689,492
Cash and cash equivalents at beginning of period.................. 989,053 1,332,342 3,003,586
------------- -------------- --------------
Cash and cash equivalents at end of period........................ $ 1,332,342 $ 3,003,586 $ 3,693,078
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
VIBROPLANT U.S., INC.
NOTES TO FINANCIAL STATEMENTS
1. STOCK PURCHASE AGREEMENT
On February 26, 1996, pursuant to a stock purchase agreement dated as of
January 9, 1996, Primeco, Inc. (Prime) purchased all of the outstanding stock of
Vibroplant U.S., Inc. (the Company) from Vibroplant plc (the Parent). Prime also
repaid the Company's outstanding bank debt as of February 26, 1996, which was
approximately $36,700,000.
Prior to the stock purchase agreement the Company declared dividends of
$15,000,000 and paid an intercompany account balance of $1,700,000 (including
additional management fees of $1,500,000 recognized at closing) to the Parent
from the proceeds of additional borrowings from a bank.
In conjunction with the stock purchase agreement, on February 26, 1996, the
Parent paid divestiture bonuses totaling $1,024,500 to former employees of the
Company. Severance payments were made to former employees totaling $791,050.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
The Company is engaged in the rental, sales and servicing of aerial lift
equipment. The majority of the Company's customers are engaged in the
construction industry and are located throughout the United States. No single
customer accounted for more than five percent of the Company's sales in 1994,
1995 or 1996.
(B) CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
(C) INVENTORIES
Inventories consist of equipment replacement parts and supplies and
equipment held for sale. Inventories are carried at the lower of cost or market
value. Cost is determined using the first-in, first-out (FIFO) method for parts
and supplies. Cost for equipment held for sale is determined using the specific
identification method.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment under
capital leases are stated at the lower of the present value of net minimum lease
payments or fair value at the inception of the lease.
Effective April 1, 1994, the Company retroactively changed to the declining
balance method for depreciating rental equipment (note 3). Remaining assets are
depreciated using the straight-line method over the estimated useful lives of
the assets (generally 5 to 30 years). Property and equipment under capital
leases are amortized on a straight-line basis over the shorter of the lease term
or estimated useful lives of the assets.
Upon sale or retirement, the related cost and accumulated depreciation are
eliminated from the accounts and gains and loses are recognized in income.
Repairs and maintenance which do not extend the lives or improve the respective
assets are charged to expense as incurred.
F-30
<PAGE>
VIBROPLANT U.S., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) INCOME TAXES
Effective April 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement
109), on a prospective basis and has reported the cumulative effect of the
change in the 1994 statement of operations. Under the asset and liability method
of Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(F) REVENUE RECOGNITION
Rental revenue is recognized on the accrual basis. Included in trade
accounts receivable are unbilled rental revenues of approximately $1,296,000 and
$1,255,000 at March 31, 1995 and February 25, 1996, respectively.
(G) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents approximate fair value
because of the short maturity of such instruments.
The carrying amounts of long-term debt approximate fair value due to the
variable interest rate on such obligation.
(H) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(I) NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," (Statement 121).
Statement 121 requires that certain long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. Management cannot
currently estimate whether the adoption of Statement 121 in 1997 will have a
material adverse effect on the Company's financial position or results of
operations.
3. CHANGE IN ACCOUNTING FOR DEPRECIATION
Effective April 1, 1994, the Company changed its method of depreciating
rental equipment from the straight line method to the declining balance method.
The new method of depreciation was adopted to
F-31
<PAGE>
VIBROPLANT U.S., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. CHANGE IN ACCOUNTING FOR DEPRECIATION (CONTINUED)
provide a better matching of revenues and expenses over the lives of the rental
equipment and was applied retroactively to equipment acquisitions of prior
years. The effect of the change in 1995 was to increase the cost of equipment
sold by $1,400,000 and to decrease depreciation by $3,700,000. It was not
practical to determine the effect of this change in 1994. The cumulative
adjustment as of April 1, 1994 to retroactively apply the new method of
$4,782,000, after reduction for income taxes of $2,820,000, is included in 1995
income.
4. INVENTORIES
Inventories consist of the following at March 31, 1995 and February 25,
1996:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Replacement parts and supplies.................................... $ 2,761,984 $ 2,733,309
Equipment held for sale........................................... 384,102 984,418
------------ ------------
$ 3,146,086 $ 3,717,727
------------ ------------
------------ ------------
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31, 1995 and
February 25, 1996:
<TABLE>
<CAPTION>
COST, NET OF
ACCUMULATED ACCUMULATED
COST DEPRECIATION DEPRECIATION
-------------- ------------- -------------
<S> <C> <C> <C>
1995:
Rental equipment................................................... $ 86,810,271 $ 39,682,393 $ 47,127,878
Transportation equipment........................................... 2,799,966 2,205,431 594,535
Furniture and equipment............................................ 2,814,630 2,002,819 811,811
Land............................................................... 1,893,119 -- 1,893,119
Buildings.......................................................... 4,936,110 1,559,878 3,376,232
-------------- ------------- -------------
$ 99,254,096 $ 45,450,521 $ 53,803,575
-------------- ------------- -------------
-------------- ------------- -------------
1996:
Rental equipment................................................... $ 88,130,589 $ 37,268,732 $ 50,861,857
Transportation equipment........................................... 2,712,800 1,835,984 876,816
Furniture and equipment............................................ 2,769,952 2,184,891 585,061
Land............................................................... 1,795,465 -- 1,795,465
Buildings.......................................................... 5,061,195 1,696,222 3,364,973
-------------- ------------- -------------
$ 100,470,001 $ 42,985,829 $ 57,484,172
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
In 1995 the Company recorded a provision for loss on real property of
$340,000. This provision, which is included in other operating expenses in the
accompanying statements of operations, is the result of a decline in the fair
market value of the property.
F-32
<PAGE>
VIBROPLANT U.S., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LEASES
The Company is obligated under various capital leases for transportation
equipment that expire at various dates during the next four years. At March 31,
1995 and February 25, 1996, the gross amount of equipment and related
accumulated amortization recorded under capital leases were as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Transportation equipment.............................................. $ 494,000 $ 951,000
Less accumulated amortization......................................... 144,000 299,000
---------- ----------
$ 350,000 $ 652,000
---------- ----------
---------- ----------
</TABLE>
Amortization of assets held under capital leases is included with the
depreciation expense.
The Company also has several noncancelable operating leases, primarily for
rental and transportation equipment and land and buildings, that expire over the
next six years. Rental expense for operating leases during 1994, 1995 and 1996
consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
Rental equipment........................................................... $ -- $ -- $ 507,000
Transportation equipment................................................... 323,000 384,000 471,000
Land and buildings......................................................... 658,000 605,000 540,000
---------- ---------- ------------
$ 981,000 $ 989,000 $ 1,518,000
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
Rental expense is included in selling, general and administrative expenses
for land and buildings and other operating expenses for rental and
transportation equipment in the accompanying statements of operations.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of February 25, 1996 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING MARCH 31: LEASES LEASES
- ---------------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
1997.............................................................................. $ 286,000 $ 1,519,000
1998.............................................................................. 165,000 1,216,000
1999.............................................................................. 129,000 1,021,000
2000.............................................................................. 48,000 476,000
2001.............................................................................. -- 166,000
2002.............................................................................. -- 160,000
------------- ---------------
Total minimum lease payments...................................................... 628,000 $ 4,558,000
---------------
---------------
Less amount representing interest (at rates ranging from 8% to 11%)............... (76,931)
-------------
Present value of net minimum capital lease payments............................... 551,069
Less current installments of obligations under capital leases..................... (226,000)
-------------
Obligations under capital leases, excluding current installments.................. $ 325,069
-------------
-------------
</TABLE>
F-33
<PAGE>
VIBROPLANT U.S., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of the following at March 31, 1995 and February 25,
1996 (note 1):
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Term loan with a bank, due in varying installments through June 1999, with interest
at LIBOR plus 1.125% (6.9% at February 25, 1996) secured by substantially all of
the Company's assets and guaranteed by the Parent................................ $ 24,500,000 $ 20,750,000
Less current installments.......................................................... 7,500,000 7,500,000
------------- -------------
Long-term debt, excluding current installments..................................... $ 17,000,000 $ 13,250,000
------------- -------------
------------- -------------
</TABLE>
The loan agreement provides the Company with term loan of $24,500,000, a
$5,000,000 revolving credit facility and letters of credit totaling $2,220,000.
There were no borrowings outstanding under the revolving credit facility or the
letters of credit at March 31, 1995 or February 25, 1996. In connection with
these loan agreements, the Parent has executed guaranty agreements which also
require the Parent to meet various restrictive and affirmative covenants.
Aggregate maturities of long-term debt at February 25, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31:
- -------------------------------------------------------------------------------
<S> <C>
1997........................................................................... $ 7,500,000
1998........................................................................... 3,750,000
1999........................................................................... 9,500,000
-------------
$ 20,750,000
-------------
-------------
</TABLE>
8. INCOME TAXES
Total income taxes for the years ended March 31, 1994 and 1995 and for the
period from April 1, 1995 through February 25, 1996, were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Income from operations.................................................... $ 133,200 $ 1,578,469 $ 2,119,077
Cumulative effect of change in accounting for depreciation................ -- 2,820,621 --
---------- ------------ ------------
$ 133,200 $ 4,399,090 $ 2,119,077
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
F-34
<PAGE>
VIBROPLANT U.S., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Income tax expense (benefit) attributable to income from operations consists
of the following for the years ended March 31, 1994 and 1995 and for the period
from April 1, 1995 through February 25, 1996:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ------------ ------------
<S> <C> <C> <C>
1994:
Federal.................................................................. $ 252,729 $ (116,720) $ 136,009
State.................................................................... 7,833 (10,642) (2,809)
----------- ------------ ------------
$ 260,562 $ (127,362) $ 133,200
----------- ------------ ------------
----------- ------------ ------------
1995:
Federal.................................................................. $ (152,834) $ 1,458,614 $ 1,305,780
State.................................................................... 101,087 171,602 272,689
----------- ------------ ------------
$ (51,747) $ 1,630,216 $ 1,578,469
----------- ------------ ------------
----------- ------------ ------------
1996:
Federal.................................................................. $ 340,352 $ 1,212,122 $ 1,552,474
State.................................................................... 424,000 142,603 566,603
----------- ------------ ------------
$ 764,352 $ 1,354,725 $ 2,119,077
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
Income tax expense attributable to income from operations for the years
ended March 31, 1994 and 1995 and for the period from April 1, 1995 through
February 25, 1996, differed from the amounts computed by applying the marginal
U.S. Federal income tax rate of 34 percent to pretax income as a result of the
following:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Computed "expected" income tax expense.................................... $ 63,830 $ 994,000 $ 1,569,000
Adjustments to deferred tax assets and liabilities for changes in State
income tax rates........................................................ -- 255,000 --
Recognition of valuation allowance for deferred tax assets................ -- 160,000 --
State income taxes, net of Federal income tax benefit..................... (1,854) 117,000 374,000
Tax effect of amortization of nondeductible goodwill...................... 29,900 -- --
Other..................................................................... 41,324 52,469 176,077
---------- ------------ ------------
$ 133,200 $ 1,578,469 $ 2,119,077
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
F-35
<PAGE>
VIBROPLANT U.S., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
1995 and February 25, 1996, are presented below:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Trade accounts receivable, principally due to the allowance
for doubtful accounts..................................... $ 231,000 $ 228,000
Accrued expenses, principally due to insurance and
environmental reserves.................................... 715,000 1,615,000
Net operating loss carryforwards............................ 220,000 160,000
Alternative minimum tax credit carryforwards................ 2,466,000 388,000
Other....................................................... 612 20,783
-------------- --------------
Gross deferred tax assets................................. 3,632,612 2,411,783
Less valuation allowance.................................. (160,000) (160,000)
-------------- --------------
Net deferred tax assets................................... $ 3,472,612 $ 2,251,783
-------------- --------------
-------------- --------------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation.............................................. $ (11,520,000) $ (11,709,241)
Other....................................................... (55,345) --
-------------- --------------
Total deferred tax liabilities............................ $ (11,575,345) $ (11,709,241)
-------------- --------------
-------------- --------------
</TABLE>
The valuation allowance for deferred tax assets was $160,000 as of March 31,
1995 and February 25, 1996, respectively.
At February 25, 1996, the Company had net operating loss carryforwards for
state income tax purposes of approximately $160,000 which may be available to
offset future State taxable income, if any through 2005. In addition, the
Company has minimum tax credit carryforwards of approximately $388,000 which are
available to reduce future Federal regular income taxes, if any, over an
indefinite period.
9. RELATED PARTY TRANSACTIONS
During 1994, 1995 and 1996, management fees of $84,000, $84,000, and
$116,000 were charged to the Company by the Parent, respectively. Such amounts
are included in selling, general and administrative expenses in the accompanying
statements of operations.
In 1994, the Company purchased the outstanding common stock not owned by the
Parent for approximately $1,657,000. The Company paid approximately $985,000 in
1994 and paid the remaining balance of $657,371 in 1995.
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution plan covering substantially all
employees. The plan provides that employees can voluntarily contribute form 1%
to 15% of their compensation. The Company's contributions are discretionary and
totaled approximately $97,000, $130,000 and $222,000 in 1994, 1995 and 1996,
respectively.
F-36
<PAGE>
VIBROPLANT U.S., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company has entered into bonus compensation agreements with various
employees. Amounts recognized under these agreements were approximately
$100,000, $130,000 and $250,000 in 1994, 1995 and 1996, respectively, which are
included in selling, general and administrative expenses in the accompanying
statements of operations.
11. COMMITMENTS AND CONTINGENCIES
As a result of environmental assessments performed during 1995, the Company
identified environmental contamination of soil and ground water at certain of
the Company's rental facilities. Utilizing cost projections from a remediation
plan developed by the Company's environmental consultants, the Company developed
an estimate of future costs for the remediation. The total estimated aggregate
costs are expected to be $3,000,000, and are based on technology currently
available to treat the contaminated sites. This amount has been recognized in
other operating expenses in the accompanying 1996 statement of operations as it
represents management's best estimate of the remediation costs.
The estimate of the remediation costs could change as a result of changes to
the remediation plan required by the various governmental environmental
agencies, changes in technology available to treat the sites, or unforeseen
circumstances existing at the site. It is not possible to estimate the amount of
losses, if any, that may exceed the amounts accrued as a result of these
factors.
The Company is involved in litigation arising as a result of its acquisition
of American Hi-Lift Corporation (American) in 1988. On January 28, 1994, a jury
verdict of approximately $429,000 was rendered against American. The Company's
management intends to vigorously appeal this decision. Although the outcome of
this litigation and its ultimate impact on the Company have not been determined,
management has recognized a provision for possible losses as a result of this
contingency. Management believes that such provision is adequate to provide for
its maximum estimated liability resulting from this decision.
The Company is fully insured, subject to varying deductibles, for workers'
compensation claims in substantially all states in which it operates. In the
remaining states, the Company provides for workers' compensation claims through
incurred loss retrospective policies. management believes that the Company has
sufficiently provided for estimated claims, including the effect of any
retroactive premium adjustments, at March 31, 1995 and February 25, 1996.
The Company is involved in various other claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position.
12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Rental equipment of $4,891,358, $3,245,650, and $3,748,100 was transferred
to inventories in 1994, 1995 and 1996, respectively. Capital lease obligations
of $310,635 and $457,199 were incurred in 1995 and 1996, respectively, when the
Company entered into leases for equipment. Dividends payable to the Parent of
$15,00,000 were declared in 1996. In 1994, a liability of $671,371 was
recognized for purchases of treasury stock.
Cash paid for interest was $2,217,152, $2,034,000, and $1,640,000 in 1994,
1995 an 1996, respectively. Cash paid for income taxes was $67,799, $428,400,
and $752,000 in 1994, 1995 and 1996, respectively.
F-37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
Alpine Equipment Rentals and Supply Company:
We have audited the balance sheet of the Alpine Equipment Rentals and Supply
Company as of December 31, 1995 and 1994, and the related statements of
operations, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 7, substantially all of the Company's assets were sold
to Primeco Inc. on July 29, 1996.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alpine Equipment Rentals and
Supply Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
August 30, 1996
F-38
<PAGE>
ALPINE EQUIPMENT RENTALS AND SUPPLY COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................................................... $ 449,066 $ 135,073
Bank certificate of deposit........................................................ 50,000 --
Accounts receivable, net........................................................... 1,364,801 1,734,652
Inventories........................................................................ 21,741 21,741
Rental equipment, net.............................................................. 6,709,012 7,865,531
Property, plant and equipment, net................................................. 999,974 1,574,428
Other assets....................................................................... -- --
------------- -------------
Total assets................................................................... $ 9,594,594 $ 11,331,425
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................................................... $ 231,347 $ 197,339
Accrued expenses................................................................... 312,095 381,763
Debt............................................................................... 2,307,583 3,383,084
Note payable to former stockholder................................................. 154,910 81,645
Commitments and Contingencies (Note 6)
Common stock, no par value, 10,000 shares authorized and 2,087 shares issued and
outstanding...................................................................... 83,613 83,613
Paid-in capital.................................................................... 66,632 66,632
Retained earnings.................................................................. 6,438,414 7,137,349
------------- -------------
Stockholders' equity........................................................... 6,588,659 7,287,594
------------- -------------
Total liabilities and stockholders' equity..................................... $ 9,594,594 $ 11,331,425
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-39
<PAGE>
ALPINE EQUIPMENT RENTALS AND SUPPLY COMPANY
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THE PERIOD
FROM
FOR THE YEAR ENDED JANUARY 1,
DECEMBER 31, NINE MONTHS 1996
--------------------------- ENDED TO JULY 29,
1994 1995 SEPTEMBER 30, 1995 1996
------------ ------------- ------------------ --------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues:
Rental revenue...................................... $ 8,794,296 $ 10,126,532 $ 7,397,000 $ 5,312,000
Rental equipment sales.............................. 432,054 412,341 269,000 216,000
Other income........................................ 157,615 201,718 152,000 106,000
------------ ------------- ------------------ --------------
9,383,965 10,740,591 7,818,000 5,634,000
Cost of sales:
Depreciation--rental equipment...................... 587,056 614,716 461,000 349,000
Cost of rental equipment sales, net of accumulated
depreciation...................................... 401,666 372,446 279,000 203,000
Direct operating expenses........................... 2,173,319 2,519,639 1,960,000 1,129,000
------------ ------------- ------------------ --------------
3,162,041 3,506,801 2,700,000 1,681,000
6,221,924 7,233,790 5,118,000 3,953,000
------------ ------------- ------------------ --------------
Selling, general, administrative and other............ 5,047,294 5,679,431 4,021,000 3,242,000
Depreciation--property, plant and equipment........... 213,033 298,572 224,000 158,000
Interest expense...................................... 174,305 270,019 185,000 179,000
------------ ------------- ------------------ --------------
5,434,632 6,248,022 4,430,000 3,579,000
Income before income taxes...................... 787,292 985,768 688,000 374,000
Income tax expense.................................... 29,842 36,838 32,000 2,000
------------ ------------- ------------------ --------------
Net income...................................... $ 757,450 $ 948,930 $ 656,000 $ 372,000
------------ ------------- ------------------ --------------
------------ ------------- ------------------ --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<PAGE>
ALPINE EQUIPMENT RENTALS AND SUPPLY COMPANY
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON COMMON PAID-IN RETAINED STOCKHOLDERS'
SHARES STOCK CAPITAL EARNINGS EQUITY
----------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994.......................... 2,087 $ 83,613 $ 66,632 $ 5,720,964 $5,871,209
Net Income........................................ 757,450 757,450
Stockholder distributions......................... (40,000) (40,000)
----- --------- --------- ------------ ------------
Balance at December 31, 1994........................ 2,087 83,613 66,632 6,438,414 6,588,659
Net Income........................................ 948,930 948,930
Stockholder distributions......................... (249,995) (249,995)
----- --------- --------- ------------ ------------
Balance at December 31, 1995........................ 2,087 83,613 66,632 7,137,349 7,287,594
----- --------- --------- ------------ ------------
----- --------- --------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE>
ALPINE EQUIPMENT RENTALS AND SUPPLY COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------- NINE MONTHS ENDED
1994 1995 SEPTEMBER 30, 1995
------------ ------------ ------------------
<S> <C> <C> <C>
(UNAUDITED)
Operating activities:
Net income.......................................................... $ 757,450 $ 948,930 $ 656,000
Adjustment to reconcile net income to net cash provided by operating
activities:
Depreciation...................................................... 800,089 913,288 685,000
Net (gain) loss on disposal of rental equipment; and property,
plant and equipment............................................. (31,738) (57,195) 10,000
Provision for doubtful accounts................................... 22,697 -- --
Effect on changes in operating assets and liabilities:
Decrease (increase) in accounts receivable...................... (266,979) (369,851) (316,426)
Increase in other assets........................................ -- -- (37,576)
Increase in accounts payable and accrued expenses and other
liabilities................................................... 160,420 35,660 323,540
------------ ------------ ------------------
Net cash provided by operating activities..................... 1,441,939 1,470,832 1,320,538
Investing activities:
Additions to rental equipment....................................... (264,603) (141,509) (138,509)
Additions to property, plant and equipment.......................... (34,047) (778,499) (426,652)
Proceeds from sales of rental equipment............................. 432,054 412,341 269,000
Proceeds from disposals of property, plant and equipment............ 1,350 17,300 10,100
Maturity of bank certificate of deposit............................. -- 50,000 50,000
------------ ------------ ------------------
Net cash (used in) provided by investing activities........... 134,754 (440,367) (236,061)
Financing activities:
Proceeds from debt.................................................. 75,000 567,000
Payments of debt.................................................... (1,316,018) (1,661,463) (1,132,185)
Shareholder distributions........................................... (40,000) (249,995) (249,995)
------------ ------------ ------------------
Net cash used in financing activities......................... (1,281,018) (1,344,458) (1,382,180)
Net (decrease) increase in cash and cash equivalents.................. 295,675 (313,993) (297,703)
Cash and cash equivalents at beginning of period...................... 153,391 449,066 449,066
------------ ------------ ------------------
Cash and cash equivalents at end of period............................ $ 449,066 $ 135,073 $ 151,363
------------ ------------ ------------------
------------ ------------ ------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.............................. $ 174,305 $ 270,019
Cash paid during the year for income taxes.......................... $ 33,356 $ 33,342
Additions to rental equipment and property, plant and equipment
financed through promissory notes................................. $ 1,626,310 $ 2,096,699
<CAPTION>
THE PERIOD FROM
JAN. 1, 1996 TO
JULY 29, 1996
---------------
<S> <C>
(UNAUDITED)
Operating activities:
Net income.......................................................... $ 372,000
Adjustment to reconcile net income to net cash provided by operating
activities:
Depreciation...................................................... 507,000
Net (gain) loss on disposal of rental equipment; and property,
plant and equipment............................................. (13,000)
Provision for doubtful accounts................................... --
Effect on changes in operating assets and liabilities:
Decrease (increase) in accounts receivable...................... 497,298
Increase in other assets........................................ --
Increase in accounts payable and accrued expenses and other
liabilities................................................... (117,511)
---------------
Net cash provided by operating activities..................... 1,245,787
Investing activities:
Additions to rental equipment....................................... (175,058)
Additions to property, plant and equipment.......................... (3,010)
Proceeds from sales of rental equipment............................. 216,000
Proceeds from disposals of property, plant and equipment............ --
Maturity of bank certificate of deposit............................. --
---------------
Net cash (used in) provided by investing activities........... 37,932
Financing activities:
Proceeds from debt.................................................. 330,000
Payments of debt.................................................... (936,844)
Shareholder distributions........................................... (199,995)
---------------
Net cash used in financing activities......................... (806,839)
Net (decrease) increase in cash and cash equivalents.................. 476,880
Cash and cash equivalents at beginning of period...................... 135,073
---------------
Cash and cash equivalents at end of period............................ $ 611,953
---------------
---------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest..............................
Cash paid during the year for income taxes..........................
Additions to rental equipment and property, plant and equipment
financed through promissory notes.................................
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE>
ALPINE EQUIPMENT RENTALS AND SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Alpine Equipment Rental and Supply Company (the "Company") was formed in
1974. The Company's operations primarily consist of renting equipment and, to a
lesser extent, selling used equipment to commercial construction, industrial and
residential users in the Washington State area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RENTAL AGREEMENTS
The Company rents equipment primarily to the construction, industrial and
homeowner markets. Rental agreements are structured as operating leases, and
rental revenue is recognized in the period in which it is earned.
INVENTORIES
Inventory is valued at the lower of cost or market, with cost being
determined on the specific identification method.
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over the estimated five-year useful life
of the assets, after giving effect to an estimated salvage value. Accumulated
depreciation was approximately $3,780,000 and $4,072,000 at December 31, 1994
and 1995, respectively.
Expenditures for additions or improvements which extend asset lives are
capitalized in the period incurred. Normal repairs and maintenance costs are
expensed as incurred. When rental equipment is disposed of, the related costs
and accumulated depreciation are removed from the respective accounts, and any
gains or losses are included in results of operations.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is computed
on the straight-line basis over the estimated useful lives of the assets, giving
effect to an estimated salvage value.
The estimated useful lives for leasehold improvements is 15 years and the
estimated useful lives for vehicles, shop tools, and furniture and fixtures is 5
years.
Expenditures for additions or improvements which extend asset lives are
capitalized in the period incurred. Normal repairs and maintenance costs are
expensed as incurred. When property, plant and equipment are disposed of, the
related cost and accumulated depreciation are removed from the respective
accounts, and any gains or losses are included in results of operations.
INCOME TAXES
As of July 1, 1988, the stockholders elected to report the Company's taxable
income as an "S" Corporation for federal income tax purposes, pursuant to
Section 1374(a) of the Internal Revenue Code. Previously, the Company was
organized as a "C" Corporation. As an "S" Corporation, the income of the Company
is taxable directly to the stockholders. Accordingly, the Company is not subject
to federal income taxes with the exception of federal income taxes on gains
realized from the sale of depreciable personal property owned at June 30, 1988
and sold prior to July 1, 1998. Of the original potential taxable gain of
F-43
<PAGE>
ALPINE EQUIPMENT RENTALS AND SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$1,059,000, the Company has recognized approximately $777,000 through December
31, 1995. The remaining gain of approximately $282,000 will be recognized in
1996 following the sale of these assets (see Note 7).
CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and all highly liquid
investment instruments purchased with original maturities of three months or
less.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents and accounts
receivable. The Company maintains cash deposits with one bank, which from
time-to-time, may exceed federally insured limits. Management periodically
assesses the financial condition of the institution and believes that any
possible credit risk is minimal.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
base. However, the majority of the Company's customers operate in the state of
Washington and therefore the Company is vulnerable to the general economic
conditions of that state. The Company generally does not require collateral on
accounts receivable. At December 31, 1994 and 1995 the Company had an allowance
for doubtful accounts of $22,697.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited interim condensed
financial statements contain all adjustments (consisting only of normal
recurring items) necessary to present fairly the results of its operations and
cash flows for the nine months ended September 30, 1995 and the period from
January 1, 1996 through July 29, 1996. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the Securities and Exchange Commission's rules and regulations. The
results of operations for all interim periods presented are not necessarily
indicative of the results to be expected for the full year.
F-44
<PAGE>
ALPINE EQUIPMENT RENTALS AND SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of December 31,
1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Property, plant and equipment at cost:
Vehicles...................................................... $ 1,614,046 $ 2,068,177
Shop tools.................................................... 188,937 214,266
Leasehold improvements........................................ 295,544 455,186
Furniture and fixtures........................................ 119,363 313,647
------------- -------------
2,217,890 3,051,276
Accumulated depreciation........................................ (1,217,916) (1,476,848)
------------- -------------
Net property, plant and equipment......................... $ 999,974 $ 1,574,428
------------- -------------
------------- -------------
</TABLE>
4. RELATED PARTY TRANSACTIONS
The Company leases two of its facilities from partnerships owned by certain
Company shareholders. The leases call for lease payments aggregating $13,903 per
month and both expire in 1996. The rental expense for these leases included in
the statement of operations was approximately $163,000 and $167,000 for the
years ended December 31, 1994 and 1995, respectively.
The Company issued a note payable to a former stockholder for the purchase
of that stockholder's shares of Company stock. See Note 5 for additional
information.
5. DEBT AND NOTE PAYABLE TO FORMER STOCKHOLDER
Debt consists of the following at December 31, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Revolving credit agreement........................................ $ -- $ 267,000
Promissory notes issued for the purchase of rental equipment and
property, plant and equipment................................... 2,307,583 3,116,084
Note payable to bank.............................................. -- --
------------ ------------
$ 2,307,583 $ 3,383,084
------------ ------------
------------ ------------
</TABLE>
In January 1993, the Company borrowed approximately $200,000 from a bank to
fund distributions to stockholders. This loan accrued interest at 10% and was
repaid in April, 1994.
In March 1993, the Company entered into a one-year revolving credit
agreement with a bank which has been renewed annually. The agreement originally
provided for a $200,000 line of credit which was increased to $400,000 on
December 27, 1995. Interest on the outstanding debt is based on prime plus 1%
(9.5% at December 31, 1994 and 1995) and is collateralized by equipment. The
amount available for additional borrowings under this revolving credit agreement
at December 31, 1995 was approximately $133,000. Borrowings under this revolving
credit agreement are payable on demand.
In connection with the purchase of rental equipment and property, plant and
equipment, the Company has issued promissory notes to several creditors with
varying terms. All notes issued are collateralized by the purchased equipment
and bear interest at various rates ranging from 7.5% to 10.75% at December 31,
1995. All notes are payable in monthly installments and mature on various dates
through December 1999.
F-45
<PAGE>
ALPINE EQUIPMENT RENTALS AND SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. DEBT AND NOTE PAYABLE TO FORMER STOCKHOLDER (CONTINUED)
The note payable to stockholder is a promissory note issued to a former
Company stockholder for the purchase of that stockholder's shares of Company
stock. Monthly installments are due on the note in the amount of $7,500,
including interest at 9%, through December 1, 1996.
Maturities of debt and the note payable are as follows at December 31, 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------------------------------------------------------------------------------
<S> <C>
1996.............................................................................. $ 1,748,702
1997.............................................................................. 921,022
1998.............................................................................. 564,991
1999.............................................................................. 230,014
------------
$ 3,464,729
------------
------------
</TABLE>
In January 1996, the Company borrowed $200,000 from a bank to fund
distributions of $199,995 to stockholders during that month. This loan bears
interest at 10.25% and is payable on demand.
6. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases facilities under operating leases. Minimum future
obligations for operating leases in effect at December 31, 1995 are:
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------------------------------------------------------------------------------
<S> <C>
1996.............................................................................. $ 419,476
1997.............................................................................. 207,223
1998.............................................................................. 209,430
1999.............................................................................. 193,104
2000.............................................................................. 129,376
------------
Total Minimum Obligations......................................................... $ 1,158,609
------------
------------
</TABLE>
Lease expense charged to operations in the accompanying statement of
operations was approximately $445,000 and $510,000 for the years ended December
31, 1994 and 1995, respectively.
In 1996, two of the Company's operating leases with monthly lease payments
of $8,000 and $7,800, respectively, were extended through July 31, 2002.
7. SUBSEQUENT EVENT
On July 29, 1996, the Company's shareholders agreed to sell substantially
all of the assets of the Company to Primeco Inc. for approximately $11 million
of cash and a $350,000 payment for a covenant not to compete. This sale required
the Company to recognize its remaining tax liability of approximately $282,000
(as discussed in Note 2) for assets owned prior to July 1, 1988.
F-46
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 9
Use of Proceeds................................. 14
Dividend Policy................................. 14
Capitalization.................................. 15
Dilution........................................ 16
Pro Forma Consolidated Financial Statements..... 17
Selected Consolidated Historical, Pro Forma
Financial and Other Data...................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 26
Business........................................ 36
Management...................................... 46
Certain Transactions............................ 53
Principal and Selling Stockholders.............. 54
Description of Capital Stock.................... 56
Description of Certain Indebtedness............. 58
Shares Eligible for Future Sale................. 60
Certain U.S. Tax Considerations Applicable
to Non-U.S. Holders of Common Stock........... 62
Underwriting.................................... 65
Notice to Canadian Residents.................... 67
Legal Matters................................... 68
Experts......................................... 68
Additional Information.......................... 69
Index to Financial Statements................... F-1
</TABLE>
--------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
Prime Service, Inc.
7,250,000 Shares
Common Stock
($0.01 PAR VALUE)
PROSPECTUS
CS First Boston
Merrill Lynch & Co.
Salomon Brothers Inc
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[INTERNATIONAL PAGE]
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1996
7,250,000 Shares
Prime Service, Inc.
Common Stock
($0.01 PAR VALUE)
--------------
ALL OF THE SHARES OF COMMON STOCK, $0.01 PAR VALUE (THE "COMMON STOCK"), OF
PRIME SERVICE, INC. (THE "COMPANY" OR "PRIME") OFFERED HEREBY ARE BEING SOLD BY
THE COMPANY (THE "OFFERING"), EXCEPT THAT THE SELLING STOCKHOLDERS NAMED
HEREIN UNDER PRINCIPAL AND SELLING STOCKHOLDERS (THE "SELLING STOCKHOLDERS")
HAVE GRANTED THE U.S. UNDERWRITERS AND THE MANAGERS THE OPTION TO PURCHASE
UP TO AN AGGREGATE OF 1,087,500 SHARES OF THE COMMON STOCK SOLELY TO
COVER OVER-ALLOTMENTS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS" AND
"UNDERWRITING." OF THE 7,250,000 SHARES OF COMMON STOCK BEING OFFERED,
1,450,000 SHARES ARE INITIALLY BEING OFFERED OUTSIDE THE UNITED
STATES AND CANADA (THE "INTERNATIONAL SHARES") BY THE MANAGERS (THE
"INTERNATIONAL OFFERING") AND 5,800,000 SHARES ARE INITIALLY BEING
CONCURRENTLY OFFERED IN THE UNITED STATES AND CANADA (THE "U.S.
SHARES") BY THE U.S. UNDERWRITERS (THE "U.S. OFFERING" AND,
TOGETHER WITH THE INTERNATIONAL OFFERING, THE "OFFERING"). THE
OFFERING PRICE AND UNDERWRITING DISCOUNTS AND COMMISSIONS OF
THE INTERNATIONAL OFFERING AND THE U.S.
OFFERING ARE IDENTICAL.
OF THE 7,250,000 SHARES BEING OFFERED BY THE U.S. UNDERWRITERS AND THE MANAGERS,
575,000 SHARES WILL BE RESERVED FOR SALE TO OFFICERS AND EMPLOYEES OF
INVESTCORP S.A. AND ITS SUBSIDIARIES AND TO DIRECTORS, OFFICERS AND EMPLOYEES
OF THE COMPANY AND ITS SUBSIDIARIES. SEE "SUBSCRIPTION AND SALE." PRIOR TO
THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK. IT IS
ANTICIPATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $22.00
AND $25.00 PER SHARE. FOR INFORMATION RELATING TO THE FACTORS CONSIDERED
IN DETERMINING THE INITIAL OFFERING PRICE TO THE
PUBLIC, SEE "SUBSCRIPTION AND SALE."
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "PRS," SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
----------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 9
HEREIN.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
AD-
EQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION
TO THE CONTRARY IS A
CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL(3)........................................... $ $ $
</TABLE>
- ------------------------
(1) SEE "SUBSCRIPTION AND SALE" FOR INFORMATION RELATING TO RESERVED SHARES.
(2) BEFORE DEDUCTION OF EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $2,153,000.
(3) THE SELLING STOCKHOLDERS HAVE GRANTED THE MANAGERS AND THE U.S. UNDERWRITERS
AN OPTION, EXERCISABLE FOR 30 DAYS FROM THE DATE OF THIS PROSPECTUS, TO
PURCHASE A MAXIMUM OF 1,087,500 ADDITIONAL SHARES OF COMMON STOCK TO COVER
OVER-ALLOTMENTS IF ANY. IF THE OPTION IS EXERCISED IN FULL, THE TOTAL PRICE
TO PUBLIC WILL BE $ , UNDERWRITING DISCOUNTS AND COMMISSIONS WILL BE
$ , PROCEEDS TO COMPANY WILL REMAIN THE SAME, AND PROCEEDS TO
SELLING STOCKHOLDERS WILL BE $ .
----------------
THE INTERNATIONAL SHARES ARE OFFERED BY THE SEVERAL MANAGERS WHEN, AS AND IF
DELIVERED TO AND ACCEPTED BY THE MANAGERS AND SUBJECT TO THEIR RIGHT TO REJECT
ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT THE INTERNATIONAL SHARES WILL BE
READY FOR DELIVERY ON OR ABOUT NOVEMBER , 1996, AGAINST PAYMENT IN IMMEDIATELY
AVAILABLE FUNDS.
CS First Boston
Merrill Lynch International Limited Salomon Brothers International Limited
<PAGE>
THE DATE OF THIS PROSPECTUS IS OCTOBER , 1996
<PAGE>
[International Page]
[INSERT MAP]
PRIME INTENDS TO FURNISH ITS STOCKHOLDERS ANNUAL REPORTS CONTAINING AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AND QUARTERLY REPORTS CONTAINING UNAUDITED
INTERIM INFORMATION FOR THE FIRST THREE QUARTERS OF EACH FISCAL YEAR OF PRIME.
IN CONNECTION WITH THIS OFFERING, CS FIRST BOSTON CORPORATION, ON BEHALF OF
THE U.S. UNDERWRITERS AND THE MANAGERS, MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY
AT LEVELS ABOVE THOSE WHICH WOULD OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THE OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10B-6,
10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
IN THIS PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT
OTHERWISE REQUIRES, REFERENCES TO THE "COMPANY" OR "PRIME" INCLUDE PRIMECO INC.,
A TEXAS CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF THE COMPANY ("PRIMECO").
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE INFORMATION CONTAINED HEREIN (I)
GIVES EFFECT TO A 18.15 FOR ONE SPLIT OF THE COMMON STOCK EFFECTIVE ON OCTOBER
9, 1996, AND THE CONVERSION OF ALL OUTSTANDING CLASS A COMMON STOCK, CLASS C
COMMON STOCK AND CLASS D COMMON STOCK OF THE COMPANY INTO AN EQUIVALENT NUMBER
OF SHARES OF COMMON STOCK EFFECTIVE AS OF THE CLOSING OF THE OFFERING, AND (II)
ASSUMES THAT THE OVER-ALLOTMENT OPTION IS NOT EXERCISED. SEE "SUBSCRIPTION AND
SALE."
THE COMPANY
GENERAL
Prime is the second largest rental equipment company in the United States,
based upon 1995 rental equipment revenues, and currently operates 101 rental
equipment yards in 13 states. The Company rents over 100 different types of
equipment, such as aerial manlifts, portable air compressors, forklifts and
light earth moving equipment and small equipment such as lawnmowers, plumbing
equipment and hand tools, to commercial construction, industrial and residential
users. The Company also sells complementary parts and merchandise and used
equipment, and acts as a distributor of new equipment on behalf of nationally
known equipment manufacturers. At September 30, 1996, the Company had an
equipment rental fleet with a book value of $257.1 million ($360.7 million at
original price) comprised of over 40,000 pieces of equipment. Over the period
from 1991 to 1995, Prime's total revenues increased from $146.2 million to
$242.8 million, a compound annual growth rate of 13.5%. Total 1995 revenues on a
pro forma basis for two acquisitions completed in 1996 would have been $307.2
million, an increase of 45% over the 1994 historical result. Due to the
Company's substantial financial leverage and special charges, Prime reported a
net loss of $8.7 million in 1995 compared to net income of $13.9 million in the
year ended December 31, 1994.
Prime seeks to be the market leader in the regions it services while
maximizing its profitability and cash flow. The Company attributes its success
to its operating strategy which includes, among other things, a focus on
customer service, a modern and diverse rental fleet, and a proprietary
point-of-sale ("POS") system. Management believes that the consistent delivery
of high quality service, including 24 hour on-call maintenance, repair and
support services, differentiates Prime from its competitors. Prime believes it
also offers one of the most comprehensive and well maintained fleets of
equipment in the rental equipment industry. The Company employs an extensive
preventive maintenance program for its rental fleet, increasing the
dependability, useful life and resale value of the equipment. In addition, the
Company's proprietary POS system enables each rental equipment yard manager on a
real-time basis to search the Company's entire rental fleet for needed
equipment, determine its location and arrange for delivery to customers using
the Company's radio-dispatched fleet of trucks and trailers and independent
carriers. The Company believes that its extensive, well maintained rental fleet,
coupled with its ability to redeploy equipment rapidly and efficiently among its
yards, allows it to optimize fleet utilization and return on fleet investment.
Prime has a diverse base of over 40,000 active customers, ranging from
"Fortune 500" companies to small contractors and homeowners. Commercial
construction and industrial customers accounted for approximately 50% and 40%,
respectively, of the Company's total revenues in 1995, with subcontractors,
homeowners and other customers generating the remaining 10%.
Primeco was purchased from W.R. Grace & Co. in 1989 by Compagnie Francaise
de l'Afrique Occidentale, a French company which, in turn, was acquired by an
affiliate of Artemis S.A. ("Artemis") in 1993. In December 1994, affiliates of
Investcorp S.A. ("Investcorp") and a group of international investors formed
Prime Service, Inc. to acquire Primeco from Artemis (the "1994 Acquisition").
3
<PAGE>
INDUSTRY
According to a survey conducted for the Associated Equipment Distributors,
an industry trade association ("AED"), the equipment rental industry grew from
approximately $600 million in 1982 to approximately $13 billion in 1993, the
last period for which such data are available. This increase represents a
compound annual growth rate of 32%. In addition, according to the Rental
Equipment Register, an industry trade publication ("RER"), rental revenues for
the top 100 equipment rental companies increased approximately 25% to $2.5
billion in 1995 from approximately $2.0 billion in 1994. Management believes
that this growth reflects, in part, increased outsourcing trends by industrial
corporations related to an increased emphasis on minimizing capital invested to
purchase low usage equipment as well as reducing the labor costs associated with
maintaining and servicing such equipment. While equipment users traditionally
have rented equipment for specific purposes, such as supplementing capacity
during peak periods in connection with special projects, the convenience and
cost-saving factors of utilizing rental equipment have encouraged customers to
look to suppliers such as the Company as ongoing comprehensive sources of
equipment. Management believes that demand for rental equipment by the
industrial segment will continue to increase as these industrial companies
continue to outsource many non-core operations. According to recent surveys
conducted by the CIT Group, commercial construction contractors intend to
increase the percentage of equipment they rent without a purchase option to an
estimated 8% of their total equipment requirements in 1996 from less than 5% in
1994.
The rental equipment industry is highly fragmented and primarily consists of
a large number of relatively small, independent businesses serving discrete
local markets and a small number of multi-yard regional and multi-regional
operators. Management believes that the rental equipment industry offers
substantial consolidation opportunities for large, well-capitalized rental
businesses such as the Company. Relative to smaller competitors, multi-regional
operators such as the Company benefit from several competitive advantages,
including purchasing power, the ability to service national accounts, the
ability to transfer equipment among rental equipment yards in response to
changing patterns of customer demand and sophisticated management information
systems. In addition, multi-regional operators such as the Company are less
sensitive to localized cyclical downturns.
STRATEGY
Prime's strategy is to become the largest and most profitable rental
equipment company in the United States. Since the 1994 Acquisition, the Company
has pursued an aggressive growth strategy primarily by: (i) increasing the
rental fleet at its existing rental equipment yards to satisfy current and
anticipated demands; (ii) expanding its rental equipment yard network both in
existing and new geographic markets by either acquiring existing yards or, to a
lesser extent, opening new yards; (iii) increasing revenues from industrial
customers; and (iv) maximizing the utilization and profitability of its rental
fleet. The Company plans to continue implementing these strategies, with
increased emphasis on expanding its rental equipment yard network and increasing
its revenues from industrial customers.
INCREASE RENTAL FLEET AT EXISTING RENTAL EQUIPMENT YARDS. From 1991 to
1995, Prime experienced a significant increase in the demand for its rental
equipment, as evidenced by a decline in Prime's percentage of equipment not
rented within the last 90 days (non-rental rate) from an average monthly rate of
7.0% in 1991 to an average monthly rate of 3.4% in 1994, 3.6% in 1995 and 3.5%
for the first nine months of 1996, despite increasing the rental fleet (based on
average original price) from $172.9 million in 1991 to $335.4 million for the
nine month period ended September 30, 1996. The Company targets a non-rental
rate of 5%, which it believes minimizes lost revenue opportunities resulting
from having insufficient equipment to meet demand, while maximizing the
Company's return on equity. Prior to the 1994 Acquisition, the Company's capital
expenditure program was limited by the Company's prior owners. From 1991 to
1994, the Company did not make any material acquisitions and purchased an
aggregate of $33.7 million of equipment (exclusive of amounts required to
replace used equipment sold in the ordinary course of business and inclusive of
rental equipment purchases for new yards). Despite revenues increasing during
4
<PAGE>
this period from $146.2 million in 1991 to $211.9 million in 1994, management
believes that its capital expenditures program and resulting rental equipment
fleet were not adequate to meet the market demand. Since the 1994 Acquisition,
the Company has significantly increased its rental fleet by purchasing
approximately $56.3 million of equipment through December 31, 1995, and $31.0
million during the nine months ended September 30, 1996 (in each case exclusive
of amounts required to replace used equipment sold in the ordinary course of
business and recent acquisitions, but inclusive of rental equipment purchases
for new yards). Management expects its total 1996 rental equipment purchases to
be $42.9 million (exclusive of amounts required to replace used equipment sold
in the ordinary course of business and recent acquisitions, but inclusive of
rental equipment purchases for new yards).
EXPAND RENTAL EQUIPMENT YARD NETWORK. Prime intends to selectively expand
its network of rental equipment yards through a combination of acquisitions of
suitable existing rental equipment yards and to a lesser extent by opening new
rental equipment yards. Management believes that its management information
systems, size and operating expertise provide a competitive advantage in making
acquisitions as these strengths allow Prime to (i) integrate targets quickly
into its information and operating structure, (ii) realize significant synergies
in the form of reduced overhead and lower cost of goods through greater
purchasing power, (iii) enhance revenue by supplying acquired yards with
additional equipment to optimize the rental fleet mix and add new business lines
at those yards and (iv) enhance revenue by expanding coverage of national
accounts. The Company primarily targets acquisitions of stable equipment
businesses in new or existing markets where an existing owner has limited
resources to expand the rental equipment fleet. Pursuant to this strategy, in
February 1996 Prime acquired Vibroplant U.S., Inc. (operating as American
Hi-Lift Corporation, "American Hi-Lift"), adding a net of 12 yards in seven
states, and in July 1996 Prime acquired the assets of Alpine Equipment Rentals &
Supply Company, Inc. ("Alpine"), adding a net six yards in the state of
Washington and expanding Prime's presence in the Northwest (collectively, the
"1996 Acquisitions"). In the case of the 1996 Acquisitions, Prime completed the
integration of the acquired equipment yards and the acquired fleet into the
Company's management information systems on the closing date of each
acquisition. In connection with the integration of the business of American
Hi-Lift, Prime's management reduced, on an annualized basis, the selling,
general, administrative and other expenses associated with American Hi-Lift by
approximately $5 million, from $15.2 million incurred by American Hi-Lift for
the year ended March 31, 1995. Prime is currently considering several potential
acquisitions of equipment rental companies, although Prime does not currently
have any understandings or agreements with respect to potential acquisitions.
INCREASE REVENUES FROM INDUSTRIAL CUSTOMERS. Prime believes that it is one
of the largest suppliers of rental equipment to industrial companies in the
southern United States, based upon revenues from equipment rentals to such
customers. The demand for rental equipment from Prime's industrial customers
generally has been less sensitive to economic cycles than that of its commercial
and residential customers and is, therefore, more stable. Management attributes
this relative stability to the fact that a major part of rental equipment use by
industrial customers is related to ongoing and periodic maintenance work on
existing facilities. Since many of the facilities operate 24 hours a day, such
maintenance is essential to industrial customers in order to avoid costly
shutdowns that result from equipment failures. Prime has taken a number of steps
to increase revenues from industrial customers, including focusing its national
marketing program on the industrial market segment and offering services that
meet the specific needs of industrial customers such as its Integrated Rental
Management-TM- program. Under its Integrated Rental Management-TM- program,
Prime typically enters into exclusive contracts with large industrial customers,
generally "Fortune 500" companies, to supply rental equipment, to provide 24
hours a day maintenance and repair services, and to provide sophisticated
equipment management services required for a particular facility or facilities.
Prime believes that it is well-positioned to take advantage of the trend of
companies outsourcing their rental equipment needs due to its formalized
Integrated Rental Management-TM- program, customized POS system and strong
national account relationships.
5
<PAGE>
MAXIMIZE UTILIZATION AND PROFITABILITY OF RENTAL FLEET. Prime believes that
it maintains customer loyalty by maintaining a diverse modern fleet. As of
September 30, 1996, the average age of Prime's rental fleet was 36 months.
Prime's proprietary POS system allows it to monitor the demand for and actual
usage of its equipment on a real-time basis. The Company, taking advantage of
the POS system and its presence in numerous markets, can allocate new equipment
and transfer current equipment to yards with high rental activity. In addition,
if utilization of equipment declines, management is able to quickly react by
decreasing purchases of new equipment or replacement of used rental equipment
sold. The Company believes its comprehensive preventative maintenance program
allows it to increase the useful life of its equipment and obtain premium values
when it is sold.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 7,250,000
Common Stock outstanding immediately after
the Offering............................... 27,991,544(1)
Use of proceeds to the Company............... The net proceeds to the Company from the
Offering will be used to reduce outstanding
indebtedness of the Company. Prime will not
receive any proceeds from the sale by the
Selling Stockholders.
Dividend policy.............................. The Company does not anticipate paying any
dividends.
Proposed NYSE Symbol......................... "PRS"
</TABLE>
- ------------------------
(1) Excludes (i) 606,392 shares subject to options to be outstanding upon the
consummation of the Offering and (ii) 1,153,335 additional shares reserved
for issuance pursuant to options available for grant under the Company's
Management Stock Incentive Plan (the "Old Stock Plan") and the 1996
Management Stock Incentive Plan (the "New Stock Plan," together with the Old
Stock Plan, the "Stock Plans"). See "Management--Management Stock Incentive
Plans."
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the information set forth under "Risk Factors," in addition to the
other information set forth in this Prospectus, before purchasing any of the
shares of Common Stock. Such risk factors include, among others, the effect of
general economic conditions, the ability of Prime to implement and manage its
growth strategy, Prime's dependence on key personnel, and the impact of
competition.
6
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF SHARES OF COMMON STOCK SHOULD CONSIDER CAREFULLY
THE FOLLOWING RISK FACTORS RELATING TO THE OFFERING AND THE BUSINESS OF THE
COMPANY, TOGETHER WITH INFORMATION AND FINANCIAL DATA SET FORTH ELSEWHERE IN
THIS PROSPECTUS, PRIOR TO MAKING AN INVESTMENT DECISION.
GENERAL ECONOMIC CONDITIONS
The rental equipment industry is affected by changes in economic conditions,
including national, regional and local slowdowns in construction and industrial
activity. In addition, most of Prime's revenues are derived from customers who
are in industries and businesses that are cyclical in nature and subject to
changes in general economic conditions. Prime's operating results may also be
adversely affected by events or conditions in a particular region, such as
regional economic slowdowns, adverse weather and other factors. Prime's
operating results may be adversely affected by increases in interest rates that
may lead to a decline in economic activity, while simultaneously resulting in
higher interest payments by Prime under its credit facility. There can be no
assurance that economic slowdowns or adverse economic conditions will not have a
material adverse effect on the Company's operating results and financial
condition.
ABILITY TO IMPLEMENT AND MANAGE GROWTH STRATEGY
A principal component of the Company's strategy is to continue to expand
through additional acquisitions and start-up locations that complement the
Company's business in new or existing markets. The results achieved to date by
the Company in its expansion efforts are not necessarily indicative of its
prospects or ability to penetrate new markets, many of which will have different
competitive conditions and demographic characteristics than the Company's
current markets. Implementation of the Company's growth strategy may impose
significant strain on the Company's management, operating systems and financial
resources. Failure by the Company to manage its growth, or unexpected
difficulties encountered during expansion, could have a material adverse impact
on the Company's results of operations or financial condition.
The Company's ability to acquire or open and operate profitably new rental
equipment yards depends upon a number of factors, including (i) identifying
businesses or assets that meet the Company's investment criteria or identifying
and obtaining attractive sites for new yards, (ii) generating sufficient funds
from existing operations or obtaining third-party financing to acquire or open
and develop new yards, (iii) the Company's executive management team and its
financial and accounting controls and (iv) staffing, training and retaining
skilled on-site management personnel. Certain of these factors are beyond the
Company's control and may be affected by the economy or actions taken by
competing companies. The inability of the Company to successfully integrate
acquired businesses into its operations could have an adverse effect on the
Company's results of operations.
The primary source of capital to fund the Company's growth will be debt
financing, principally amounts borrowed under the Company's credit facility,
which will be amended and restated effective contemporaneously with the
consummation of this Offering. As of September 30, 1996, after giving pro forma
effect to the amended and restated credit facility and the sale of the Common
Stock hereby and the application of the proceeds therefrom, the Company would
have had $133.9 million of indebtedness outstanding and would have had $158.1
million of availability under the credit facility. To the extent the Company
succeeds in acquiring new businesses or opening start-up locations, the amount
of the Company's outstanding indebtedness can be expected to increase. As such
indebtedness increases, the level of indebtedness of the Company could have
important consequences to the holders of the Common Stock, including: (i) an
increasing portion of the Company's cash flow from operations will be dedicated
to the payment of principal and interest on its indebtedness and will not be
available for other purposes; (ii) the ability of the Company to obtain
financing thereafter for working capital needs and general corporate purposes
may be impaired; and (iii) the Company's level of indebtedness may reduce its
flexibility to respond to changing business and economic conditions.
9
<PAGE>
DEPENDENCE ON KEY PERSONNEL
Certain of the executive officers of the Company, particularly Thomas E.
Bennett, the President and Chief Executive Officer, are of significant
importance to the direction and management of the Company. The Company uses
several methods to retain key employees, including employment agreements and
incentive compensation arrangements, such as the Stock Plans. See "Management."
The loss of the services of such persons could have a material adverse effect on
the Company's business and future operations, and there can be no assurance that
the Company would be able to find replacements for such persons with comparable
business experience. The Company does not maintain key-man or similar insurance
policies.
IMPACT OF SIGNIFICANT COMPETITION
The equipment rental industry is highly fragmented and competitive. The
Company's competitors include: large national companies; regional competitors
which operate in one or two states; small, independent businesses with one or
two rental locations; and equipment vendors and dealers who both sell and rent
equipment to customers. Some of the Company's competitors have greater financial
resources, are more geographically diverse and have greater name recognition
than the Company. There can be no assurance that the Company will not encounter
increased competition from existing competitors or new market entrants that may
be significantly larger and have greater financial and marketing resources. In
addition, to the extent existing or future competitors seek to gain or retain
market share by reducing prices, the Company may be required to lower its
prices, thereby adversely affecting operating results. Existing or future
competitors also may seek to compete with the Company for acquisitions, which
could have the effect of increasing the price for acquisitions or reducing the
number of suitable acquisitions. In addition, such competitors also may compete
with the Company for start-up locations, thereby limiting the number of
attractive locations for expansion. See "Business--Competition."
ENVIRONMENTAL LIABILITIES
The Company is subject to various evolving Federal, state and local
environmental laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous substances and wastes. These laws and
regulations provide for substantial penalties for violations, and, in many
cases, could require the Company to remediate a site to meet applicable legal
requirements. Certain limited environmental investigations of the Company's
properties have revealed releases or possible releases of hazardous materials
that may require remediation. These include discharges of petroleum-based
materials from underground storage tanks, disposals of solvents, and groundwater
contamination at certain of the Company's sites. If the extent of environmental
conditions requiring remediation, or the cost of remediation, exceeds the
Company's current estimates and the Company is unable to obtain indemnification
from various sellers of such sites or is unsuccessful in collecting recoveries
from state trust funds, such additional costs could adversely affect the
Company's financial condition, results of operations and cash flows. See
"Business--Environmental Regulation."
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon consummation of the Offering, the non-management stockholders listed in
"Principal and Selling Stockholders," who are affiliates of Investcorp, or
others who frequently co-invest with Investcorp, may be deemed to be the
beneficial owners of approximately 66.4% of the outstanding shares of Common
Stock. Until such time, if ever, that there is a significant decrease in the
percentage of outstanding shares held by such stockholders, these stockholders
will be able to control the Company through their ability to determine the
outcome of votes of stockholders regarding, among other things, election of
directors and approval of significant transactions. In particular, Investcorp,
as the beneficial owner of 24.6% of the
10
<PAGE>
Common Stock after the Offering and with representatives on the board of
directors of the Company, may be able to exert influence over the operations of
the Company and Primeco. In addition, executive officers, directors and senior
management of the Company and Primeco will own an aggregate of approximately
866,153 shares, or 3.0%, of the Common Stock after the Offering on a fully
diluted basis, after giving effect to the exercise of all outstanding options
held by such officers, directors and management. See "Principal and Selling
Stockholders."
LIABILITY AND INSURANCE
The Company's business exposes it to possible claims for personal injury or
death resulting from the use of equipment rented or sold by the Company and from
injuries caused in motor vehicle accidents in which Company delivery and service
personnel are involved. The Company carries comprehensive insurance subject to a
large deductible per claim, with no aggregate deductible limit. There can be no
assurance that existing or future claims will not exceed the level of the
Company's insurance, or that such insurance will continue to be available on
economically reasonable terms, if at all.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the net tangible book value of their Common Stock. As of
September 30, 1996, the net tangible book value per share was a deficit of
$3.23. As of such date, current stockholders would experience an increase in net
tangible book value per share of $6.37 and purchasers of shares in the Offering
would experience dilution in net tangible book value of $20.36 per share (based
on an assumed initial public offering price of $23.50 per share). See
"Dilution."
NO DIVIDENDS
The Company currently does not intend to pay any cash dividends on the
Common Stock. The Company is a holding company with no business operations of
its own. The Company therefore is dependent upon payments, dividends and
distributions from Primeco for funds to pay its expenses and to pay future cash
dividends or distributions, if any, to holders of the Common Stock. Primeco
currently intends to retain any earnings for support of its working capital,
repayment of indebtedness, capital expenditures and general corporate purposes.
Primeco has no current intention of paying dividends or making other
distributions to the Company in excess of amounts necessary to pay the Company's
operating expenses and taxes. Primeco's credit facility and subordinated debt
contain restrictions on Primeco's ability to pay dividends or make other
distributions to the Company. See "Dividend Policy" and "Description of Certain
Indebtedness."
EFFECT OF CERTAIN CHARTER, CHANGE OF CONTROL AND STATUTORY PROVISIONS
The Company's Board of Directors is authorized, subject to certain
limitations prescribed by law, to issue up to ten million shares of preferred
stock in one or more classes or series and to fix the designations, powers,
preferences, rights, qualifications, limitations or restrictions, including
voting rights, of those shares without any further vote or action by
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of preferred stock.
See "Description of Capital Stock--Preferred Stock."
Primeco's credit facility and subordinated indebtedness contain provisions
that, under certain circumstances, will cause such indebtedness to become due
upon the occurrence of a change of control of
11
<PAGE>
Primeco or the Company. See "Description of Certain Indebtedness." These
provisions could have the effect of making it more difficult for a third party
to acquire control of the Company.
The Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. In general, the statute prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. See "Description of
Capital Stock--Certain Provisions of Delaware Law."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY IN PRICE OF COMMON STOCK
Prior to the Offering, there has been no public market for the Common Stock.
The Company plans to list the Common Stock on the New York Stock Exchange. Even
if the Common Stock is listed on the New York Stock Exchange, there can be no
assurance that an active public market for the Common Stock will develop or be
sustained after the Offering. The initial public offering price was determined
by negotiations between the Company, the Managers and the representatives of the
U.S. Underwriters, and may bear no relationship to the market price of the
Common Stock after the Offering. See "Underwriting." Subsequent to the Offering,
prices for the Common Stock will be determined by the market and may be
influenced by a number of factors, including the depth and liquidity of the
market for the Common Stock, investor perceptions of the Company and other
equipment rental companies and general economic and other conditions. In
addition, the stock market may experience volatility that affects the market
prices of companies in ways unrelated to the operating performance of such
companies, and such volatility could adversely affect the market price of the
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, 27,991,544 shares of Common Stock will be
outstanding. The 7,250,000 shares (8,337,500 if the over-allotment is exercised
in full) sold in the Offering will be freely transferable without restriction
under the Securities Act of 1933, as amended (the "Securities Act"), except for
shares acquired by "affiliates" of the Company as that term is defined under the
Securities Act. Of the remaining 20,741,544 outstanding shares of Common Stock
(assuming exercise of the over-allotment), 1,287,371 were sold in offshore
distributions under Regulation S within the past year, 15,022,787 were sold in
offshore distributions under Regulation S more than one year ago and 4,431,386
are deemed to be restricted securities. Pursuant to Rule 701 under the
Securities Act, 115,836 of the restricted securities will be available for
resale in the public market without restriction commencing 90 days after the
date of this Prospectus. Commencing 90 days after the date of this Prospectus,
all of the remaining restricted securities are eligible for sale in the public
market in compliance with Rule 144 under the Securities Act. Subject to certain
exceptions, the Company and all of the present stockholders of the Company have
agreed that they will not offer, issue, pledge, sell, transfer or otherwise
dispose of any shares of Common Stock or securities convertible into or
exercisable or exchangeable for shares of Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of CS First
Boston Corporation. See "Principal and Selling Stockholders" and "Subscription
and Sale."
At the expiration of the 180-day period described above, or earlier with the
written consent of CS First Boston Corporation, the holders of 15,138,623 shares
of Common Stock will have the right to sell shares of Common Stock without
regard to the volume or the other limitations of Rule 144 under the Securities
Act.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the sale of the 1,759,727 shares of Common Stock
reserved for issuance under its Stock Plans. As a result, any shares issued upon
exercise of stock options granted under such plan will be available, subject to
special rules for affiliates, for resale in the public market after the
effective date of such registration
12
<PAGE>
statement, subject to applicable lock-up arrangements. See
"Management--Management Stock Incentive Plans."
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares of Common Stock for future
sale would have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock in the public market
following the Offering, or the perception that such sales could occur, could
have an adverse effect on prevailing market prices for the Common Stock. See
"Shares Eligible for Future Sale" and "Subscription and Sale."
13
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENT
GENERAL. The Company has received commitments from its lenders to amend and
restate its credit facility in connection with the Offering (although the
Offering is not conditioned on such amendment and restatement). The credit
agreement, as so amended and restated in connection with the Offering (the
"Credit Facility") among Primeco, the several lenders from time to time parties
thereto (collectively, the "Lenders"), The Chase Manhattan Bank, formerly
Chemical Bank, as administrative agent (the "Administrative Agent"), and The CIT
Group/Business Credit, Inc., as collateral agent (the "Collateral Agent")
provides for a $123.5 million term loan facility maturing on December 31, 2002
(the "Term Loan Facility"), and a $175.0 million revolving credit facility
maturing on December 31, 2001 (the "Revolving Loan Facility"), of which $10
million is available in the form of standby or trade letters of credit.
Primeco utilized all of the proceeds of the Term Loan Facility, and $25.0
million of the $175.0 million Revolving Loan Facility, in connection with the
1994 Acquisition. The remaining availability under the Revolving Loan Facility
may be utilized to meet Primeco's current working capital requirements,
including the issuance of standby and trade letters of credit. Primeco can also
utilize the remaining availability to fund capital expenditures, subject to
borrowing base limitations and certain limits on annual capital expenditure. As
of September 30, 1996, $244.0 million in principal amount is outstanding under
the Credit Facility. In connection with the Offering, the Company will apply
$110.2 million of the net proceeds thereof to reduce the outstanding principal
amount of the Revolving Loan Facility, leaving $10.3 million outstanding.
Primeco from time to time has amended covenants contained in the Credit Facility
to accommodate acquisitions and increases in capital expenditure levels.
The Loans under the Credit Facility are secured by a first priority security
interest in substantially all of the assets of Primeco. In addition, the Loans
are guaranteed by the Company. The Company's guarantee is secured by a pledge of
all of the issued and outstanding capital stock of Primeco. Primeco is also
required to grant mortgages in after acquired real property acquired for
consideration in excess of $1 million.
The Credit Facility contains certain covenants and restrictions that, among
other things, restrict: (i) consolidations, mergers and sales of assets of
Primeco and its subsidiaries; (ii) the incurrence of liens or other
encumbrances; (iii) the incurrence of contingent obligations; (iv) the payment
of dividends; (v) prepayments and amendments of subordinated debt instruments
and equity; (vi) investments, loans and advances; (vii) certain transactions
with affiliates; (viii) capital expenditures and (ix) incurrence of
indebtedness. The Credit Facility will allow Primeco to pay dividends to the
Company in amounts required for the Company to pay certain operating costs in
the normal course of business and other cash dividends in an amount limited to
25% of Primeco's consolidated net income from the effective date of the amended
and restated Credit Facility, not to exceed $3 million in any fiscal year.
The Credit Facility also requires that Primeco satisfy the following
financial tests: (i) Primeco is required to generate a minimum consolidated
EBITDA (tested on a rolling four-quarter basis) of $81.0 million for fiscal
1996, increasing to $142.0 million for the four quarters ended September 30,
2002; (ii) the Company is required to maintain a maximum debt to Consolidated
EBITDA (tested on a rolling four-quarter basis) ratio of 5.00 to 1.0 beginning
in the fourth quarter of fiscal 1996, decreasing to 3.5 to 1.0 in the third
quarter of fiscal 2002; and (iii) the Company is required to maintain a minimum
Interest Coverage Ratio (tested on a rolling four-quarter basis) of 2.0 to 1.0
in the third quarter of fiscal 1996, increasing to 2.7 to 1.0 in the third
quarter of fiscal 2002. The Company is currently in compliance with all
financial tests set forth in the Credit Facility.
Upon the occurrence of certain Events of Default (as defined), all amounts
owing under the Credit Facility may become immediately due and payable. Events
of Default under the Credit Facility include, among other things: (1) failure to
pay principal when due or interest within five days after due; (2) any
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<PAGE>
material inacurracy in any representation or warranty; (3) certain
cross-defaults under other indebtedness, in each case provided that the
aggregate other indebtedness is at least $5.0 million; (4) certain insolvency
events; (5) certain prohibited ERISA events; (6) judgments aggregating $5.0
million or more (excluding amounts covered by insurance), not stayed,
discharged, vacated or bonded within the applicable time for such action; or (7)
a change of control, which is deemed to occur if any person (other than
Investcorp, any of its affiliates or subsidiaries, senior management of the
Company or Primeco, any entity that is majority-owned by such senior management
of the Company or Primeco, or any person acting in the capacity of an
underwriter) directly or indirectly acquires 25% or more, on a fully diluted
basis, of the outstanding voting power of the common stock of the Company or
Primeco.
SUBORDINATED DEBT
On March 6, 1995, $100.0 million aggregate principal amount of 12.75% Senior
Subordinated Notes due March 1, 2005 (the "Senior Notes") were issued by Primeco
pursuant to an Indenture (the "Indenture"), between Primeco and Texas Commerce
Bank National Association, as Trustee (the "Trustee"). The Senior Notes are
unsecured senior subordinated obligations of Primeco.
Upon 30 days' prior notice by Primeco, the Senior Notes will be redeemable
in whole or in part, on or after March 1, 2000, and prior to maturity, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date.
If redeemed during the 12-month period commencing on or after March 1 of the
years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2000........................................................................ 106.375%
2001........................................................................ 104.250
2002........................................................................ 102.125
2003 and thereafter......................................................... 100.000
</TABLE>
The Company intends to contribute approximately $37.5 million of the net
proceeds from the Offering to Primeco to enable Primeco, in accordance with the
terms of the Indenture, to redeem approximately $33.3 million aggregate
principle amount of Senior Notes, together with the accrued but unpaid interest
and premium thereon, at a redemption price of $37.5 million.
Each holder will have the right to require Primeco to repurchase all or any
part of such holder's Senior Notes at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase upon the occurrence of a change in control, which is deemed to
occur (i) if any person (other than Investcorp, any of its affiliates or
subsidiaries, senior management of the Company or Primeco (collectively, the
"Permitted Holders"), or any person acting in the capacity of an underwriter)
directly or indirectly acquires 35% or more of the total voting power of the
Company or Primeco, provided that Permitted Holders do not hold at least the
same percentage of such total voting power as such person and cannot designate
for election a majority of the board members, or (ii) if any person other than
Permitted Holders nominates a majority of the directors of the Company or
Primeco, and such directors are elected.
The Indenture contains various restrictive covenants that, among other
things, limit: (i) the incurrence of certain additional indebtedness by Primeco;
(ii) the creation of senior indebtedness of Primeco which is, by its terms,
subordinated in right of payment to other indebtedness of Primeco; and (iii) the
payment of dividends on capital stock of Primeco. See "Risk Factors--No
Dividends".
An Event of Default is defined in the Indenture as, among other things, (i)
a default in any payment of interest when due, continued for 30 days, (ii) a
default in the payment of principal when due, (iii) the failure to comply with
certain covenants, (iv) a cross-default of other indebtedness in excess of $10.0
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<PAGE>
million, (v) bankruptcy, insolvency or reorganization of Primeco or a
significant subsidiary, or (vi) a judgment in excess of $10.0 million.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, assuming no exercise of the over-allotment
option, 27,991,544 shares of Common Stock will be outstanding. Of these shares,
the 7,250,000 shares of Common Stock sold in the Offering will be available for
resale in the public market without restriction or further registration under
the Securities Act, except that shares purchased by an "affiliate" of the
Company (in general, any person who has a control relationship to Primeco) may
be resold only if registered under the Securities Act or if transferred pursuant
to an exemption from registration, including resales pursuant to Rule 144
promulgated under the Securities Act ("Rule 144") and Regulation S promulgated
under the Securities Act ("Regulation S"). Of the remaining outstanding shares
of Common Stock, 1,287,371 were sold in offshore distributions under Regulation
S within the past year, 15,022,787 were sold in offshore distributions under
Regulation S more than one year ago, and 4,431,386 are deemed to be "restricted
securities" as that term is defined in Rule 144. Pursuant to Rule 701 under the
Securities Act, 115,836 of the restricted securities will be available for
resale in the public market without restriction commencing 90 days after the
date of this Prospectus. Commencing 90 days after the date of this Prospectus,
all of the remaining restricted securities are eligible for sale in the public
market in compliance with Rule 144. The existing stockholders of the Company
have agreed, subject to certain exceptions, that they will not offer, sell or
otherwise dispose of any of the shares of Common Stock owned by them for a
period of 180 days after the date of this Prospectus without the prior written
consent of CS First Boston Corporation. Additionally, the Company has agreed
that, during the period of 180 days from the date of this Prospectus, subject to
certain exceptions, they will not issue, sell, offer or agree to sell, grant any
options for the sale of (other than employee stock options) or otherwise dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable for Common Stock, other than pursuant to the
Offering.
In addition, up to 259,727 shares of Common Stock may be issued upon
exercise of certain employee stock options that Prime has granted, of which
options to purchase 94,042 shares of Common Stock will be exercisable upon the
closing of the Offering. Also, the Company will grant, conditioned upon the
closing of the Offering, options for the purchase of 346,665 shares of Common
Stock, which will vest. The Company intends to file a registration statement on
Form S-8 under the Securities Act to register the 1,759,727 shares of Common
Stock reserved for issuance under the Management Stock Incentive Plans. As a
result, any shares issued upon exercise of stock options granted under such
plans will be available, subject to special rules for affiliates, for resale in
the public market after the effective date of such registration statement,
subject to applicable lock-up arrangements. See "Subscription and Sale" and
"Management-- Stock Incentive Plan."
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) owning restricted securities issued by the Company
or last sold by an affiliate of the Company more than two years ago is entitled
to sell, within any three-month period, a number of restricted securities which
does not exceed the greater of 1% of the then-outstanding shares of the
Company's Common Stock (279,915 shares immediately after the Offering) or the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 also may be subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. The volume of sale limitations and other provisions of Rule 144 (other
than the two year holding period requirement) also apply to any shares that are
not restricted securities but that are beneficially owned by an affiliate of the
Company. Any person (or persons whose shares are aggregated) who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and owning restricted securities issued by the Company or last
sold by an affiliate of the Company more than three years ago, is entitled to
sell such shares under Rule 144(k) without regard to the volume limitation,
manner of sale
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provisions, public information requirements or notice requirements. Regulation S
permits the sale by issuers, affiliates and others of shares in an "offshore
transaction" (as defined in Regulation S), subject to certain other conditions
including the requirement that the purchaser not resell the shares to a U.S.
person during a one year restricted period (or a 40-day restricted period if the
shares are distributed in reliance on Regulation S after the Company's
securities are registered under the Exchange Act). After such one year (or
40-day) holding period, shares of Common Stock that were sold under Regulation S
and which are not held by an affiliate of the Company are available for resale
in the public market without restriction.
Prior to the Offering, there has been no public market for the Common Stock.
No prediction can be made as to the effect, if any, that market sales of shares
of Common Stock that are restricted securities or the availability of such
shares will have on the market price of the Common Stock prevailing from time to
time. Nevertheless, sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock and could impair the Company's future ability to
raise capital through an offering of equity securities.
Certain holders of the Common Stock, including the Selling Stockholders,
have, subject to certain conditions and restrictions, the right to include their
shares of Common Stock in registered public offerings of Common Stock (or
securities exchangeable for a convertible into Common Stock) undertaken by the
Company for its own account, as well as require the Company to register the sale
of their shares of Common Stock upon demand.
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SUBSCRIPTION AND SALE
The institutions named below ("the Managers") have, pursuant to a
Subscription Agreement dated , (the "Subscription Agreement"),
severally and not jointly, agreed with the Company to subscribe and pay for the
following respective numbers of International Shares as set forth opposite their
names:
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL
MANAGER SHARES
- ------------------------------------------------------------------------- -------------------
<S> <C>
CS FIRST BOSTON LIMITED..................................................
MERRILL LYNCH INTERNATIONAL LIMITED......................................
SALOMON BROTHERS INTERNATIONAL LIMITED...................................
-------------------
TOTAL.............................................................. 1,450,000
-------------------
-------------------
</TABLE>
The Subscription Agreement provides that the obligations of the Managers are
such that, subject to certain conditions precedent, the Managers will be
obligated to purchase all the International Shares (other than those shares
covered by the over-allotment option described below) if any are purchased. The
Subscription Agreement provides that, in the event of a default by a Manager, in
certain circumstances the purchase commitments of the non-defaulting managers
may be increased or the Subscription Agreement may be terminated.
The Company and the Selling Stockholders have entered into an Underwriting
Agreement (the "Underwriting Agreement") with the U.S. Underwriters of the U.S.
Offering (the "U.S. Underwriters" and together with the Managers, the
"Underwriters") providing for the concurrent offer and sale of the U.S. Shares
in the United States and Canada. The closing of the U.S. Offering is a condition
to the closing of the International Offering and vice versa.
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The Selling Stockholders have granted to the Managers and the U.S.
Underwriters an option exercisable by CS First Boston Corporation, expiring at
the close of business on the 30th day after the date of this Prospectus to
purchase up to 1,087,500 additional shares at the initial public offering price,
less the underwriting discounts and commissions, all as set forth on the cover
page of this Prospectus. Such option may be exercised only to cover
over-allotments in the sale of the shares of Common Stock offered hereby. To the
extent that this option to purchase is exercised, each Manager and each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of additional shares being sold to the
Managers and the U.S. Underwriters as the number of International Shares set
forth next to such Manager's name in the preceding table and as the number set
forth next to such U.S. Underwriter's name in the corresponding table in the
Prospectus relating to the U.S. Offering bears to the sum of the total number of
shares of Common Stock in such tables.
The Company has been advised by CS First Boston Limited, on behalf of the
Managers, that the Managers propose to offer the International Shares outside
the United States and Canada initially at the public offering price set forth on
the cover page of this Prospectus and, through the Managers, to certain dealers
at such price less a commission of $ per share and that the Managers and such
dealers may reallow a commission of $ per share on sales to certain other
dealers. After the initial public offering, the public offering price and
commission and reallowance may be changed by the Managers.
The offering price and the aggregate underwriting discounts and commissions
per share and per share commission and reallowance to dealers for the
International Offering and the concurrent U.S. Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and Managers (the
"Intersyndicate Agreement") relating to the Offering, changes in the offering
price, the aggregate underwriting discounts and commissions per share and per
share commission and reallowance to dealers will be made only upon the mutual
agreement of CS First Boston Limited, on behalf of the Managers, and CS First
Boston Corporation, as representative of the U.S. Underwriters.
Pursuant to the Intersyndicate Agreement, each of the Managers has agreed
that, as part of the distribution of International Shares and subject to certain
exceptions, it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Common Stock or distribute any prospectus relating to
the Common Stock in the United States or Canada or to any other dealer who does
not so agree. Each of the U.S. Underwriters has agreed that, as part of the
distribution of the U.S. Shares and subject to certain exceptions, it has not
offered or sold and will not offer or sell, directly or indirectly, any shares
of Common Stock or distribute any prospectus relating to the Common Stock to any
person outside the United States and Canada or to any other dealer who does not
so agree. The foregoing limitations do not apply to stabilization transactions
or to transactions between the Managers and the U.S. Underwriters pursuant to
the Intersyndicate Agreement. As used herein, "United States" means the United
States of America (including the States and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction, "Canada"
means Canada, its provinces, territories, possessions and other areas subject to
its jurisdiction, and an offer or sale shall be in the United States or Canada
if it is made to (i) any individual resident in the United States or Canada or
(ii) any corporation, partnership, pension, profit-sharing or other trust or
other entity (including any such entity acting as an investment adviser with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
Managers and the U.S. Underwriters of such number of shares of Common Stock as
may be mutually agreed upon. The price of any shares so sold will be the public
offering price less such amount agreed upon by CS First Boston Limited, on
behalf of the Managers, and CS First Boston Corporation, as representative of
the U.S. Underwriters, but not exceeding the selling concession applicable to
such shares. To the extent there are sales between the Managers and the U.S.
Underwriters pursuant to the Intersyndicate Agreement, the number of shares of
Common Stock initially available for sale by the Managers or by the U.S.
Underwriters may be more or less than the amount appearing on the cover page of
this Prospectus. Neither the Managers nor the U.S. Underwriters are obligated to
purchase from the other any unsold shares of Common Stock.
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<PAGE>
Each of the Managers and the U.S. Underwriters severally represents and
agrees that: (i) it has not offered or sold and prior to the date six months
after the date of issue of the shares of Common Stock offered in the Offering
will not offer or sell any shares of Common Stock to persons in the United
Kingdom, except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act of 1986 with respect to anything done by it in relation to any
shares of Common Stock in, from or otherwise involving the United Kingdom; and
(iii) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of any
shares of Common Stock to a person who is of a kind described in Article 11(3)
of the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 or is a person to whom such document may otherwise lawfully be issued
or passed on.
CSFBL, on behalf of the Managers, and the representatives of the U.S.
Underwriters have informed the Company that they do not expect discretionary
sales by the Managers or the U.S. Underwriters to exceed 5% of the shares of
Common Stock being offered hereby.
Each of the Company, the Selling Stockholders and certain other stockholders
has agreed that it will not offer, sell, contract to sell, announce its
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to, any additional shares of the Company's Common
Stock or securities convertible into or exchangeable or exercisable for any
shares of the Company's Common Stock without the prior written consent of CS
First Boston Corporation for a period of 180 days after the date of this
Prospectus, except in the case of the Company, issuances pursuant to the
exercise of employee stock options granted under the Company's existing
incentive plans or pursuant to the Company's dividend reinvestment plan.
At the request of Prime, the U.S. Underwriters have reserved up to 575,000
shares of Common Stock for sale, at the initial public offering price less the
underwriting discount, to officers and employees of Investcorp S.A. and its
subsidiaries and directors, officers and employees of Prime and its
subsidiaries. The number of shares available for sale to the general public will
be reduced to the extent such persons purchase such reserved shares. Any
reserved shares not so purchased will be offered by the U.S. Underwriters to the
general public on the same terms as the other shares offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
Managers and the U.S. Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or contribute to payments which the
Managers and the U.S. Underwriters may be required to make in respect thereof.
The Common Stock has been approved for listing on the New York Stock
Exchange, under the symbol "PRS," subject to official notice of issuance. In
connection with the listing of the Common Stock on the New York Stock Exchange,
the Managers and the U.S. Underwriters will undertake to sell round lots of 100
shares or more to a minimum of 2,000 beneficial owners.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial price to the public for the Common Stock offered
hereby has been determined by negotiation among the Company, the Managers, and
the representatives of the U.S. Underwriters. The factors considered in
determining the initial price to the public include the history of and the
prospects for the industry in which the Company competes, the ability of the
Company's management, the past and present operations of the Company, the
historical results of operations of the Company, the prospects for future
earnings of the Company, the general condition of the securities markets at the
time of the Offering and the recent market prices of securities of generally
comparable companies. There can be no assurance, however, that the prices at
which the Common Stock will sell in the public market after this Offering will
not be lower than the price at which they are sold by the Managers and the U.S.
Underwriters.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the shares of Common Stock in Canada is being made only
on a private placement basis exempt from the requirement that the Company
prepare and file a prospectus with the securities regulatory authorities in each
province where trades of the Common Stock are effected. Accordingly, any resale
of the Common Stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadaian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent and (iii) such purchaser has reviewed
the text above under "Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The Common Stock being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
Company or such persons. All or a substantial portion of the assets of the
Company and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the Company or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such Company
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the Common Stock to whom the SECURITIES ACT (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Common Stock acquired by such purchaser pursuant to this Offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from the Company. Only
one such report must be filed in respect of the Common Stock acquired on the
same date and under the same prospectus exemption.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Gibson, Dunn & Crutcher LLP, New York, New York, and for
the Managers by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The (i) consolidated financial statements of the Company as of December 31,
1994 and 1995, for the year ended December 31, 1995 for the period January 1,
1994, to December 1, 1994, and for the period December 2, 1994, to December 31,
1994, and (ii) financial statements of Alpine Equipment Rentals and Supply
Company as of December 31, 1994 and 1995, and for the years then ended, have
been included
68
<PAGE>
herein in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The (i) financial statements of the Company for the year ended December 31,
1993, and (ii) financial statements of Vibroplant U.S., Inc., as of March 31,
1995 and February 25, 1996, and for each of the years in the two-year period
ended March 31, 1995, and the period from April 1, 1995, through February 25,
1996, have been included herein and in the registration statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The report of KPMG Peat Marwick LLP covering
the Vibroplant U.S., Inc. financial statements contains an explanatory paragraph
that states that Vibroplant U.S., Inc. changed its method of computing
depreciation in 1995 and its method of accounting for income taxes in 1994.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the shares of Common Stock
offered hereby on Form S-1 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract,
agreement, indenture or other document referred to are not necessarily complete.
With respect to each such contract, agreement, indenture or other document filed
as an Exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description thereof, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and the
exhibits and schedules thereto may be inspected and copied (at prescribed rates)
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the
Commission's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, New
York, New York 10048. The Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
The Company's wholly-owned subsidiary, Primeco, is subject to the reporting
requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934,
as amended, and in accordance therewith Primeco separately files reports and
other information with the Commission. Such reports and other information are
available and may be inspected and copied (at prescribed rates) at the
Commission's facilities referenced above, or accessed via the Commission's Web
site.
69
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY MANAGER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 9
Use of Proceeds................................. 14
Dividend Policy................................. 14
Capitalization.................................. 15
Dilution........................................ 16
Pro Forma Consolidated Financial Statements..... 17
Selected Consolidated Historical, Pro Forma
Financial and Other Data...................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 26
Business........................................ 36
Management...................................... 46
Certain Transactions............................ 53
Principal and Selling Stockholders.............. 54
Description of Capital Stock.................... 56
Description of Certain Indebtedness............. 58
Shares Eligible for Future Sale................. 60
Certain U.S. Tax Considerations Applicable
to Non-U.S. Holders of Common Stock........... 62
Subscription and Sale........................... 65
Notice to Canadian Residents.................... 68
Legal Matters................................... 68
Experts......................................... 68
Additional Information.......................... 69
Index to Financial Statements................... F-1
</TABLE>
--------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES IN THE UNITED
STATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A U.S. PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A U.S. PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS IN TRANSACTIONS IN
THE UNITED STATES.
Prime Service, Inc.
7,250,000 Shares
Common Stock
($0.01 PAR VALUE)
PROSPECTUS
CS First Boston
Merrill Lynch International
Limited
Salomon Brothers International
Limited
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The registrant's expenses in connection with the Offering described in this
registration statement are set forth below. All amounts except the SEC filing
fee, the NASD filing fee, and the NYSE listing fee are estimated.
<TABLE>
<S> <C>
SEC Fee................................................................. $ 71,321
NASD Fee................................................................ 21,300
State Blue Sky Qualification............................................ 20,000
NYSE Listing Fee........................................................ 165,100
Legal Fees.............................................................. 350,000
Printing................................................................ 250,000
Accounting Fees......................................................... 300,000
Transfer Agent's fees and expenses...................................... 14,000
Miscellaneous........................................................... 961,279
---------
Total............................................................... $2,153,000
---------
---------
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER: DESCRIPTION OF EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Form of Underwriting Agreement
2.2 Form of Subscription Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Company*
3.2 Amended and Restated Certificate of Designation of the Company*
3.3 Amendment to the Amended and Restated Certificate of Incorporation of the Company*
3.4 Amended and Restated Bylaws of the Company*
3.5 Amendment to the Amended and Restated Certificate of Incorporation of the Company*
3.6 Form of Amended and Restated Certificate of Incorporation of the Company to be filed immediately
following the closing of the Offering.*
4.1 Form of Common Stock Certificate*
4.2 Form of Indenture between Primeco and Texas Commerce Bank National Association, as trustee.
(Incorporated by reference to Exhibit 4 of Primeco's Registration Statement on Form S-1, Registration
Statement No. 33-87404, originally filed with the SEC on December 15, 1994 (the "Primeco Registration
Statement").)
4.3 See Exhibits 3.1 and 3.2 as to rights of holders of the Company's Class A Common Stock, Class C Common
Stock and Class D Common Stock prior to the Offering.
4.4 Indenture between Prime Holding, Inc. and AIBC Services N.V., as trustee, dated as of November 29,
1994.*
4.5 Registration Rights Agreement, dated as of October 25, 1996, among the Company and the Company's
stockholders party thereto.
5.1 Opinion of Gibson, Dunn & Crutcher LLP*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER: DESCRIPTION OF EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.1 Agreement for Management Advisory, Strategic Planning and Consulting Services, dated as of December 1,
1994, between Investcorp International Inc. and Prime Acquisition Corp. (Incorporated by reference to
Exhibit 10(c) of the Primeco Registration Statement.)
10.2 Agreement for Management Advisory, Strategic Planning and Consulting Services dated as of February 26,
1996 between Investcorp International Inc. and Primeco. (Incorporated by reference to Exhibit 10.2 of
Primeco's Annual Report on Form 10-K for the year ended December 31, 1995.)
10.3 Prime Service, Inc. Management Stock Incentive Plan. (Incorporated by reference to Exhibit 10.3 of
Primeco's Annual Report on Form 10-K for the year ended December 31, 1995 (the "Primeco 10-K").)
10.4 Credit Agreement dated as of December 1, 1994, among Prime Acquisition Corp., the lenders party thereto,
Chemical bank as Administrative Agent, and The CIT Group Business Credit, Inc., as collateral agent.
(Incorporated by reference to Exhibit 10(d) of the Primeco Registration Statement).
10.5 Amendment No. 1 to Credit Agreement, dated as of November 1, 1995, among Primeco, the lenders party
thereto, Chemical Bank as Administrative Agent, and The CIT Group/Business Credit, Inc. as collateral
agent. (Incorporated by reference to Exhibit 10.5 of the Primeco 10-K.)
10.6 Amendment No. 2 to Credit Agreement, dated as of January 10, 1996, among Primeco Inc., the lenders party
thereto, Chemical Bank as Administrative Agent, and The CIT Group/ Business Credit, Inc. as collateral
agent. (Incorporated by reference to Exhibit 10.6 of the Primeco 10-K.)
10.7 Security Agreement dated as of December 1, 1994, between Prime Acquisition Corp. and The CIT
Group/Business Credit, Inc. as collateral agent. (Incorporated by reference to Exhibit 10(e) of the
Primeco Registration Statement).
10.8 Interest Rate and Currency Exchange Agreement, dated as of March 7, 1990 between Primeco and Salomon
Brothers Holding Company, Inc., as modified by the Schedule to the Interest Rate and Currency Exchange
Agreement dated as of March 7, 1990, as supplemented by the Letter Agreement dated March 7, 1990
confirming the swap transaction and as amended by the Letter Agreement dated as of December 1, 1994.
(Incorporated by reference to Exhibit 10(g) of the Primeco Registration Statement).
10.9 Letter Agreement dated as of December 1, 1994 between Primeco and Chemical Bank confirming a swap
transaction. (Incorporated by reference to Exhibit 10(h) of the Primeco Registration Statement).
10.10 Employment Agreement, dated December 2, 1994 between Primeco and Thomas E. Bennett (Incorporated by
reference to Exhibit 10.10 of the Primeco 10-K.)
10.11 Employment Agreement, dated April 1, 1996 between Primeco and Brian Fontana (Incorporated by reference
to Exhibit 10.1 of Primeco's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
10.12 Employment Agreement, dated December 2, 1994, between Primeco and Kevin L. Loughlin (Incorporated by
reference to Exhibit 10.11 of the Primeco 10-K.)
10.13 Employment Agreement, dated December 2, 1994 between Primeco and Peter A. Post (Incorporated by
reference to Exhibit 10.12 of the Primeco 10-K.)
10.14 Employment Agreement, dated December 2, 1994 between Primeco and Gerald E. Lane (Incorporated by
reference to Exhibit 10.13 of the Primeco 10-K.)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER: DESCRIPTION OF EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.15 Indemnity Agreement, dated as of December 2, 1994 between Primeco and Charles J. Phillipin.
(Incorporated by reference to Exhibit 10(k) of the Primeco Registration Statement.)
10.16 Indemnity Agreement, dated as of December 2, 1994 between Primeco and Christopher J. O'Brien.
(Incorporated by reference to Exhibit 10(l) of the Primeco Registration Statement.)
10.17 Indemnity Agreement, dated as of December 2, 1994 between Primeco and Thomas E. Bennett. (Incorporated
by reference to Exhibit 10(m) of the Primeco Registration Statement.)
10.18 Indemnity Agreement, dated as of April 1, 1996, between Primeco and Brian Fontana (Incorporated by
reference to Exhibit 10.2 of Primeco's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996).
10.19 Indemnity Agreement, dated as of December 2, 1994 between Primeco and E. Garrett Bewkes, III.
(Incorporated by reference to Exhibit 10(I) of the Primeco Registration Statement.)
10.20 Indemnity Agreement, dated as of December 2, 1994 between Primeco and Robert V. Glaser. (Incorporated by
reference to Exhibit 10(j) of the Primeco Registration Statement.)
10.21 Indemnity Agreement, dated as of January 30, 1995 between Primeco and Kevin L. Loughlin. (Incorporated
by reference to Exhibit 10(o) of the Primeco Registration Statement.)
10.22 Settlement Agreement and Release, dated as of February 26, 1996, by and among Michael Murnin, Randal
Shields, Lloyd Glick, Randolph Goss, Thomas Darnell, Chris Fix, Carlos Goff, Cathy Albritton, Vibroplant
U.S. Inc, and Vibroplant plc. (Incorporated by reference to Exhibit 10.20 of the 1995 10-K).
10.23 Stock Purchase Agreement, dated as of January 9, 1996, and as amended and supplemented by the Closing
Supplement to Stock Purchase Agreement dated as of February 26, 1996, by and among Vibroplant plc,
Vibroplant Investments, Ltd. and Primeco Inc. (Incorporated by reference to Exhibits 2.1 and 2.2 of
Primeco's Current Report on Form 8-K, filed with the SEC on March 12, 1996).
10.24 Form of Mortgage from Primeco Inc. to the CIT Group/Business Credit, Inc. and schedule of substantially
identical mortgages pursuant to Rule 12b-31 of the Exchange Act. (Incorporated by reference to Exhibit
10.23 of the Primeco 10-K.)
10.25 Stock Purchase Agreement, dated October 2, 1994, as amended by Amendment No. 1, dated as of November 28,
1994, between Prime Acquisition Corp. and American Perco, Inc. (Incorporated by reference to Exhibits
10(a) and 10(b) of the Primeco Registration Statement.)
10.26 Asset Purchase and Sale Agreement, dated as of May 13, 1996, as amended as of July 29, 1996, among
Primeco, Alpine Equipment Rentals & Supply Company, Inc., Gary R. Eide, Dale V. Houg, Jerome G.
Schneider and Edward M. Zawislak (incorporated by reference to Exhibits 2.1 and 2.2 of Primeco's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
10.27 Holdings Guarantee, dated as of December 1, 1994, made by the Company in favor of the CIT Group/Business
Credit, Inc.*
10.28 Holdings Pledge Agreement, dated as of December 1, 1994, made by the Company in favor of the CIT
Group/Business Credit, Inc.*
10.29 Amendment No. 1 to Employment Agreement, dated as of October 25, 1996, between Primeco and Thomas E.
Bennett.
10.30 Amendment No. 1 to Employment Agreement, dated as of October 25, 1996, between Primeco and Brian
Fontana.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER: DESCRIPTION OF EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.31 Amendment No. 1 to Employment Agreement, dated as of October 25, 1996, between Primeco and Kevin L.
Loughlin.
10.32 Amendment No. 1 to Employment Agreement, dated as of October 25, 1996, between Primeco and Peter A.
Post.
10.34 Prime Service, Inc. 1996 Management Stock Inventive Plan.
10.35 Form of Amended and Restated Credit Agreement, dated as of October , 1996, among Primeco, as borrower,
The Chase Manhattan Bank, as Administrative Agent, and The CIT Group/Business Credit, Inc., as
Collateral Agent.
10.36 Termination of Management Agreement, dated as of October 25, 1996, between the Company and Investcorp
International, Inc.
22.1 Subsidiaries of the Company*
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1)
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of KPMG Peat Marwick LLP*
24.1 Power of Attorney (included on signature page of this Registration Statement).*
27.1 Financial Data Schedule*
</TABLE>
- ------------------------
* Previously Filed.
(B) FINANCIAL STATEMENTS SCHEDULES:
1. FINANCIAL STATEMENTS INCLUDED: SEE INDEX TO FINANCIAL STATEMENTS INCLUDED
ON PAGE F-1.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are omitted either because
they are not required or because the required information is included in the
financial statements and notes thereto included herein. See "Index to Financial
Statements" in the Consolidated Financial Statements.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on October 28, 1996.
PRIME SERVICE, INC.
By: _______/S/ THOMAS E. BENNETT______
NAME: ________THOMAS E. BENNETT_______
TITLE: __ PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR________
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
/s/ THOMAS E. BENNETT
- ------------------------------ President, Chief Executive October 28, 1996
Thomas E. Bennett Officer and Director
/s/ BRIAN FONTANA Executive Vice President
- ------------------------------ and Chief Financial October 28, 1996
Brian Fontana Officer
* Controller, Assistant
- ------------------------------ Treasurer and Assistant October 28, 1996
John D. Latimer Secretary
*
- ------------------------------ Director October 28, 1996
Jon P. Hedley
II-5
<PAGE>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ Director October 28, 1996
Christopher J. O'Brien
*
- ------------------------------ Director October 28, 1996
Charles J. Philippin
*
- ------------------------------ Director October 28, 1996
Christopher J. Stadler
*By: /s/ BRIAN FONTANA
-------------------------
Brian Fontana October 28, 1996
ATTORNEY IN FACT
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIALLY
NUMBER
NUMBERED
PAGE DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Form of Underwriting Agreement
2.2 Form of Subscription Agreement
3.1 Amended and Restated Certificate of Incorporation of the Company*
3.2 Amended and Restated Certificate of Designation of the Company*
3.3 Amendment to the Amended and Restated Certificate of Incorporation of the Company*
3.4 Amended and Restated Bylaws of the Company*
3.5 Amendment to the Amended and Restated Certificate of Incorporation of the Company.*
3.6 Form of Amended and Restated Certificate of Incorporation of the Company to be filed immediately
following the closing of the Offering.*
4.1 Form of Common Stock Certificate*
4.2 Form of Indenture between Primeco and Texas Commerce Bank National Association, as trustee.
(Incorporated by reference to Exhibit 4 of Primeco's Registration Statement on Form S-1, Registration
Statement No. 33-87404, originally filed with the SEC on December 15, 1994 (the "Primeco Registration
Statement").)
4.3 See Exhibits 3.1 and 3.2 as to rights of holders of the Company's Class A Common Stock, Class C
Common Stock and Class D Common Stock prior to the Offering.
4.4 Indenture between Prime Holding, Inc. and AIBC Services N.V., as trustee, dated as of November 29,
1994.*
4.5 Registration Rights Agreement, dated as of October 25, 1996, among the Company and the Company's
stockholders party thereto.
5.1 Opinion of Gibson, Dunn & Crutcher LLP*
10.1 Agreement for Management Advisory, Strategic Planning and Consulting Services, dated as of December
1, 1994, between Investcorp International Inc. and Prime Acquisition Corp. (Incorporated by reference
to Exhibit 10(c) of the Primeco Registration Statement.)
10.2 Agreement for Management Advisory, Strategic Planning and Consulting Services dated as of February
26, 1996 between Investcorp International Inc. and Primeco. (Incorporated by reference to Exhibit
10.2 of Primeco's Annual Report on Form 10-K for the year ended December 31, 1995.)
10.3 Prime Service, Inc. Management Stock Incentive Plan. (Incorporated by reference to Exhibit 10.3 of
Primeco's Annual Report on Form 10-K for the year ended December 31, 1995 (the "Primeco 10-K").)
10.4 Credit Agreement dated as of December 1, 1994, among Prime Acquisition Corp., the lenders party
thereto, Chemical bank as Administrative Agent, and The CIT Group Business Credit, Inc., as
collateral agent. (Incorporated by reference to Exhibit 10(d) of the Primeco Registration Statement).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIALLY
NUMBER
NUMBERED
PAGE DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.5 Amendment No. 1 to Credit Agreement, dated as of November 1, 1995, among Primeco, the lenders party
thereto, Chemical Bank as Administrative Agent, and The CIT Group/ Business Credit, Inc. as
collateral agent. (Incorporated by reference to Exhibit 10.5 of the Primeco 10-K.)
10.6 Amendment No. 2 to Credit Agreement, dated as of January 10, 1996, among Primeco Inc., the lenders
party thereto, Chemical Bank as Administrative Agent, and The CIT Group/Business Credit, Inc. as
collateral agent. (Incorporated by reference to Exhibit 10.6 of the Primeco 10-K.)
10.7 Security Agreement dated as of December 1, 1994, between Prime Acquisition Corp. and The CIT
Group/Business Credit, Inc. as collateral agent. (Incorporated by reference to Exhibit 10(e) of the
Primeco Registration Statement).
10.8 Interest Rate and Currency Exchange Agreement, dated as of March 7, 1990 between Primeco and Salomon
Brothers Holding Company, Inc., as modified by the Schedule to the Interest Rate and Currency
Exchange Agreement dated as of March 7, 1990, as supplemented by the Letter Agreement dated March 7,
1990 confirming the swap transaction and as amended by the Letter Agreement dated as of December 1,
1994. (Incorporated by reference to Exhibit 10(g) of the Primeco Registration Statement).
10.9 Letter Agreement dated as of December 1, 1994 between Primeco and Chemical Bank confirming a swap
transaction. (Incorporated by reference to Exhibit 10(h) of the Primeco Registration Statement).
10.10 Employment Agreement, dated December 2, 1994 between Primeco and Thomas E. Bennett (Incorporated by
reference to Exhibit 10.10 of the Primeco 10-K.)
10.11 Employment Agreement, dated April 1, 1996 between Primeco and Brian Fontana (Incorporated by
reference to Exhibit 10.1 of Primeco's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996).
10.12 Employment Agreement, dated December 2, 1994, between Primeco and Kevin L. Loughlin (Incorporated by
reference to Exhibit 10.11 of the Primeco 10-K.)
10.13 Employment Agreement, dated December 2, 1994 between Primeco and Peter A. Post (Incorporated by
reference to Exhibit 10.12 of the Primeco 10-K.)
10.14 Employment Agreement, dated December 2, 1994 between Primeco and Gerald E. Lane (Incorporated by
reference to Exhibit 10.13 of the Primeco 10-K.)
10.15 Indemnity Agreement, dated as of December 2, 1994 between Primeco and Charles J. Phillipin.
(Incorporated by reference to Exhibit 10(k) of the Primeco Registration Statement.)
10.16 Indemnity Agreement, dated as of December 2, 1994 between Primeco and Christopher J. O'Brien.
(Incorporated by reference to Exhibit 10(l) of the Primeco Registration Statement.)
10.17 Indemnity Agreement, dated as of December 2, 1994 between Primeco and Thomas E. Bennett.
(Incorporated by reference to Exhibit 10(m) of the Primeco Registration Statement.)
10.18 Indemnity Agreement, dated as of April 1, 1996, between Primeco and Brian Fontana (Incorporated by
reference to Exhibit 10.2 of Primeco's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIALLY
NUMBER
NUMBERED
PAGE DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.19 Indemnity Agreement, dated as of December 2, 1994 between Primeco and E. Garrett Bewkes, III.
(Incorporated by reference to Exhibit 10(I) of the Primeco Registration Statement.)
10.20 Indemnity Agreement, dated as of December 2, 1994 between Primeco and Robert V. Glaser. (Incorporated
by reference to Exhibit 10(j) of the Primeco Registration Statement.)
10.21 Indemnity Agreement, dated as of January 30, 1995 between Primeco and Kevin L. Loughlin.
(Incorporated by reference to Exhibit 10(o) of the Primeco Registration Statement.)
10.22 Settlement Agreement and Release, dated as of February 26, 1996, by and among Michael Murnin, Randal
Shields, Lloyd Glick, Randolph Goss, Thomas Darnell, Chris Fix, Carlos Goff, Cathy Albritton,
Vibroplant U.S. Inc, and Vibroplant plc. (Incorporated by reference to Exhibit 10.20 of the 1995
10-K).
10.23 Stock Purchase Agreement, dated as of January 9, 1996, and as amended and supplemented by the Closing
Supplement to Stock Purchase Agreement dated as of February 26, 1996, by and among Vibroplant plc,
Vibroplant Investments, Ltd. and Primeco Inc. (Incorporated by reference to Exhibits 2.1 and 2.2 of
Primeco's Current Report on Form 8-K, filed with the SEC on March 12, 1996).
10.24 Form of Mortgage from Primeco Inc. to the CIT Group/Business Credit, Inc. and schedule of
substantially identical mortgages pursuant to Rule 12b-31 of the Exchange Act. (Incorporated by
reference to Exhibit 10.23 of the Primeco 10-K.)
10.25 Stock Purchase Agreement, dated October 2, 1994, as amended by Amendment No. 1, dated as of November
28, 1994, between Prime Acquisition Corp. and American Perco, Inc. (Incorporated by reference to
Exhibits 10(a) and 10(b) of the Primeco Registration Statement.)
10.26 Asset Purchase and Sale Agreement, dated as of May 13, 1996, as amended as of July 29, 1996, among
Primeco, Alpine Equipment Rentals & Supply Company, Inc., Gary R. Eide, Dale V. Houg, Jerome G.
Schneider and Edward M. Zawislak (incorporated by reference to Exhibits 2.1 and 2.2 of Primeco's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
10.27 Holdings Guarantee, dated as of December 1, 1994, made by the Company in favor of the CIT
Group/Business Credit, Inc.*
10.28 Holdings Pledge Agreement, dated as of December 1, 1994, made by the Company in favor of the CIT
Group/Business Credit, Inc.*
10.29 Amendment No. 1 to Employment Agreement, dated as of October 25, 1996, between Primeco and Thomas E.
Bennett.
10.30 Amendment No. 1 to Employment Agreement, dated as of October 25, 1996, between Primeco and Brian
Fontana.
10.31 Amendment No. 1 to Employment Agreement, dated as of October 25, 1996, between Primeco and Kevin L.
Loughlin.
10.32 Amendment No. 1 to Employment Agreement, dated as of October 25, 1996, between Primeco and Peter A.
Post.
10.33 Employment Agreement, dated as of October 25, 1996, between Primeco and James O. York.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIALLY
NUMBER
NUMBERED
PAGE DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.34 Prime Service, Inc. 1996 Management Stock Incentive Plan.
10.35 Form of Amended and Restated Credit Agreement, dated as of October , 1996, among Primeco, as
borrower, The Chase Manhattan Bank, as Administrative Agent, and The CIT Group/Business Credit, Inc.,
as Collateral Agent.
10.36 Termination of Management Agreement, dated as of October 25, 1996, between the Company and Investcorp
International, Inc.
22.1 Subsidiaries of the Company*
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1)
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of KPMG Peat Marwick LLP*
24.1 Power of Attorney (included on signature page of this Registration Statement).*
27.1 Financial Data Schedule*
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 2.1
[CS&M Draft 10/25/96]
7,250,000 SHARES
PRIME SERVICE, INC.
COMMON STOCK ($0.01 PAR VALUE)
UNDERWRITING AGREEMENT
October [31], 1996
CS FIRST BOSTON CORPORATION
MERRILL LYNCH PIERCE, FENNER & SMITH INCORPORATED
SALOMON BROTHERS INC
As Representatives of the Several Underwriters,
c/o CS First Boston Corporation,
Park Avenue Plaza,
New York, N.Y. 10055
Dear Sirs:
1. INTRODUCTORY. Prime Service, Inc., a Delaware corporation ("Company"),
proposes to issue and sell ("U.S. Offering") to the several Underwriters named
in Schedule A hereto ("Underwriters"), for whom CS First Boston Corporation
("CSFBC"), Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon
Brothers Inc are acting as representatives ("Representatives"), 5,800,000 shares
("U.S. Firm Securities") of its Common Stock, $0.01 par value per share
("Securities"). The stockholders listed in Schedule B hereto ("Selling
Stockholders") propose severally to sell to the Underwriters and the Managers
(as herein defined), at the option of the Underwriters and the Managers, an
aggregate of not more than 1,087,500 additional shares of Securities ("Optional
Securities") as set forth below. The U.S. Firm Securities and the Optional
Securities that may be sold to the Underwriters ("U.S. Optional Securities") are
herein collectively called the "U.S. Securities".
It is understood that the Company and the Selling Stockholders are
concurrently entering into a Subscription Agreement, dated the date hereof (the
"Subscription Agreement"), with CS First Boston Limited ("CSFBL") and the other
managers named therein (together with CSFBL, the "Managers"), relating to the
concurrent offering and sale outside the United States and Canada
("International Offering") by the Company of 1,450,000 shares of Securities
("International Firm Securities", which together with the Optional Securities
that may be sold to the Managers ("International Optional Securities") are
hereinafter called the "International Securities"). The U.S. Securities and the
International Securities are collectively referred to as the "Offered
Securities". To provide for the coordination of their activities, the
Underwriters and the Managers have entered into an Agreement Between U.S.
Underwriters and Managers which permits them, among other things, to sell the
Offered Securities to each other for purposes of resale.
The Company and each of the Selling Stockholders hereby agree with the
several Underwriters as follows:
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING STOCKHOLDERS.
(a) The Company represents and warrants to, and agrees with, the several
Underwriters that:
(i) A registration statement (No. 333-11517) relating to the Offered Securities,
including a form of prospectus relating to the U.S. Securities and a form of
prospectus relating to the International Securities being offered in the
International Offering, has been filed with the Securities and Exchange
Commission ("Commission") and either (A) has been declared effective under the
Securities Act of 1933 ("Act") and is not proposed to be amended or (B) is
proposed to be amended by amendment or post-effective amendment. If such
registration statement (the "initial registration statement") has been declared
effective, either (A) an additional registration statement (the "additional
registration statement") relating to the Offered Securities may have been filed
with the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act and,
if so filed, has become effective upon filing pursuant to such Rule and the
Offered Securities all have been duly registered under the Act pursuant to the
initial registration statement and, if applicable, the additional registration
statement or (B) such an additional registration statement is proposed to be
filed with the Commission pursuant to Rule 462(b) and will become effective upon
filing pursuant to such Rule and upon such filing the Offered Securities will
all have been duly registered under the Act pursuant to the initial registration
statement and such additional registration statement. If the Company does not
propose to amend the initial registration statement or, if an additional
registration statement has been filed and the Company does not propose to amend
it and if any post-effective amendment to either such registration statement has
been filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become effective
upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the
case of the additional registration statement, Rule 462(b). For purposes of this
Agreement, "Effective Time" with respect to the initial registration statement
or, if filed prior to the execution and delivery of this Agreement, the
additional registration statement means (A) if the Company has advised the
Representatives that it does not propose to amend such registration statement,
the date and time as of which such registration statement, or the most recent
post-effective amendment thereto (if any) filed prior to the execution and
delivery of this Agreement, was declared effective by the Commission or has
become effective upon filing pursuant to Rule 462(c), or (B) if the Company has
advised the Representatives that it proposes to file an amendment or post-
effective amendment to such registration statement, the date and time as of
which such registration statement, as amended by such amendment or post-
effective amendment, as the case may be, is declared effective by the
Commission. If an additional registration statement has not been filed prior to
the execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect to
such additional registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule 462(b).
"Effective Date" with respect to the initial registration statement or the
additional registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective Time,
including all information contained in the additional registration statement (if
any) and deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all information (if
any) deemed to be a part of the initial registration statement as of its
Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is
hereinafter referred to as the "Initial Registration Statement". The additional
registration statement (if any), as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference therein
and including all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule 430A(b), is
hereinafter referred to as the "Additional Registration Statement". The Initial
Registration Statement and the Additional Registration Statement are hereinafter
referred to collectively as the "Registration Statements" and individually as a
"Registration Statement". The form of prospectus relating to the U.S.
Securities and the form of prospectus
2
<PAGE>
relating to the International Securities, each as first filed with the
Commission pursuant to and in accordance with Rule 424(b) ("Rule 424(b)")
under the Act or (if no such filing is required) as included in a
Registration Statement, are hereinafter referred to as the "U.S. Prospectus"
and the "International Prospectus", respectively, and collectively as the
"Prospectuses". No document has been or will be prepared or distributed in
reliance on Rule 434 under the Act.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the
rules and regulations of the Commission ("Rules and Regulations") and did
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, (B) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all respects to the requirements of the Act
and the Rules and Regulations and did not include, or will not include, any
untrue statement of a material fact and did not omit, or will not omit, to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading and (C) on the date of this Agreement
the Initial Registration Statement and, if the Effective Time of the
Additional Registration Statement is prior to the execution and delivery of
this Agreement; the Additional Registration Statement each conforms, and at
the time of filing of each of the Prospectuses pursuant to Rule 424(b) (or
if no such filing is required at the Effective Date of the Additional
Registration Statement in which the Prospectuses are included), each
Registration Statement and each of the Prospectuses will conform, in all
respects to the applicable requirements of the Act and the Rules and
Regulations, and none of such documents includes, or will include, any
untrue statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectuses, in light of the
circumstances under which such statements were made) not misleading. If the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement: on the Effective Date of the
Initial Registration Statement, the Initial Registration Statement and each
of the Prospectuses will conform in all respects to the requirements of the
Act and the Rules and Regulations, none of such documents will include any
untrue statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements therein
(in the case of the Prospectuses, in light of the circumstances under which
such statements were made) not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do not
apply to statements in or omissions from a Registration Statement or either
of the Prospectuses based upon written information furnished to the Company
by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information is
that described as such in Section 7(c).
(iii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectuses; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure to be so qualified or in good standing would not have,
individually or in the aggregate, a material adverse effect on the
condition (financial or otherwise), results of operations, business or
prospects of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect").
3
<PAGE>
(iv) Primeco, Inc. ("Primeco"), a Texas corporation, and wholly-owned
subsidiary of the Company, has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Texas, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectuses, and is duly qualified to do
business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct of
its business requires such qualification, in each case except as would not
have a Material Adverse Effect. All of the issued and outstanding capital
stock of Primeco has been duly authorized and validly issued, is fully paid
and nonassessable and is owned by the Company, free from liens,
encumbrances and defects, except as otherwise described in the
Prospectuses. The Company has no subsidiaries other than Primeco and Prime
Equipment Company, a Texas corporation that is inactive and has total
assets of less than $50,000.
(v) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized; all outstanding shares of
capital stock of the Company are, and, when the Offered Securities have
been delivered and paid for in accordance with this Agreement and the
Subscription Agreement on each Closing Date (as defined below), such
Offered Securities will have been, validly issued, fully paid and
nonassessable and will conform in all material respects to the description
thereof contained in the Prospectuses; and the stockholders of the Company
have no preemptive rights with respect to the Securities.
(vi) Except as disclosed in the Prospectuses, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter or
Manager for a brokerage commission, finder's fee or other like payment.
(vii) Except for the Registration Rights Agreement dated as of [ ],
1996 (the "Registration Rights Agreement"), among the Company and certain
stockholders of the Company party thereto, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned
or to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to a Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act.
(viii) The Offered Securities have been approved for listing on the
New York Stock Exchange subject to official notice of issuance and
compliance by the Underwriters with their undertaking to sell round lots of
100 Shares or more to a minimum of 2,000 beneficial owners.
(ix) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court or arbitrator is required for
the consummation of the transactions contemplated by this Agreement or the
Subscription Agreement in connection with the issuance and sale of the
Offered Securities by the Company, except such as have been obtained and
made under the Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and such as may be required under state or foreign
securities laws.
(x) The execution, delivery and performance of this Agreement and the
Subscription Agreement and the consummation of the transactions herein and
therein contemplated will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any
4
<PAGE>
existing statute, any existing rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company or any subsidiary of the Company or any of
their properties, or any agreement or instrument to which the Company or
any such subsidiary is a party or by which the Company or any such
subsidiary is bound or to which any of the properties of the Company or any
such subsidiary is subject (except as would not have a Material Adverse
Effect), or the charter or by-laws of the Company or any such subsidiary,
and the Company has full power and authority to authorize, issue and sell
the Offered Securities as contemplated by this Agreement and the
Subscription Agreement.
(xi) This Agreement and the Subscription Agreement have been duly
authorized, executed and delivered by the Company.
(xii) Except as disclosed in the Prospectuses, the Company and its
subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them that are material to the business
of the Company and its subsidiaries, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectuses, the Company and its subsidiaries
hold all leased real or personal properties that are material to the
business of the Company and its subsidiaries under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or to be made thereof by them.
(xiii) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or
bodies necessary to conduct the business now operated by them (except where
the failure to possess the same would not individually or in the aggregate
have a Material Adverse Effect) and have not received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
reasonably could be expected to have a Material Adverse Effect.
(xiv) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is contemplated that
might have a Material Adverse Effect.
(xv) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and
other intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently
employed by them, and have not received any notice of infringement of or
conflict with asserted rights of others with respect to any intellectual
property rights that, if determined adversely to the Company or any of its
subsidiaries, could individually or in the aggregate reasonably be expected
to have a Material Adverse Effect.
(xvi) Except as disclosed in the Prospectuses, neither the Company nor
any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration
of the environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"), owns or operates any real property
contaminated with any substance that is subject to any environmental laws,
is liable for any off-site disposal or contamination pursuant to any
environmental laws, or is
5
<PAGE>
subject to any claim relating to any environmental laws, which violation,
contamination, liability or claim would individually or in the aggregate
have a Material Adverse Effect; and the Company is not aware of any pending
investigation which might lead to such a claim.
(xvii) There are no pending actions, suits or proceedings against or
affecting the Company, any of its subsidiaries or any of their respective
properties that, if determined adversely to the Company or any of its
subsidiaries, individually or in the aggregate could reasonably be expected
to have a Material Adverse Effect, or could reasonably be expected to
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement or the Subscription Agreement, or which
are otherwise material in the context of the sale of the Offered
Securities; and no such actions, suits or proceedings are threatened or, to
the Company's knowledge, contemplated.
(xviii) The financial statements included in each Registration
Statement and the Prospectuses present fairly the financial position of the
Company and its consolidated subsidiaries as of the dates shown and their
results of operations and cash flows for the periods shown, and such
financial statements have been prepared in conformity with the generally
accepted accounting principles in the United States and such generally
accepted accounting principles, except as noted in such financial
statements, have been applied on a consistent basis. The pro forma
financial statements contained in the Prospectuses have been prepared on a
basis consistent with the financial statements referred to above, except
for the pro forma adjustments specified therein, include all material
adjustments to the historical financial data required by Rule 11-02 of
Regulation S-X to reflect the 1996 Acquisitions and the Offering (as
defined in the Prospectuses), and give effect to assumptions made on a
reasonable basis and present fairly the historical and proposed
transactions contemplated by the Prospectuses, this Agreement and the
Subscription Agreement.
(xix) Since the date of the latest audited financial statements
included in the Prospectuses there has been no material adverse change, nor
any development or event involving a prospective material adverse change,
in the condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole and, except
as set forth in the Prospectuses, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class
of its capital stock.
(xx) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof
as described in the Prospectuses, will not be an "investment company" as
defined in the Investment Company Act of 1940.
(xxi) The Company and its subsidiaries have and will maintain
insurance covering their properties, operations, personnel and businesses,
which insurance is in amounts and insures against such losses and risks, in
each case as is in accordance with customary industry practice to protect
the Company, its subsidiaries and their businesses. Neither the Company
nor any of its subsidiaries has received notice from any insurer or agent
of such insurer that capital improvements or other expenditures will have
to be made in order to continue such insurance, except such as could not
reasonably be expected, singularly or in the aggregate, to have a Material
Adverse Effect.
(xxii) The Company and its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (A)
transactions are executed in accordance with management's general or
specific authorizations; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting princi-
6
<PAGE>
ples and to maintain asset accountability; (C) access to assets is
permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(b) Each Selling Stockholder severally represents and warrants to, and
agrees with, the several Underwriters that:
(i) Such Selling Stockholder has been duly organized as an
incorporated company with limited liability and is in good standing under
the laws of the Cayman Islands.
(ii) Such Selling Stockholder has and on each Closing Date hereinafter
mentioned will have valid and unencumbered title to the Optional Securities
to be delivered by such Selling Stockholder on such Closing Date and full
right, power and authority to enter into this Agreement and the
Subscription Agreement and to sell, assign, transfer and deliver the
Optional Securities to be delivered by such Selling Stockholder on such
Closing Date hereunder or thereunder; and upon the delivery of payment for
the Optional Securities on each Closing Date hereunder or thereunder the
several Underwriters or Managers, as applicable, will acquire valid and
unencumbered title to the Optional Securities to be delivered by such
Selling Stockholder on such Closing Date.
(iii) Each of this Agreement, the Subscription Agreement and the
Custody Agreement and related power of attorney with respect to each
Selling Stockholder has been duly authorized and validly executed and
delivered by such Selling Stockholder and each such Custody Agreement and
related power of attorney constitutes a valid and legally binding agreement
of such Selling Stockholder, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability affecting creditors'
rights and to general equity principles.
(iv) There are no material agreements or arrangements relating to the
Company or its subsidiaries to which any Selling Stockholder or any of
their direct or indirect subsidiaries is a party that are required to be
described in the Prospectuses or to be filed as exhibits thereto and that
are not so described or filed.
(v) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court or arbitrator is required for
the consummation of the transactions contemplated by this Agreement, the
Subscription Agreement or the Custody Agreement in connection with the sale
of the Offered Securities by such Selling Stockholder, except such as have
been obtained and made under the Act or the Exchange Act and such as may be
required under state or foreign securities laws.
(vi) The execution, delivery and performance of this Agreement, the
Subscription Agreement and the Custody Agreement by such Selling
Stockholder and the consummation by such Selling Stockholder of the
transactions herein and therein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental
agency or body or any court having jurisdiction over such Selling
Stockholder or any of its properties, or any material agreement or
instrument to which it is a party or by which it is bound or any of its
properties is subject, or the charter or by-laws of such Selling
Stockholder.
7
<PAGE>
(vii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the
Rules and Regulations and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, (B) on
the Effective Date of the Additional Registration Statement (if any), each
Registration Statement conformed, or will conform, in all respects to the
requirements of the Act and the Rules and Regulations and did not include,
or will not include, any untrue statement of a material fact and did not
omit, or will not omit, to state any material fact required to be stated
therein or necessary to make the statement therein not misleading, and
(C) on the date of this Agreement, the Initial Registration Statement and,
if the Effective Time of the Additional Registration Statement is prior to
the execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the Effective
Date of the Additional Registration Statement in which the U.S. Prospectus
is included, each Registration Statement and each of the Prospectuses will
conform, in all respects to the requirements of the Act and the Rules and
Regulations, and none of such documents includes, or will include, any
untrue statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement: on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement and the U.S. Prospectus will conform in all
respects to the requirements of the Act and the Rules and Regulations,
neither of such documents will include any untrue statement of a material
fact or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. The two
preceding sentences apply only to statements in or omissions from a
Registration Statement or a Prospectus based upon written information
relating to a Selling Stockholder or any direct or indirect stockholder of
a Selling Stockholder and furnished to the Company by any Selling
Stockholder specifically for use therein.
3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of U.S. $ per share, the
respective numbers of shares of U.S. Firm Securities set forth opposite the
names of the Underwriters in Schedule A hereto.
The Company will deliver the U.S. Firm Securities to the Representatives
for the accounts of the Underwriters, against payment of the purchase price by
official bank check or checks in Federal Reserve (same day) funds drawn to the
order of the Company at the office of or by wire transfer to a
bank acceptable to CSFBC, at 10:00 A.M., New York time, on
, or at such other time not later than seven full
business days thereafter as CSFBC and the Company determine, such time being
herein referred to as the "First Closing Date". For purposes of Rule 15c6-1
under the Securities Exchange Act of 1934, the First Closing Date (if later than
the otherwise applicable settlement date) shall be the settlement date for
payment of funds and delivery of securities for all the Offered Securities sold
pursuant to the U.S. Offering and the International Offering. The certificates
for the U.S. Firm Securities so to be delivered will be in definitive form, in
such denominations and registered in such names as CSFBC requests and will be
made available for checking and packaging at the above office of at
least 24 hours prior to the First Closing Date.
8
<PAGE>
In addition, upon written notice from CSFBC given to the Company and the
Selling Stockholders from time to time not more than 30 days subsequent to the
date of the Prospectuses, the Underwriters may purchase all or less than all of
the U.S. Optional Securities at the purchase price per Security to be paid for
the U.S. Firm Securities. The U.S. Optional Securities to be purchased by the
Underwriters on any Optional Closing Date shall be in the same proportion to all
the Optional Securities to be purchased by the Underwriters and the Managers on
such Optional Closing Date as the U.S. Firm Securities bear to all the Firm
Securities. Each Selling Stockholder agrees, severally and not jointly, to sell
to the Underwriters the number of shares of U.S. Optional Securities (subject to
adjustment by CSFBC to eliminate fractions) obtained by multiplying the number
of U.S. Optional Securities specified in such notice by a fraction, the
numerator of which is the number of U.S. Optional Securities set forth opposite
the name of such Selling Stockholder in Schedule B hereto and the denominator of
which is the total number of U.S. Optional Securities. The Underwriters agree,
severally and not jointly, to purchase such U.S. Optional Securities. Such U.S.
Optional Securities shall be purchased for the account of each Underwriter in
the same proportion as the number of shares of U.S. Firm Securities set forth
opposite such Underwriter's name bears to the total number of shares of U.S.
Firm Securities (subject to adjustment by CSFBC to eliminate fractions) and may
be purchased by the Underwriters only for the purpose of covering over-
allotments made in connection with the sale of the U.S. Firm Securities. No U.S.
Optional Securities shall be sold or delivered unless the U.S. Firm Securities
and the International Firm Securities previously have been, or simultaneously
are, sold and delivered. The right to purchase the Optional Securities or any
portion thereof may be exercised from time to time and to the extent not
previously exercised may be surrendered and terminated at any time upon notice
by CSFBC on behalf of the Underwriters and the Managers to the Company and the
Selling Stockholders. It is understood that CSFBC is authorized to make payment
for and accept delivery of such Option Securities on behalf of the Underwriters
and Managers pursuant to the terms of CSFBC's instructions to the Company and
the Selling Stockholders.
Certificates in negotiable form for the Optional Securities to be sold by
the Selling Stockholders have been placed in custody, for delivery under this
Agreement and the Subscription Agreement, under Custody Agreements made with
Chase Mellon Shareholder Services, L.L.C., as custodian ("Custodian"). Each
Selling Stockholder agrees that the shares represented by the certificates held
in custody for such Selling Stockholder under such Custody Agreements are
subject to the interests of the Underwriters hereunder and the Managers under
the Subscription Agreement, that the arrangements made by such Selling
Stockholder for such custody are to that extent irrevocable, and that the
obligations of such Selling Stockholder hereunder or thereunder shall not be
terminated by operation of law, whether by the death of any individual Selling
Stockholder or the occurrence of any other event, or in the case of a trust, by
the death of any trustee or trustees of the termination of such trust. If any
individual Selling Stockholder or any such trustee or trustees should die, or if
any other such event should occur, or if any of such trusts should terminate,
before the delivery of the Optional Securities hereunder or under the
Subscription Agreement, certificates for the Optional Securities shall be
delivered by the Custodian in accordance with the terms and conditions of this
Agreement and the Subscription Agreement as if such death or other event or
termination had not occurred, regardless of whether or not the Custodian shall
have received notice of such death or other event or termination.
Each time for the delivery of and payment for the U.S. Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Custodian, on behalf of
the Selling Stockholders, will deliver the U.S. Optional Securities being
purchased from the Selling Stockholders on each Optional Closing Date to the
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Representatives for the accounts of the several Underwriters, against payment of
the purchase price therefor by official bank check or checks in Federal Reserve
(same day) funds drawn to the order of or by wire transfer to a
bank acceptable to CSFBC, at the above office of . The
certificates for the U.S. Optional Securities being purchased on each Optional
Closing Date will be in definitive form, in such denominations and registered in
such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and will be made available for checking and packaging at the above
office of at a reasonable time in
advance of such Optional Closing Date.
4. OFFERING BY UNDERWRITERS. It is understood that the several Underwriters
propose to offer the U.S. Securities for sale to the public as set forth in the
U.S. Prospectus.
5. CERTAIN AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS. The
Company or each of the several Selling Stockholders, as the case may be, agrees
with the several Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file each of the Prospectuses with the Commission pursuant to and in
accordance with subparagraph (1) (or, if applicable and if consented to by
CSFBC, subparagraph (4)) of Rule 424(b) not later than the earlier of
(A) the second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of the
Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time either Prospectus is printed and
distributed to any Underwriter or Manager, or will make such filing at such
later date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or
either of the related prospectuses or the Initial Registration Statement,
the Additional Registration Statement (if any) or either of the
Prospectuses and will not effect such amendment or supplementation without
CSFBC's prior consent; and the Company will also advise CSFBC promptly of
the effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this Agreement) and of any
amendment or supplementation of a Registration Statement or either of the
Prospectuses and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its
reasonable best efforts to prevent the issuance of any such stop order and
to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter, Manager or dealer, any event occurs as a result
of which either or both of the Prospectuses as then amended or supplemented
would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend either or both of the Prospectuses to comply
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with the Act, the Company will promptly notify CSFBC of such event and will
promptly prepare and file with the Commission, at its own expense, an
amendment or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither CSFBC's consent to,
nor the Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act
and Rule 158 promulgated thereunder. For the purpose of the preceding
sentence, "Availability Date" means the 45th day after the end of the
fourth fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the 90th
day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as delivery of
a prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
U.S. Prospectus and all amendments and supplements to such documents, in
each case in such quantities as CSFBC reasonably requests. The U.S.
Prospectus shall be so furnished on or prior to 5:00 P.M., New York time,
on the business day following the later of the execution and delivery of
this Agreement or the Effective Time of the Initial Registration Statement.
All other such documents shall be so furnished as soon as available. The
Company will pay the expenses of printing and distributing to the
Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions in the United
States as CSFBC designates and will continue such qualifications in effect
so long as required for the distribution of the Offered Securities,
PROVIDED that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction.
(g) During the period of three years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as CSFBC may reasonably request, which additional information
shall be kept confidential by the Underwriters in accordance with their
normal procedures relating to such information.
(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, including the cost of printing
documents (including the Registration Statement and the Prospectuses), and
will reimburse the Underwriters (if and to the extent incurred by them) for
any filing fees and other expenses (including fees and disbursements of
counsel) incurred by them in connection with qualification of the Offered
Securities for sale under the laws of such jurisdictions
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in the United States as CSFBC designates and the printing of memoranda
relating thereto, for the filing fee of the National Association of
Securities Dealers, Inc. relating to the Offered Securities, for any travel
expenses of the Company's officers and employees and any other expenses of
the Company in connection with attending or hosting meetings with
prospective purchasers of the Offered Securities, for any transfer taxes on
the sale by the Selling Stockholders of the Optional Securities to the
Underwriters and for expenses incurred in distributing preliminary
prospectuses and the Prospectuses (including any amendments and supplements
thereto) to the Underwriters.
For a period of 180 days after the date of the initial public offering of
the Offered Securities, the Company will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Commission a registration statement under the Act (other than on Form S-8 and
relating to resales of securities as described in the general instructions to
Form S-8) relating to, any additional shares of its Securities or securities
convertible into or exchangeable or exercisable for any shares of its
Securities, or publicly disclose the intention to make any such offer, sale,
pledge, disposal or filing, without the prior written consent of CSFBC, except
sales or grants of stock, restricted stock, stock options or stock appreciation
rights pursuant to the terms of the Management Stock Incentive Plan (as
described in the Prospectuses) as in effect on the date hereof and issuances of
Securities pursuant to the exercise of such options. The Company will not,
within such 180 day period, waive any restriction existing as of the date of
this Agreement contained in the Management Stock Incentive Plan and relating to
the sale of shares of Common Stock without the prior written consent of CSFBC.
Each Selling Stockholder agrees to deliver to CSFBC, attention:
Transactions Advisory Group on or prior to the First Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
Each Selling Stockholder agrees, for a period of 180 days after the date of
the initial public offering of the Offered Securities, not to offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
additional shares of the Securities of the Company or securities convertible
into or exchangeable or exercisable for any shares of Securities, or publicly
disclose the intention to make any such offer, sale, pledge or disposal, without
the prior written consent of CSFBC or unless pursuant to (a) a bona fide gift,
(b) transfers made to family members, trusts or other similar transfers, in each
case for estate planning purposes, (c) transfers to affiliated entities and
(d) pledges in connection with loans or other obligations, PROVIDED, HOWEVER,
that any person receiving or holding such Securities as a result of any of (a),
(b), (c) or (d) agrees in writing with you to be bound by the provisions of this
Agreement.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
the several Underwriters to purchase and pay for the U.S. Firm Securities on the
First Closing Date and the U.S. Optional Securities to be purchased on each
Optional Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein, to
the accuracy of the statements of Company officers made pursuant to the
provisions hereof, to the performance by each of the Company and each Selling
Stockholder of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the
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registration statement to be filed shortly prior to such Effective Time),
from each of Coopers & Lybrand L.L.P. and KPMG Peat Marwick LLP confirming
that they are independent public accountants within the meaning of the Act
and the applicable published Rules and Regulations thereunder and stating
to the effect that:
(i) in their opinion the financial statements examined by them
and included or in the Registration Statements comply as to form in
all material respects with the applicable accounting requirements of
the Act and the related published Rules and Regulations;
(ii) with respect to the letter of Coopers & Lybrand L.L.P. only,
that they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements included in the Registration Statements;
(iii) with respect to the letter of Coopers & Lybrand L.L.P.
only, on the basis of the review referred to in clause (ii) above, a
reading of the latest available interim financial statements of the
Company, inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations or any material
modifications should be made to such unaudited financial
statements for them to be in conformity with generally accepted
accounting principles;
(B) at the date of the latest available balance sheet read
by such accountants and at a subsequent specified date not more
than three days prior to the date of this Agreement, there was
any change in the capital stock or any increase in debt or
decrease in Stockholders' equity or consolidated net assets of
the Company and its consolidated subsidiaries, as compared with
amounts shown on the latest balance sheet included in the
Prospectuses; or
(C) for the period from the closing date of the latest
income statement included in the Prospectuses to the closing date
of the latest available income statement read by such accountants
and to a subsequent specified date not more than five days prior
to the date of this Agreement, there were any decreases, as
compared with the corresponding period of the previous year, in
total revenues, gross profit, operating income or net income,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which are described in such letter, in
which case the letter shall be accompanied by an explanation by the
Company as to the significance thereof unless said explanation is not
deemed necessary by the Representatives;
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(iv) with respect to the letter of Coopers & Lybrand L.L.P. only,
that they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter; and
(v) with respect to the letter of Coopers & Lybrand L.L.P. only,
on the basis of a reading of the unaudited pro forma financial
statements included in the Registration Statement and the Prospectuses
(the "pro forma financial statements"); carrying out certain specified
procedures; reading of minutes and inquiries of certain officials of
the Company who have responsibility for financial and accounting
matters; and proving the arithmatic accuracy of the application of the
pro forma adjustments to the historical amounts in the pro forma
financial statements, nothing came to their attention which caused
them to believe that the pro forma financial statements do not comply
in form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts
in the compilation of such statements or on the pro forma basis
described in the notes thereto.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration Statement is subsequent to such execution and
delivery, "Registration Statements" shall mean the Initial Registration
Statement and the additional registration statement as proposed to be filed
or as proposed to be amended by the post-effective amendment to be filed
shortly prior to its Effective Time, and (iii) "Prospectuses" shall mean
the prospectuses included in the Registration Statements.
(b) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time either
Prospectus is printed and distributed to any Underwriter or Manager, or
shall have occurred at such later date as shall have been consented to by
CSFBC. If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement, each of the Prospectuses
shall have been filed with the Commission in accordance with the Rules and
Regulations and Section 5(a) of this Agreement. Prior to such Closing Date,
no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives,
shall be contemplated by the Commission. Copies of the Prospectus shall
have been printed and distributed to the Underwriters
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in such numbers as they may reasonably request as soon as practicable on or
following the date of this Agreement.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company or its
subsidiaries taken as a whole which, in the reasonable judgment of a
majority in interest of the Underwriters including the Representatives,
individually or in the aggregate is material and adverse and makes it
impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the U.S. Securities; (ii) any
downgrading in the rating of any debt securities of the Company by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act), or any public announcement that any
such organization has under surveillance or review its rating of any debt
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of trading
in securities generally on the New York Stock Exchange, or any setting of
minimum prices for trading on such exchange, or any suspension of trading
of any securities of the Company on any exchange or in the over-the-counter
market; (iv) any general banking moratorium declared by U.S. Federal or
New York authorities; or (v) any outbreak or escalation of major
hostilities in which the United States is involved, any declaration of war
by Congress or any other substantial national or international calamity or
emergency if, in the reasonable judgment of a majority in interest of the
Underwriters including the Representatives, the effect of any such
outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the U.S. Securities.
(d) The Representatives shall have received an opinion, dated such
Closing Date, of Gibson, Dunn & Crutcher, counsel for the Company, to the
effect that:
(i) Each of the Company and Primeco has been duly incorporated
and is an existing corporation in good standing under the laws of the
state of its organization, with corporate power and authority to own
its properties and conduct its business as described in the
Prospectuses; and each of the Company and Primeco is duly qualified to
do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification (other than those
jurisdictions in which the failure so to qualify would not have a
Material Adverse Effect);
(ii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company and
each of its subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and conform in all material respects
to the description thereof contained in the Prospectuses; and the
stockholders of the Company have no preemptive rights with respect to
the Offered Securities;
(iii) Other than the Registration Rights Agreement, there are no
contracts, agreements or understandings known to such counsel between
the Company or any of its subsidiaries and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
or any
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of its subsidiaries owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Act;
(iv) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectuses, will not be an "investment
company" as defined in the Investment Company Act of 1940;
(v) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court or arbitrator is
required for the consummation of the transactions contemplated by this
Agreement, the Subscription Agreement or the Custody Agreement in
connection with the issuance and sale by the Company of the Firm
Securities, except such as have been obtained and made under the Act
and the Exchange Act and such as may be required under state or
foreign securities laws;
(vi) The execution, delivery and performance of this Agreement
and the Subscription Agreement and the consummation of the
transactions herein and therein contemplated will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court having jurisdiction
over the Company, any subsidiary of the Company or any of their
properties, or any agreement or instrument identified to such counsel
in a certificate by the Company as being a material agreement or
instrument to which the Company or any such subsidiary is a party or
by which the Company or any such subsidiary is bound or to which any
of their properties are subject, or the charter or by-laws of the
Company or any such subsidiary, and the Company has full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement and the Subscription Agreement;
(vii) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, each of the Prospectuses either was filed
with the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein (which opinion
may be given in reliance upon acceptance by the Commission of the
EDGAR transmission of such filing by the Company) or was included in
the Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
U.S. Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; and
(viii) This Agreement and the Subscription Agreement have been
duly authorized, executed and delivered by the Company;
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In addition, such counsel shall state that such counsel has participated in
the preparation of the Registration Statements and the Prospectuses and in
conferences with officers and other representatives of the Company,
representatives of the independent auditors of the Company and your
representatives at which the contents of the Registration Statements and
Prospectuses and related matters were discussed. Such counsel also may
state that because the purpose of their professional engagement was not to
establish or confirm factual matters and because the scope of their
examination of the affairs of the Company did not permit them to verify the
accuracy, completeness or fairness of the statements set forth in the
Registration Statements or Prospectuses, they are not passing upon and do
not assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statements or Prospectuses,
except to the extent set forth in the last sentence of this paragraph. On
the basis of the foregoing, and except for the financial statements and
schedules and other financial data included therein, as to which such
counsel need express no opinion or belief, (a) such counsel is of the
opinion that the Registration Statements at the time they became effective,
and the Prospectuses as of the date thereof and as of the date of such
opinion, were appropriately responsive in all material respects to the
relevant requirements of the Securities Act and the General Rules and
Regulations promulgated thereunder and (b) no facts have come to such
counsel's attention that lead such counsel to believe that (i) the
Registration Statements at the time they became effective contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, or (ii) the Prospectuses as of their respective dates and
as of the date of such opinion contained or contains an untrue statement of
a material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. Such counsel
also shall state that (a) the descriptions in the Registration Statements
and Prospectuses of statutes, legal and governmental proceedings and
contracts and other documents fairly present the information called for
with respect to such documents and legal matters by the Act and the
applicable rules and regulations of the Commission thereunder relating to
registration statements on Form S-1 and prospectuses and (b) such counsel
does not know of any legal or governmental proceedings required to be
described in the Registration Statements or the Prospectuses which are not
described as required or of any contracts or documents of a character
required to be described in the Registration Statements or the Prospectuses
or to be filed as exhibits to the Registration Statements which are not
described and filed as required; it being understood that such counsel need
express no opinion as to the financial statements or other financial data
contained in the Registration Statements or the Prospectuses.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the States of New
York and Texas, the General Corporation Law of the State of Delaware and
the Federal law of the United States.
(e) The Representatives shall have received an opinion, dated such
Closing Date, of Ian Paget-Brown, counsel for the Selling Stockholders, to
the effect that:
(i) Each Selling Stockholder has been duly incorporated and is an
existing corporation in good standing under the laws of the Cayman
Islands, with corporate power and authority to own its properties and
conduct its business as currently operated;
(ii) Each Selling Stockholder has valid and unencumbered title
to, and full right, power and authority to sell, assign, transfer and
deliver, the Optional Securities delivered
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by such Selling Stockholder on such Closing Date hereunder; and, upon
the delivery of payment for the Optional Securities on such Closing
Date hereunder, the several Underwriters will acquire valid and
unencumbered title to the Optional Securities to be delivered by the
Selling Stockholders on such Closing Date hereunder;
(iii) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court or arbitrator is
required to be obtained by the Selling Stockholders in connection with
the sale by the Selling Stockholders of the Optional Securities;
(iv) The execution, delivery and performance by each Selling
Stockholder of this Agreement, the Subscription Agreement and the
Custody Agreement and the sale by each Selling Stockholder of the
Optional Securities owned by such Selling Stockholder to the
Underwriters will not result in a breach or violation by any such
Selling Stockholder of any of the terms and provisions of, or
constitute a default by any such Selling Stockholder under, any
existing statute, any existing rule, regulation or order of any
governmental agency or body or any court having jurisdiction over such
Selling Stockholder or any of its properties or any agreement or
instrument known to such counsel to which such Selling Stockholder is
a party or by which any of its properties may be bound, or the
[charter or by-laws] of any Selling Stockholder;
(v) This Agreement and the Subscription Agreement have been duly
authorized, executed and delivered by each Selling Stockholder;
(vi) The Custody Agreement and related power of attorney (each, a
"Power of Attorney") with respect to each Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder
and constitute valid and legally binding obligations of each such
Selling Stockholder, enforceable in accordance with their respective
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles;
(vii) The law chosen by each of this Agreement, the Subscription
Agreement, each Custody Agreement and each Power of Attorney to govern
its interpretation would be upheld as a valid choice of law in any
action on that document in the courts of the Cayman Islands; and
(viii) Each Selling Stockholder has executed an effective
submission to the jurisdiction of the courts specified in this
Agreement and the Subscription Agreement.
In rendering such opinion, such counsel may state that he expresses no
opinion as to the laws of any jurisdiction other the Cayman Islands.
(f) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated such
Closing Date, with respect to such matters as the Representatives may
require, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon
such matters.
18
<PAGE>
(g) The Representatives shall have received a certificate, dated such
Closing Date, of the Company signed by its President and the Chief
Financial Officer in which such officers, to the best of their knowledge
after reasonable investigation (including a careful examination of the
Registration Statement and the Prospectuses), shall state that (i) as of
their respective dates, the Prospectuses did not include any untrue
statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances in which they were made, not misleading
and since their respective dates no event has occurred which should have
been set forth in a supplement or amendment to either of the Prospectuses
in order to make the foregoing statement true as of the Closing Date;
(ii) as of the Closing Date, the representations and warranties of the
Company in this Agreement are true and correct in all material respects;
(iii) the Company has complied in all material respects with all agreements
and satisfied in all material respects all conditions on its part to be
performed or satisfied hereunder at or prior to such Closing Date, that no
stop order suspending the effectiveness of any Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission; (iv) the Additional Registration Statement
(if any) satisfying the requirements of subparagraphs (1) and (3) of
Rule 462(b) was filed pursuant to Rule 462(b), including payment of the
applicable filing fee in accordance with Rule 111(a) or (b) under the Act,
prior to the time either Prospectus was printed and distributed to any
Underwriter or Manager; and (v) subsequent to the date of the most recent
financial statements in the Prospectuses, there has been no material
adverse change, nor any development or event involving a prospective
material adverse change, in the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries
taken as a whole.
(h) The Representatives shall have received letters, dated such
Closing Date, of Coopers & Lybrand L.L.P. and KPMG Peat Marwick, L.L.P.
which meet the requirements of subsection (a) of this Section, except that
the specified date referred to in such subsection will be a date not more
than three days prior to such Closing Date for the purposes of this
subsection.
(i) All corporate proceedings and other legal matters incident to the
authorization, form and validity of the Offered Securities, this Agreement,
the Subscription Agreement and the Registration Statements, and all other
legal matters relating to this Agreement, the Subscription Agreement and
the other transactions contemplated hereby and thereby shall be reasonably
satisfactory in all material respects to the Underwriters, and the Company
and the Selling Stockholders shall have furnished to the Underwriters all
documents and information that the Underwriters or their counsel may
reasonably request to enable them to pass upon such matters.
(j) If any event shall have occurred that requires the Company to
prepare an amendment or supplement to either of the Prospectuses, such
amendment or supplement shall have been prepared, copies thereof shall have
been delivered to the Representatives and the Representatives shall have
been given a reasonable opportunity to comment thereon.
(k) The U.S. Offered Securities shall have been approved for listing
on the New York Stock Exchange, subject to official notice of issuance and
compliance by the Underwriters with their undertaking to sell round lots of
100 Shares or more to a minimum of 2,000 beneficial owners.
(l) The "lock-up" agreements between the Representatives and each
stockholder of the Company designated by CSFBC relating to sales of
Securities or any securities convertible into or
19
<PAGE>
exercisable or exchangeable for Securities, previously delivered to the
Representatives, shall be in full force and effect on such Closing Date.
(m) On such Closing Date, the Managers shall have purchased the
International Firm Securities or the International Optional Securities, as
the case may be, pursuant to the Subscription Agreement.
The Company and the Selling Stockholders will furnish the Representatives with
such conformed copies of such opinions, certificates, letters and documents as
the Representatives reasonably request. CSFBC may in its sole discretion waive
on behalf of the Underwriters compliance with any conditions to the obligations
of the Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, either of the Prospectuses, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the information described as such in subsection (c) below.
(b) The Selling Stockholders, jointly and severally, will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which any such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, either of the Prospectuses, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent that such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon information relating to any Selling Stockholder or any direct or
indirect stockholder of any Selling Stockholder, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; PROVIDED, HOWEVER,
that the Selling Stockholders will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement in or omission or alleged omission
from any of such documents in reliance upon and in conformity with written
information furnished to the Company by an Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (c) below.
20
<PAGE>
(c) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company and each Selling Stockholder against any losses, claims,
damages or liabilities to which the Company or any Selling Stockholder may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, either of the Prospectuses, or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representatives
specifically for use therein, and will reimburse any legal or other expenses
reasonably incurred by the Company or any Selling Stockholder in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Underwriter consists of the following information
in the U.S. Prospectus furnished on behalf of each Underwriter: the last
paragraph at the bottom of the cover page concerning the terms of the offering
by the Underwriters, the legends concerning over-allotments, stabilizing and
transactions by persons participating in the distribution on the inside front
cover page and the information in the fourth, fifth, sixth, seventh, eighth and
ninth paragraphs under the caption "Underwriting" and the information under the
caption "Notice to Canadian Residents".
(d) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a), (b) or (c) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a), (b) or (c) above. In case any such action
is brought against any indemnified party and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened action in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such settlement
includes an unconditional release of such indemnified party from all liability
on any claims that are the subject matter of such action.
(e) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a), (b) or
(c) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a), (b) or (c) above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other from the offering of the U.S. Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted
21
<PAGE>
in such losses, claims, damages or liabilities as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the U.S. Securities (before deducting expenses) received by the Company and
the Selling Stockholders bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the Selling
Stockholders on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (e) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
subsection (e). Notwithstanding the provisions of this subsection (e), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the U.S. Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under this
Section shall be in addition to any liability which the Company or any Selling
Stockholder may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company, to each officer of the Company who has signed a
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.
8. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters default in
their obligations to purchase U.S. Securities hereunder on either the First or
any Optional Closing Date and the aggregate number of shares of U.S. Securities
that such defaulting Underwriter or Underwriters agreed but failed to purchase
does not exceed 10% of the total number of shares of U.S. Securities that the
Underwriters are obligated to purchase on such Closing Date, CSFBC may make
arrangements satisfactory to the Company or the Selling Stockholders, as
applicable, for the purchase of such U.S. Securities by other persons, including
any of the Underwriters, but if no such arrangements are made by such Closing
Date, the non-defaulting Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the U.S.
Securities that such defaulting Underwriters agreed but failed to purchase on
such Closing Date. If any Underwriter or Underwriters so default and the
aggregate number of shares of U.S. Securities with respect to which such default
or defaults occur exceeds 10% of the total number of shares of U.S. Securities
that the Underwriters are obligated to purchase on such Closing Date and
arrangements satisfactory to CSFBC and the Company or the Selling Stockholders,
as applicable, for the purchase of such U.S. Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Stockholders, except as provided in Section 9 (provided that if such
default occurs with respect to U.S. Optional Securities after the First Closing
Date, this Agreement will not terminate as to the U.S. Firm Securities or any
U.S. Optional Securities purchased prior to such termination). As used in this
22
<PAGE>
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements or
certificates of the Company or its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation, or statement
as to the results thereof, made by or on behalf of any Underwriter, the Company,
the Selling Stockholders or any of their respective representatives, officers or
directors or any controlling person, and will survive delivery of and payment
for the U.S. Securities. If this Agreement is terminated pursuant to Section 8
or if for any reason the purchase of the U.S. Securities by the Underwriters is
not consummated, the Company shall remain responsible for the expenses to be
paid or reimbursed by it pursuant to Sections 5(c) or (h) and the respective
obligations of the Company, the Selling Stockholders and the Underwriters
pursuant to Section 7 shall remain in effect, and if any U.S. Securities have
been purchased hereunder the representations and warranties in Section 2 and all
obligations under Section 5 shall also remain in effect. If the purchase of the
U.S. Securities by the Underwriters is not consummated for any reason other than
solely because of the termination of this Agreement pursuant to Section 8 or the
occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(c),
the Company will reimburse the Underwriters for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the U.S. Securities.
10. NOTICES. All communications hereunder will be in writing and, (i) if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives, c/o CS First Boston Corporation, Park Avenue Plaza, New
York, N.Y. 10055, Attention: Investment Banking Department- Transactions
Advisory Group, (ii) if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at 16225 Park Ten Place, Suite 200, Houston, TX
77084, Attention: Chief Financial Officer or (iii) if sent to the Selling
Stockholders or any of them, will be mailed, delivered or telegraphed and
confirmed to them at , Attention: ; PROVIDED, HOWEVER, that any
notice to an Underwriter pursuant to Section 7 will be mailed, delivered or
telegraphed and confirmed to such Underwriter.
11. SUCCESSORS. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. REPRESENTATION. The Representatives will act for the several
Underwriters in connection with this financing, and any action under this
Agreement taken by the Representatives jointly or by CSFBC will be binding upon
all the Underwriters. Mr. Christopher J. O'Brien and Mr. Charles J. Philippin
will act for the Selling Stockholders in connection with such transactions, and
any action under or in respect of this Agreement taken by either of them will be
binding upon all the Selling Stockholders.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
23
<PAGE>
Each of the Company and each Selling Stockholder hereby submits to the non-
exclusive jurisdiction of the Federal and state courts in the Borough of
Manhattan in The City of New York in any suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby.
24
<PAGE>
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement among the Company, the
Selling Stockholders and the several Underwriters in accordance with its terms.
Very truly yours,
PRIME SERVICE, INC.,
By....................................
[CHRISTOPHER J. O'BRIEN],
on behalf of each Selling Stockholder,
By..................................
Attorney-in-fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written.
CS FIRST BOSTON CORPORATION
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
SALOMON BROTHERS INC
Acting on behalf of themselves and
as the Representatives of the
several Underwriters.
By CS FIRST BOSTON CORPORATION
By.....................................
25
<PAGE>
SCHEDULE A
NUMBER OF
U.S. FIRM
SECURITIES
UNDERWRITER TO BE SOLD
CS First Boston Corporation . . . . . . . . . . . . . . . . . . . . [ ]
Merrill Lynch, Pierce, Fenner & Smith Incorporated. . . . . . . . . [ ]
Salomon Brothers Inc. . . . . . . . . . . . . . . . . . . . . . . . [ ]
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,800,000
---------
---------
26
<PAGE>
SCHEDULE B
Number of
U.S. Optional
Securities
Selling Stockholder to be Sold
- ------------------- ----------
Arlington Limited. . . . . . . . . . . . . . . . . . . . . . .
Ballet Limited . . . . . . . . . . . . . . . . . . . . . . . .
Denary Limited . . . . . . . . . . . . . . . . . . . . . . . .
Equipment Equity Limited . . . . . . . . . . . . . . . . . . .
Equipment Holding Limited. . . . . . . . . . . . . . . . . . .
Equipment Investment Limited . . . . . . . . . . . . . . . . .
Equipment Rental Limited . . . . . . . . . . . . . . . . . . .
Eqity PEA Limited. . . . . . . . . . . . . . . . . . . . . . .
Equity PEB Limited . . . . . . . . . . . . . . . . . . . . . .
Equity PEC Limited . . . . . . . . . . . . . . . . . . . . . .
Equity PED Limited . . . . . . . . . . . . . . . . . . . . . .
Fleet Equity Limited . . . . . . . . . . . . . . . . . . . . .
Freeport Limited . . . . . . . . . . . . . . . . . . . . . . .
Gleam Limited. . . . . . . . . . . . . . . . . . . . . . . . .
Highlands Limited. . . . . . . . . . . . . . . . . . . . . . .
Investcorp Investment Equity Limited . . . . . . . . . . . . .
Laporte Limited. . . . . . . . . . . . . . . . . . . . . . . .
New Prime Equity Limited . . . . . . . . . . . . . . . . . . .
New Prime Investments Limited. . . . . . . . . . . . . . . . .
Noble Limited. . . . . . . . . . . . . . . . . . . . . . . . .
Outrigger Limited. . . . . . . . . . . . . . . . . . . . . . .
PE Holdings Limited. . . . . . . . . . . . . . . . . . . . . .
PE Investments Limited . . . . . . . . . . . . . . . . . . . .
Plano Limited. . . . . . . . . . . . . . . . . . . . . . . . .
Prime Equity Limited . . . . . . . . . . . . . . . . . . . . .
Prime Holdings Limited . . . . . . . . . . . . . . . . . . . .
Quill Limited. . . . . . . . . . . . . . . . . . . . . . . . .
Radial Limited . . . . . . . . . . . . . . . . . . . . . . . .
Rental Equity Limited. . . . . . . . . . . . . . . . . . . . .
Rental Holdings Limited. . . . . . . . . . . . . . . . . . . .
Shoreline Limited. . . . . . . . . . . . . . . . . . . . . . .
Zinnia Limited . . . . . . . . . . . . . . . . . . . . . . . . -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 870,000
-------
-------
27
<PAGE>
EXHIBIT 2.2
[CS&M Draft 10/25/96]
7,250,000 SHARES
PRIME SERVICE, INC.
COMMON STOCK ($0.01 PAR VALUE)
SUBSCRIPTION AGREEMENT
London, England
October [31], 1996
TO: CS FIRST BOSTON LIMITED
MERRILL LYNCH INTERNATIONAL LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
C/O: CS FIRST BOSTON LIMITED ("CSFBL")
One Cabot Square
London, England E14 4QJ
Dear Sirs:
1. INTRODUCTORY. Prime Service, Inc., a Delaware corporation ("Company"),
proposes to issue and sell ("International Offering") to the several Managers
named in Schedule A hereto ("Managers") 1,450,000 shares ("International Firm
Securities") of its Common Stock, $0.01 par value per share ("Securities"). The
stockholders listed in Schedule B hereto ("Selling Stockholders") propose
severally to sell to the Managers and the U.S. Underwriters (as herein defined),
at the option of the Managers and the U.S. Underwriters, an aggregate of not
more than 1,087,500 additional shares of Securities ("Optional Securities") as
set forth below. The International Firm Securities and the Optional Securities
that may be sold to the Managers ("International Optional Securities") are
herein collectively called the "International Securities".
It is understood that the Company and the Selling Stockholders are
concurrently entering into an Underwriting Agreement, dated the date hereof (the
"Underwriting Agreement"), with the U.S. Underwriters, for whom CS First Boston
Corporation ("CSFBC"), Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Salomon Brothers Inc are acting as representatives (the "U.S. Representatives"),
relating to the concurrent offering and sale in the United States and Canada
("U.S. Offering") by the Company of 5,800,000 shares of Securities ("U.S. Firm
Securities", which together with the Optional Securities that may be sold to the
U.S. Underwriters ("U.S. Optional Securities") are hereinafter called the "U.S.
Securities"). The U.S. Securities and the International Securities are
collectively referred to as the "Offered Securities". To provide for the
coordination of their activities, the U.S. Underwriters and the Managers have
entered into an Agreement Between U.S. Underwriters and Managers which permits
them, among other things, to sell the Offered Securities to each other for
purposes of resale.
The Company and each of the Selling Stockholders hereby agree with the
several Managers as follows:
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS. (a) The Company represents and warrants to, and agrees with, the
several Managers that:
(i) A registration statement (No. 333-11517) relating to the Offered
Securities, including a form of prospectus relating to the U.S. Securities
and a form of prospectus relating to the International Securities being
offered in the International Offering, has been filed with the Securities
and Exchange Commission ("Commission") and either (A) has been declared
effective under the Securities Act of 1933 ("Act") and is not proposed to
be amended or (B) is proposed to be amended by amendment or post-effective
amendment. If such registration statement (the "initial registration
statement") has been declared effective, either (A) an additional
registration statement (the "additional registration statement") relating
to the Offered Securities may have been filed with the Commission pursuant
to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has become
effective upon filing pursuant to such Rule and the Offered Securities all
have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (B) such an additional registration statement is proposed to
be filed with the Commission pursuant to Rule 462(b) and will become
effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or, if an additional registration statement
has been filed and the Company does not propose to amend it and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (A) if the
Company has advised CSFBL that it does not propose to amend such
registration statement, the date and time as of which such registration
statement, or the most recent post-effective amendment thereto (if any)
filed prior to the execution and delivery of this Agreement, was declared
effective by the Commission or has become effective upon filing pursuant to
Rule 462(c), or (B) if the Company has advised CSFBL that it proposes to
file an amendment or post-effective amendment to such registration
statement, the date and time as of which such registration statement, as
amended by such amendment or post-effective amendment, as the case may be,
is declared effective by the Commission. If an additional registration
statement has not been filed prior to the execution and delivery of this
Agreement but the Company has advised CSFBL that it proposes to file one,
"Effective Time" with respect to such additional registration statement
means the date and time as of which such registration statement is filed
and becomes effective pursuant to Rule 462(b). "Effective Date" with
respect to the initial registration statement or the additional
registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective
Time, including all information contained in the additional registration
statement (if any) and deemed to be a part of the initial registration
statement as of the Effective Time of the additional registration statement
pursuant to the General Instructions of the Form on which it is filed and
including all information (if any) deemed to be a part of the initial
registration statement as of its Effective Time pursuant to Rule 430A(b)
("Rule 430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement (if any), as
amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including all
information (if any) deemed to be a part of the additional registration
statement as of
2
<PAGE>
its Effective Time pursuant to Rule 430A(b), is hereinafter referred to as
the "Additional Registration Statement". The Initial Registration Statement
and the Additional Registration Statement are hereinafter referred to
collectively as the "Registration Statements" and individually as a
"Registration Statement". The form of prospectus relating to the U.S.
Securities and the form of prospectus relating to the International
Securities, each as first filed with the Commission pursuant to and in
accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no such
filing is required) as included in a Registration Statement, are
hereinafter referred to as the "U.S. Prospectus" and the "International
Prospectus", respectively, and collectively as the "Prospectuses". No
document has been or will be prepared or distributed in reliance on
Rule 434 under the Act.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the
rules and regulations of the Commission ("Rules and Regulations") and did
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, (B) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all respects to the requirements of the Act
and the Rules and Regulations and did not include, or will not include, any
untrue statement of a material fact and did not omit, or will not omit, to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading and (C) on the date of this Agreement
the Initial Registration Statement and, if the Effective Time of the
Additional Registration Statement is prior to the execution and delivery of
this Agreement, the Additional Registration Statement each conforms, and at
the time of filing of each of the Prospectuses pursuant to Rule 424(b) (or
if no such filing is required at the Effective Date of the Additional
Registration Statement in which the Prospectuses are included), each
Registration Statement and each of the Prospectuses will conform, in all
respects to the applicable requirements of the Act and the Rules and
Regulations, and none of such documents includes, or will include, any
untrue statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectuses, in light of the
circumstances under which such statements were made) not misleading. If the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement: on the Effective Date of the
Initial Registration Statement, the Initial Registration Statement and each
of the Prospectuses will conform in all respects to the requirements of the
Act and the Rules and Regulations, none of such documents will include any
untrue statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements therein
(in the case of the Prospectuses, in light of the circumstances under which
such statements were made) not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do not
apply to statements in or omissions from a Registration Statement or either
of the Prospectuses based upon written information furnished to the Company
by any Manager through CSFBL or by any U.S. Underwriter through the U.S.
Representatives specifically for use therein, it being understood and
agreed that the only such information is that described as such in Section
7(c).
(iii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectuses; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification
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except where the failure to be so qualified or in good standing would not
have, individually or in the aggregate, a material adverse effect on the
condition (financial or otherwise), results of operations, business or
prospects of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect").
(iv) Primeco, Inc. ("Primeco"), a Texas corporation and wholly-owned
subsidiary of the Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Texas, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectuses; and Primeco is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, in each case except as
would not have a Material Adverse Effect; all of the issued and outstanding
capital stock of Primeco has been duly authorized and validly issued, is
fully paid and nonassessable and is owned by the Company free from liens,
encumbrances and defects, except as otherwise described in the
Prospectuses. The Company has no subsidiaries other than Primeco and Prime
Equipment Company, a Texas corporation that is inactive and has total
assets of less than $50,000.
(v) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized; all outstanding shares of
capital stock of the Company are, and, when the Offered Securities have
been delivered and paid for in accordance with this Agreement and the
Underwriting Agreement on each Closing Date (as defined below), such
Offered Securities will have been, validly issued, fully paid and
nonassessable and will conform in all material respects to the description
thereof contained in the Prospectuses; and the stockholders of the Company
have no preemptive rights with respect to the Securities.
(vi) Except as disclosed in the Prospectuses, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Manager or U.S.
Underwriter for a brokerage commission, finder's fee or other like payment.
(vii) Except for the Registration Rights Agreement dated as of
[ ], 1996 (the "Registration Rights Agreement"), among the
Company and certain stockholders of the Company party thereto, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to a
Registration Statement or in any securities being registered pursuant to
any other registration statement filed by the Company under the Act.
(viii) The Offered Securities have been approved for listing on the
New York Stock Exchange subject to official notice of issuance and
compliance by the Underwriters with their undertaking to sell round lots of
100 Shares or more to a minimum of 2,000 beneficial owners.
(ix) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court or arbitrator is required for
the consummation of the transactions contemplated by this Agreement or the
Underwriting Agreement in connection with the issuance and sale of the
Offered Securities by the Company, except such as have been obtained and
made under
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the Act and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and such as may be required under state or foreign securities laws.
(x) The execution, delivery and performance of this Agreement and the
Underwriting Agreement and the consummation of the transactions herein and
therein contemplated will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any existing
statute, any existing rule, regulation or order of any governmental agency
or body or any court, domestic or foreign, having jurisdiction over the
Company or any subsidiary of the Company or any of their properties, or any
agreement or instrument to which the Company or any such subsidiary is a
party or by which the Company or any such subsidiary is bound or to which
any of the properties of the Company or any such subsidiary is subject
(except as would not have a Material Adverse Effect), or the charter or by-
laws of the Company or any such subsidiary, and the Company has full power
and authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement and the Underwriting Agreement,
respectively.
(xi) This Agreement and the Underwriting Agreement have been duly
authorized, executed and delivered by the Company.
(xii) Except as disclosed in the Prospectuses, the Company and its
subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them that are material to the business
of the Company and its subsidiaries, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectuses, the Company and its subsidiaries
hold all leased real or personal properties that are material to the
business of the Company and its subsidiaries under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or to be made thereof by them.
(xiii) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or
bodies necessary to conduct the business now operated by them (except where
failure to possess the same would not individually or in the aggregate have
a Material Adverse Effect) and have not received any notice of proceedings
relating to the revocation or modification of any such certificate,
authority or permit that, if determined adversely to the Company or any of
its subsidiaries, would individually or in the aggregate have a Material
Adverse Effect.
(xiv) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is contemplated that
might have a Material Adverse Effect.
(xv) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and
other intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently
employed by them, and have not received any notice of infringement of or
conflict with asserted rights of others with respect to any intellectual
property rights that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material
Adverse Effect.
(xvi) Except as disclosed in the Prospectuses, neither the Company nor
any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental
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agency or body or any court, domestic or foreign, relating to the use,
disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "environmental laws"), owns or operates
any real property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or contamination
pursuant to any environmental laws, or is subject to any claim relating to
any environmental laws, which violation, contamination, liability or claim
would individually or in the aggregate have a Material Adverse Effect; and
the Company is not aware of any pending investigation which might lead to
such a claim.
(xvii) There are no pending actions, suits or proceedings against or
affecting the Company, any of its subsidiaries or any of their respective
properties that, if determined adversely to the Company or any of its
subsidiaries, individually or in the aggregate could reasonably be expected
to have a Material Adverse Effect or could reasonably be expected to
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement or the Underwriting Agreement, or which
are otherwise material in the context of the sale of the Offered
Securities; and no such actions, suits or proceedings are threatened or, to
the Company's knowledge, contemplated.
(xviii) The financial statements included in each Registration
Statement and the Prospectuses present fairly the financial position of the
Company and its consolidated subsidiaries as of the dates shown and their
results of operations and cash flows for the periods shown, and such
financial statements have been prepared in conformity with the generally
accepted accounting principles in the United States and such generally
accepted accounting principles, except as noted in such financial
statements, have been applied on a consistent basis. The pro forma
financial statements contained in the Prospectuses have been prepared on a
basis consistent with the financial statements referred to above and,
except for the pro forma adjustments specified therein, include all
material adjustments to the historical financial data required by Rule 11-
02 of Regulation S-X to reflect the 1996 Acquisitions and the Offering (as
defined in the Prospectuses), and give effect to assumptions made on a
reasonable basis and present fairly the historical and proposed
transactions contemplated by the Prospectuses, this Agreement and the
Underwriting Agreement.
(xix) Since the date of the latest audited financial statements
included in the Prospectuses there has been no material adverse change, nor
any development or event involving a prospective material adverse change,
in the condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole and, except
as set forth in the Prospectuses, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class
of its capital stock.
(xx) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof
as described in the Prospectuses, will not be an "investment company" as
defined in the Investment Company Act of 1940.
(xxi) The Company and its subsidiaries have and will maintain
insurance covering their properties, operations, personnel and businesses,
which insurance is in amounts and insures against such losses and risks, in
each case as is in accordance with customary industry practice to protect
the Company, its subsidiaries and their businesses. Neither the Company
nor any of its subsidiaries has received notice from any insurer or agent
of such insurer that capital improvements or other expenditures will have
to be made in order to continue such insurance, except such as could not
reasonably be expected, singularly or in the aggregate, to have a Material
Adverse Effect.
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(xxii) The Company and its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (A)
transactions are executed in accordance with management's general or
specific authorizations; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (C)
access to assets is permitted only in accordance with management's general
or specific authorization; and (D) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(b) Each Selling Stockholder severally represents and warrants to, and
agrees with, the several Managers that:
(i) Such Selling Stockholder has been duly organized as an
incorporated company with limited liability and is in good standing under
the laws of the Cayman Islands.
(ii) Such Selling Stockholder has and on each Closing Date hereinafter
mentioned will have valid and unencumbered title to the Optional Securities
to be delivered by such Selling Stockholder on such Closing Date and full
right, power and authority to enter into this Agreement and the
Underwriting Agreement and to sell, assign, transfer and deliver the
Optional Securities to be delivered by such Selling Stockholder on such
Closing Date hereunder or thereunder; and upon the delivery of payment for
the Optional Securities on each Closing Date hereunder or thereunder the
several Managers or U.S. Underwriters, as applicable, will acquire valid
and unencumbered title to the Optional Securities to be delivered by such
Selling Stockholder on such Closing Date.
(iii) Each of this Agreement, the Underwriting Agreement and the
Custody Agreement and related power of attorney with respect to each
Selling Stockholder has been duly authorized and validly executed and
delivered by such Selling Stockholder and each such Custody Agreement and
related power of attorney constitutes a valid and legally binding agreement
of such Selling Stockholder, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability affecting creditors'
rights and to general equity principles.
(iv) There are no material agreements or arrangements relating to the
Company or its subsidiaries to which any Selling Stockholder or any of
their direct or indirect subsidiaries is a party that are required to be
described in the Prospectuses or to be filed as exhibits thereto and that
are not so described or filed.
(v) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court or arbitrator is required for
the consummation of the transactions contemplated by this Agreement, the
Underwriting Agreement or the Custody Agreement in connection with the sale
of the Offered Securities by such Selling Stockholder, except such as have
been obtained and made under the Act or the Exchange Act and such as may be
required under state or foreign securities laws.
(vi) The execution, delivery and performance of this Agreement, the
Underwriting Agreement and the Custody Agreement by such Selling
Stockholder and the consummation by such Selling Stockholder of the
transactions herein and therein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any
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<PAGE>
rule, regulation or order of any governmental agency or body or any court
having jurisdiction over such Selling Stockholder or any of its properties,
or any material agreement or instrument to which it is a party or by which
it is bound or any of its properties is subject, or the charter or by-laws
of such Selling Stockholder.
(vii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the
Rules and Regulations and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, (B) on
the Effective Date of the Additional Registration Statement (if any), each
Registration Statement conformed, or will conform, in all respects to the
requirements of the Act and the Rules and Regulations and did not include,
or will not include, any untrue statement of a material fact and did not
omit, or will not omit, to state any material fact required to be stated
therein or necessary to make the statement therein not misleading, and
(C) on the date of this Agreement, the Initial Registration Statement and,
if the Effective Time of the Additional Registration Statement is prior to
the execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the Effective
Date of the Additional Registration Statement in which the U.S. Prospectus
is included, each Registration Statement and each of the Prospectuses will
conform, in all respects to the requirements of the Act and the Rules and
Regulations, and none of such documents includes, or will include, any
untrue statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement: on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement and the U.S. Prospectus will conform in all
respects to the requirements of the Act and the Rules and Regulations,
neither of such documents will include any untrue statement of a material
fact or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. The two
preceding sentences only apply to statements in or omissions from a
Registration Statement or a Prospectus based upon written information
relating to a Selling Stockholder or any direct or indirect subsidiary of a
Selling Stockholder and furnished to the Company by any Selling
Stockholder.
3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Managers, and the Managers agree, severally and not jointly, to purchase from
the Company, at a purchase price of U.S. $ per share, the respective
numbers of shares of International Firm Securities set forth opposite the names
of the Managers in Schedule A hereto.
The Company will deliver the International Firm Securities to CSFBL for the
accounts of the Managers, against payment of the purchase price by official bank
check or checks in Federal Reserve (same day) funds drawn to the order of the
Company at the office of or by wire transfer to a bank
acceptable to CSFBL, at 10:00 A.M., New York time, on
, or at such other time not later than seven full
business days thereafter as CSFBL and the Company determine, such time being
herein referred to as the "First Closing Date". For purposes of Rule 15c6-1
under the Securities Exchange Act of 1934, the First Closing Date (if later than
the otherwise applicable settlement date) shall be the settlement date for
payment of funds and delivery of securities for all the Offered Securities sold
pursuant to the U.S. Offering and the International Offering. The certificates
for the International Firm Securities so to be
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delivered will be in definitive form, in such denominations and registered in
such names as CSFBL requests and will be made available for checking and
packaging at the above office of at least 24 hours
prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company and the
Selling Stockholders from time to time not more than 30 days subsequent to the
date of the Prospectuses, the Managers may purchase all or less than all of the
International Optional Securities at the purchase price per Security to be paid
for the International Firm Securities. The International Optional Securities to
be purchased by the Managers on any Optional Closing Date shall be in the same
proportion to all the Optional Securities to be purchased by the Managers and
the U.S. Underwriters on such Optional Closing Date as the International Firm
Securities bear to all the Firm Securities. Each Selling Stockholder agrees,
severally and not jointly, to sell to the Managers the number of shares of
International Optional Securities (subject to adjustment by CSFBC to eliminate
fractions) obtained by multiplying the number of International Optional
Securities specified in such notice by a fraction, the numerator of which is the
number of International Optional Securities set forth opposite the name of such
Selling Stockholder in Schedule B hereto and the denominator of which is the
total number of International Optional Securities. The Managers agree, severally
and not jointly, to purchase such International Optional Securities. Such
International Optional Securities shall be purchased for the account of each
Manager in the same proportion as the number of shares of International Firm
Securities set forth opposite such Manager's name bears to the total number of
shares of International Firm Securities (subject to adjustment by CSFBC to
eliminate fractions) and may be purchased by the Managers only for the purpose
of covering over-allotments made in connection with the sale of the
International Firm Securities. No Optional Securities shall be sold or delivered
unless the U.S. Firm Securities and the International Firm Securities previously
have been, or simultaneously are, sold and delivered. The right to purchase the
Optional Securities or any portion thereof may be exercised from time to time
and to the extent not previously exercised may be surrendered and terminated at
any time upon notice by CSFBC on behalf of the Managers and the U.S.
Underwriters to the Company and the Selling Stockholders. It is understood that
CSFBC is authorized to make payment for and accept delivery of such Optional
Securities on behalf of the U.S. Underwriters and Managers pursuant to the terms
of CSFBC's instructions to the Company and the Selling Stockholders.
Certificates in negotiable form for the Optional Securities to be sold by
the Selling Stockholders have been placed in custody, for delivery under this
Agreement and the Underwriting Agreement, under Custody Agreements made with
ChaseMellon Shareholder Services, L.L.C., as custodian ("Custodian"). Each
Selling Stockholder agrees that the shares represented by the certificates held
in custody for such Selling Stockholder under such Custody Agreements are
subject to the interests of the Managers hereunder and the U.S. Underwriters
under the Underwriting Agreement, that the arrangements made by such Selling
Stockholder for such custody are to that extent irrevocable, and that the
obligations of such Selling Stockholder hereunder or thereunder shall not be
terminated by operation of law, whether by the death of any individual Selling
Stockholder or the occurrence of any other event, or in the case of a trust, by
the death of any trustee or trustees of the termination of such trust. If any
individual Selling Stockholder or any such trustee or trustees should die, or if
any other such event should occur, or if any of such trusts should terminate,
before the delivery of the Optional Securities hereunder or under the
Underwriting Agreement, certificates for the Optional Securities shall be
delivered by the Custodian in accordance with the terms and conditions of this
Agreement and the Underwriting Agreement as if such death or other event or
termination had not occurred, regardless of whether or not the Custodian shall
have received notice of such death or other event or termination.
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Each time for the delivery of and payment for the International Optional
Securities, being herein referred to as an "Optional Closing Date", which may be
the First Closing Date (the First Closing Date and each Optional Closing Date,
if any, being sometimes referred to as a "Closing Date"), shall be determined by
CSFBC but shall be not later than five full business days after written notice
of election to purchase Optional Securities is given. The Custodian, on behalf
of the Selling Stockholders, will deliver the International Optional Securities
being purchased from the Selling Stockholders on each Optional Closing Date to
CSFBL for the accounts of the several Managers, against payment of the purchase
price therefor by official bank check or checks in Federal Reserve (same day)
funds drawn to the order of or by wire transfer to a bank
acceptable to CSFBL, at the above office of . The
certificates for the International Optional Securities being purchased on each
Optional Closing Date will be in definitive form, in such denominations and
registered in such names as CSFBL requests upon reasonable notice prior to such
Optional Closing Date and will be made available for checking and packaging at
the above office of at a reasonable
time in advance of such Optional Closing Date.
The Company will pay to the Managers as aggregate compensation for their
commitments hereunder and for their services in connection with the purchase of
the International Securities and the management of the offering thereof, if the
sale and delivery of the International Securities to the Managers provided
herein is consummated, an amount equal to U.S. $ per International Security
purchased, which may be divided among the Managers in such proportions as they
may determine. Such payment will be made on the First Closing Date in the case
of the International Firm Securities and on each Optional Closing Date in the
case of the International Optional Securities sold to the Managers on such
Closing Date, in each case by way of deduction by the Managers of said amount
from the purchase price for the International Securities referred to above.
4. OFFERING BY MANAGERS. It is understood that the several Managers
propose to offer the International Securities for sale to the public as set
forth in the International Prospectus.
In connection with the distribution of the International Securities, the
Managers, through a stabilizing manager, may over-allot or effect transactions
on any exchange, in any over-the-counter market or otherwise which stabilize or
maintain the market prices of the International Securities at levels other than
those which might otherwise prevail, but in such event and in relation thereto,
the Managers will act for themselves and not as agents of the Company or the
Selling Stockholders, and any loss resulting from over-allotment and
stabilization will be borne, and any profit arising therefrom will be
beneficially retained, by the Managers. Such stabilizing, if commenced, may be
discontinued at any time.
5. CERTAIN AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS. The
Company or each of the several Selling Stockholders, as the case may be, agrees
with the several Managers that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file each of the Prospectuses with the Commission pursuant to and in
accordance with subparagraph (1) (or, if applicable and if consented to by
CSFBL, subparagraph (4)) of Rule 424(b) not later than the earlier of
(A) the second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of the
Initial Registration Statement.
The Company will advise CSFBL promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
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Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time either Prospectus is printed and
distributed to any Manager or U.S. Underwriter, or will make such filing at
such later date as shall have been consented to by CSFBL.
(b) The Company will advise CSFBL promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or
either of the related prospectuses or the Initial Registration Statement,
the Additional Registration Statement (if any) or either of the
Prospectuses and will not effect such amendment or supplementation without
CSFBL's prior consent; and the Company will also advise CSFBL promptly of
the effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this Agreement) and of any
amendment or supplementation of a Registration Statement or either of the
Prospectuses and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its
reasonable best efforts to prevent the issuance of any such stop order and
to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any U.S. Underwriter, Manager or dealer, any event occurs as a
result of which either or both of the Prospectuses as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
if it is necessary at any time to amend either or both of the Prospectuses
to comply with the Act, the Company will promptly notify CSFBL of such
event and will promptly prepare and file with the Commission, at its own
expense, an amendment or supplement which will correct such statement or
omission or an amendment which will effect such compliance. Neither CSFBL's
consent to, nor the Managers' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act
and Rule 158 promulgated thereunder. For the purpose of the preceding
sentence, "Availability Date" means the 45th day after the end of the
fourth fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the 90th
day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Managers copies of each
Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, until completion of
the distribution of the International Securities as determined by CSFBL,
the International Prospectus and all amendments and supplements to such
documents, in each case in such quantities as CSFBL reasonably requests.
The International Prospectus shall be so furnished on or prior to
5:00 P.M., New York time, on the business day following the later of the
execution and delivery of this Agreement or the Effective Time of the
Initial Registration Statement. All other
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such documents shall be so furnished as soon as available. The Company will
pay the expenses of printing and distributing to the Managers all such
documents.
(f) No action has been or, prior to the completion of the
distribution of the Offered Securities, will be taken by the Company in any
jurisdiction outside the United States and Canada that would permit a
public offering of the Offered Securities, or possession or distribution of
the International Prospectus, or any amendment or supplement thereto, or
any related preliminary prospectus issued in connection with the offering
of the Offered Securities, or any other offering material, in any country
or jurisdiction where action for that purpose is required.
(g) During the period of three years hereafter, the Company will
furnish to CSFBL and, upon request, to each of the other Managers, as soon
as practicable after the end of each fiscal year, a copy of its annual
report to stockholders for such year; and the Company will furnish to CSFBL
(i) as soon as available, a copy of each report and any definitive proxy
statement of the Company filed with the Commission under the Securities
Exchange Act of 1934 or mailed to stockholders, and (ii) from time to time,
such other information concerning the Company as CSFBL may reasonably
request, which additional information shall be kept confidential by the
Managers in accordance with their normal procedures relating to such
information.
(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement and will reimburse the Managers (if
and to the extent incurred by them) for the filing fee of the National
Association of Securities Dealers, Inc. relating to the Offered Securities,
for any travel expenses of the Company's officers and employees and any
other expenses of the Company in connection with attending or hosting
meetings with prospective purchasers of the Offered Securities and for
expenses incurred in distributing preliminary prospectuses and the
Prospectuses (including any amendments and supplements thereto) to the
Managers.
For a period of 180 days after the date of the initial public offering of
the Offered Securities, the Company will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Commission a registration statement under the Act (other than on Form S-8 and
relating to resales of securities as described in the general instructions to
Form S-8) relating to, any additional shares of its Securities or securities
convertible into or exchangeable or exercisable for any shares of its
Securities, or publicly disclose the intention to make any such offer, sale,
pledge, disposal or filing, without the prior written consent of CSFBC, except
sales or grants of stock, restricted stock, stock options or stock appreciation
rights pursuant to the terms of the Management Stock Incentive Plan (as
described in the Prospectuses) as in effect on the date hereof and issuances of
Securities pursuant to the exercise of such options. The Company will not,
within such 180 day period, waive any restriction existing as of the date of
this Agreement contained in the Management Stock Incentive Plan and relating to
the sale of shares of Common Stock without the prior written consent of CSFBC.
Each Selling Stockholder agrees, for a period of 180 days after the date of
the initial public offering of the Offered Securities, not to offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
additional shares of the Securities of the Company or securities convertible
into or exchangeable or exercisable for any shares of Securities, or publicly
disclose the intention to make any such offer, sale, pledge or disposal, without
the prior written consent of CSFBC or unless pursuant to (a) a bona fide gift,
(b) transfers made to family members, trusts or other similar transfers, in each
case for estate planning purposes, (c) transfers to affiliated entities and
(d) pledges in connection with loans or other
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obligations, PROVIDED, HOWEVER, that any person receiving or holding such
Securities as a result of any of (a), (b), (c) or (d) agrees in writing with you
to be bound by the provisions of this Agreement.
6. CONDITIONS OF THE OBLIGATIONS OF THE MANAGERS. The obligations of the
several Managers to purchase and pay for the International Firm Securities on
the First Closing Date and the International Optional Securities to be purchased
on each Optional Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders herein, to the accuracy of the statements of Company officers made
pursuant to the provisions hereof, to the performance by each of the Company and
each Selling Stockholder of its obligations hereunder and to the following
additional conditions precedent:
(a) The Managers shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall
be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), from each of Coopers & Lybrand
L.L.P. and KPMG Peat Marwick LLP confirming that they are independent
public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements examined by them
and included or in the Registration Statements comply as to form in
all material respects with the applicable accounting requirements of
the Act and the related published Rules and Regulations;
(ii) with respect to the letter of Coopers & Lybrand L.L.P. only,
that they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements included in the Registration Statements;
(iii) with respect to the letter of Coopers & Lybrand L.L.P.
only, on the basis of the review referred to in clause (ii) above, a
reading of the latest available interim financial statements of the
Company, inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations or any material
modifications should be made to such unaudited financial
statements for them to be in conformity with generally accepted
accounting principles;
(B) at the date of the latest available balance sheet read
by such accountants and at a subsequent specified date not more
than three days prior to the date of this Agreement, there was
any change in the capital stock or any increase in debt or
decrease in Stockholders' equity or consolidated net assets of
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the Company and its consolidated subsidiaries, as compared with
amounts shown on the latest balance sheet included in the
Prospectuses; or
(C) for the period from the closing date of the latest
income statement included in the Prospectuses to the closing date
of the latest available income statement read by such accountants
and to a subsequent specified date not more than five days prior
to the date of this Agreement, there were any decreases, as
compared with the corresponding period of the previous year, in
total revenues, gross profit, operating income or net income,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which are described in such letter, in
which case the letter shall be accompanied by an explanation by the
Company as to the significance thereof unless said explanation is not
deemed necessary by the Managers;
(iv) with respect to the letter of Coopers & Lybrand L.L.P. only,
that they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter; and
(v) with respect to the letter of Coopers & Lybrand L.L.P. only,
on the basis of a reading of the unaudited pro forma financial
statements included in the Registration Statement and the Prospectuses
(the "pro forma financial statements"); carrying out certain specified
procedures; reading of minutes and inquiries of certain officials of
the Company who have responsibility for financial and accounting
matters; and proving the arithmetic accuracy of the application of the
pro forma adjustments to the historical amounts in the pro forma
financial statements, nothing came to their attention which caused
them to believe that the pro forma financial statements do not comply
in form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts
in the compilation of such statements or on the pro forma basis
described in the notes thereto.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration Statement is subsequent to such execution and
delivery, "Registration Statements" shall mean the Initial Registration
Statement and the additional registration statement as proposed to be filed
or as proposed to be amended by the post-effective amendment to be filed
shortly prior to its Effective Time, and (iii) "Prospectuses" shall mean
the prospectuses included in the Registration Statements.
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(b) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBL. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time either
Prospectus is printed and distributed to any Manager or U.S. Underwriter,
or shall have occurred at such later date as shall have been consented to
by CSFBL. If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, each of the
Prospectuses shall have been filed with the Commission in accordance with
the Rules and Regulations and Section 5(a) of this Agreement. Prior to such
Closing Date, no stop order suspending the effectiveness of a Registration
Statement shall have been issued and no proceedings for that purpose shall
have been instituted or, to the knowledge of the Company, any Selling
Stockholder or the Managers, shall be contemplated by the Commission.
Copies of the Prospectus shall have been printed and distributed to the
Managers in such numbers as they may reasonably request as soon as
practicable on or following the date of this Agreement.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (A) a change in U.S. or international financial,
political or economic conditions or currency exchange rates or exchange
controls as would, in the judgment of CSFBL, be likely to prejudice
materially the success of the proposed issue, sale or distribution of the
International Securities, whether in the primary market or in respect of
dealings in the secondary market, or (B)(i) any change, or any development
or event involving a prospective change, in the condition (financial or
other), business, properties or results of operations of the Company or its
subsidiaries taken as a whole which, in the reasonable judgment of CSFBL,
individually or in the aggregate is material and adverse and makes it
impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the International Securities;
(ii) any downgrading in the rating of any debt securities of the Company by
any "nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act), or any public announcement that any
such organization has under surveillance or review its rating of any debt
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of trading
in securities generally on the New York Stock Exchange, or any setting of
minimum prices for trading on such exchange, or any suspension of trading
of any securities of the Company on any exchange or in the over-the-counter
market; (iv) any general banking moratorium declared by U.S. Federal or
New York authorities; or (v) any outbreak or escalation of major
hostilities in which the United States is involved, any declaration of war
by the United States Congress or any other substantial national or
international calamity or emergency if, in the reasonable judgment of
CSFBL, the effect of any such outbreak, escalation, declaration, calamity
or emergency makes it impractical or inadvisable to proceed with completion
of the public offering or the sale of and payment for the International
Securities.
(d) The Managers shall have received an opinion, dated such Closing
Date, of Gibson, Dunn & Crutcher, counsel for the Company, to the effect
that:
(i) Each of the Company and Primeco has been duly incorporated
and is an existing corporation in good standing under the laws of the
state of its organization, with corporate power and authority to own
its properties and conduct its business as described
15
<PAGE>
in the Prospectuses; and each of the Company and Primeco is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification (other than
those jurisdictions in which the failure so to qualify would not have
a Material Adverse Effect);
(ii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company and
each of its subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and conform in all material respects
to the description thereof contained in the Prospectuses; and the
stockholders of the Company have no preemptive rights with respect to
the Offered Securities;
(iii) Other than the Registration Rights Agreement, there are no
contracts, agreements or understandings known to such counsel between
the Company or any of its subsidiaries and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
or any of its subsidiaries owned or to be owned by such person or to
require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Act;
(iv) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectuses, will not be an "investment
company" as defined in the Investment Company Act of 1940;
(v) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court or arbitrator is
required for the consummation of the transactions contemplated by this
Agreement or the Underwriting Agreement in connection with the
issuance and sale by the Company of the Firm Securities, except such
as have been obtained and made under the Act and the Exchange Act and
such as may be required under state or foreign securities laws;
(vi) The execution, delivery and performance of this Agreement
and the Underwriting Agreement and the consummation of the
transactions herein and therein contemplated will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court having jurisdiction
over the Company, any subsidiary of the Company or any of their
properties, or any agreement or instrument identified to such counsel
in a certificate by the Company as being a material agreement or
instrument to which the Company or any such subsidiary is a party or
by which the Company or any such subsidiary is bound or to which any
of their properties are subject, or the charter or by-laws of the
Company or any such subsidiary, and the Company has full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement and the Underwriting Agreement;
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<PAGE>
(vii) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, each of the Prospectuses either was filed
with the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein (which opinion
may be given in reliance upon acceptance by the Commission of the
EDGAR transmission of such filing by the Company) or was included in
the Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
U.S. Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; and
(viii) This Agreement and the Underwriting Agreement have been
duly authorized, executed and delivered by the Company;
In addition, such counsel shall state that such counsel has
participated in the preparation of the Registration Statements and the
Prospectuses and in conferences with officers and other representatives of
the Company, representatives of the independent auditors of the Company and
your representatives at which the contents of the Registration Statements
and Prospectuses and related matters were discussed. Such counsel also may
state that because the purpose of their professional engagement was not to
establish or confirm factual matters and because the scope of their
examination of the affairs of the Company did not permit them to verify the
accuracy, completeness or fairness of the statements set forth in the
Registration Statements or Prospectuses, they are not passing upon and do
not assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statements or Prospectuses,
except to the extent set forth in the last sentence of this paragraph. On
the basis of the foregoing, and except for the financial statements and
schedules and other financial data included therein, as to which such
counsel need express no opinion or belief, (a) such counsel is of the
opinion that the Registration Statements at the time they became effective,
and the Prospectuses as of the date thereof and as of the date of such
opinion, are appropriately responsive in all material respects to the
relevant requirements of the Securities Act and the General Rules and
Regulations promulgated thereunder and (b) no facts have come to such
counsel's attention that lead such counsel to believe that (i) the
Registration Statements at the time they became effective contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, or (ii) the Prospectuses as of their respective dates and
as of the date of such opinion contained or contains an untrue statement of
a material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. Such counsel
also shall state that (a) the descriptions in the Registration Statements
and Prospectuses of statutes, legal and governmental proceedings and
contracts and other documents fairly present the information called for
with respect to such documents and legal matters by the Act and the
applicable rules and regulations of the Commission thereunder relating to
registration statements on Form S-1 and prospectuses and (b) such counsel
does not know of any legal or governmental proceedings required to be
described in the Registration
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Statements or the Prospectuses which are not described as required or of
any contracts or documents of a character required to be described in the
Registration Statements or the Prospectuses or to be filed as exhibits to
the Registration Statements which are not described and filed as required;
it being understood that such counsel need express no opinion as to the
financial statements or other financial data contained in the Registration
Statements or the Prospectuses.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the States of New
York and Texas, the General Corporation Law of the State of Delaware and
the Federal law of the United States.
(e) The Managers shall have received an opinion, dated such Closing
Date, of Ian Paget-Brown, counsel for the Selling Stockholders, to the
effect that:
(i) Each Selling Stockholder has been duly incorporated and is an
existing corporation in good standing under the laws of the Cayman
Islands, with corporate power and authority to own its properties and
conduct its business as currently operated;
(ii) Each Selling Stockholder has valid and unencumbered title
to, and full right, power and authority to sell, assign, transfer and
deliver, the Optional Securities delivered by such Selling Stockholder
on such Closing Date hereunder; and, upon the delivery of payment for
the Optional Securities on such Closing Date hereunder, the several
Managers will acquire valid and unencumbered title to the Optional
Securities to be delivered by the Selling Stockholders on such Closing
Date hereunder;
(iii) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court or arbitrator is
required to be obtained by the Selling Stockholders in connection with
the sale by the Selling Stockholders of the Optional Securities;
(iv) The execution, delivery and performance by each Selling
Stockholder of this Agreement, the Underwriting Agreement and the
Custody Agreement and the sale by each Selling Stockholder of the
Optional Securities owned by such Selling Stockholder to the Managers
will not result in a breach or violation by any such Selling
Stockholder of any of the terms and provisions of, or constitute a
default by any such Selling Stockholder under, any existing statute,
any existing rule, regulation or order of any governmental agency or
body or any court having jurisdiction over such Selling Stockholder or
any of its properties or any agreement or instrument known to such
counsel to which such Selling Stockholder is a party or by which any
of its properties may be bound, or the [charter or by-laws] of any
Selling Stockholder;
(v) This Agreement and the Underwriting Agreement have been duly
authorized, executed and delivered by each Selling Stockholder;
(vi) The Custody Agreement and related power of attorney (each, a
"Power of Attorney") with respect to each Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder
and constitute valid and legally binding obligations of each such
Selling Stockholder, enforceable in accordance with their respective
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and
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similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(vii) The law chosen by each of this Agreement, the Underwriting
Agreement, each Custody Agreement and each Power of Attorney to govern
its interpretation would be upheld as a valid choice of law in any
action on that document in the courts of the Cayman Islands; and
(viii) Each Selling Stockholder has executed an effective
submission to the jurisdiction of the courts specified in this
Agreement and the Underwriting Agreement.
In rendering such opinion, such counsel may state that he expresses no
opinion as to the laws of any jurisdiction other the Cayman Islands.
(f) The Managers shall have received from Cravath, Swaine & Moore,
counsel for the Managers, such opinion or opinions, dated such Closing
Date, with respect to such matters as the Managers may require, and the
Company shall have furnished to such counsel such documents as they request
for the purpose of enabling them to pass upon such matters.
(g) The Managers shall have received a certificate, dated such
Closing Date, of the Company signed by its President and the Chief
Financial Officer in which such officers, to the best of their knowledge
after reasonable investigation (including a careful examination of the
Registration Statement and the Prospectuses), shall state that (i) as of
their respective dates, the Prospectuses did not include any untrue
statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances in which they were made, not misleading
and since their respective dates no event has occurred which should have
been set forth in a supplement or amendment to either of the Prospectuses
in order to make the foregoing statement true as of the Closing Date;
(ii) as of the Closing Date, the representations and warranties of the
Company in this Agreement are true and correct in all material respects;
(iii) the Company has complied in all material respects with all agreements
and satisfied in all material respects all conditions on its part to be
performed or satisfied hereunder at or prior to such Closing Date, that no
stop order suspending the effectiveness of any Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission; (iv) the Additional Registration Statement
(if any) satisfying the requirements of subparagraphs (1) and (3) of
Rule 462(b) was filed pursuant to Rule 462(b), including payment of the
applicable filing fee in accordance with Rule 111(a) or (b) under the Act,
prior to the time either Prospectus was printed and distributed to any
Manager or U.S. Underwriter; and (v) subsequent to the date of the most
recent financial statements in the Prospectuses, there has been no material
adverse change, nor any development or event involving a prospective
material adverse change, in the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries
taken as a whole.
(h) The Managers shall have received letters, dated such Closing
Date, of Coopers & Lybrand L.L.P. and KPMG Peat Marwick, L.L.P. which meet
the requirements of subsection (a) of this Section, except that the
specified date referred to in such subsection will be a date not more than
three days prior to such Closing Date for the purposes of this subsection.
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(i) All corporate proceedings and other legal matters incident to the
authorization, form and validity of the Offered Securities, this Agreement,
the Underwriting Agreement and the Registration Statements, and all other
legal matters relating to this Agreement, the Underwriting Agreement and
the other transactions contemplated hereby and thereby shall be reasonably
satisfactory in all material respects to the Managers, and the Company and
the Selling Stockholders shall have furnished to the Managers all documents
and information that the Managers or their counsel may reasonably request
to enable them to pass upon such matters.
(j) If any event shall have occurred that requires the Company to
prepare an amendment or supplement to either of the Prospectuses, such
amendment or supplement shall have been prepared, copies thereof shall have
been delivered to the Managers and the Managers shall have been given a
reasonable opportunity to comment thereon.
(k) The "lock-up" agreements between the Managers and each
stockholder of the Company designated by CSFBL relating to sales of
Securities or any securities convertible into or exercisable or
exchangeable for Securities, previously delivered to the Managers, shall be
in full force and effect on such Closing Date.
(l) On such Closing Date, the U.S. Underwriters shall have purchased
the U.S. Firm Securities or the U.S. Optional Securities, as the case may
be, pursuant to the Underwriting Agreement.
The Company and the Selling Stockholders will furnish the Managers with such
conformed copies of such opinions, certificates, letters and documents as the
Managers reasonably request. CSFBL may in its sole discretion waive on behalf of
the Managers compliance with any conditions to the obligations of the Managers
hereunder, whether in respect of an Optional Closing Date or otherwise.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will indemnify and
hold harmless each Manager against any losses, claims, damages or liabilities,
joint or several, to which such Manager may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
either of the Prospectuses, or any amendment or supplement thereto, or any
related preliminary prospectus, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each Manager for any legal or other expenses reasonably incurred by
such Manager in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; PROVIDED, HOWEVER,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Manager through CSFBL specifically
for use therein, it being understood and agreed that the only such information
furnished by any Manager consists of the information described as such in
subsection (c) below.
(b) The Selling Stockholders, jointly and severally, will indemnify and
hold harmless each Manager against any losses, claims, damages or liabilities,
joint or several, to which any such Manager may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
either of the Prospectuses, or any amendment or
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supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon information relating to the Selling Stockholders or any
direct or indirect stockholder of any Selling Stockholder, and will reimburse
each Manager for any legal or other expenses reasonably incurred by such Manager
in connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; PROVIDED, HOWEVER, that the
Selling Stockholders will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Manager through CSFBL specifically
for use therein, it being understood and agreed that the only such information
furnished by any Manager consists of the information described as such in
subsection (c) below.
(c) Each Manager will severally and not jointly indemnify and hold harmless
the Company and each Selling Stockholder against any losses, claims, damages or
liabilities to which the Company or any Selling Stockholder may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, either of the Prospectuses, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Manager through CSFBL specifically for use therein, and will
reimburse any legal or other expenses reasonably incurred by the Company or any
Selling Stockholder in connection with investigating or defending any such loss,
claim, damage, liability or action as such expenses are incurred, it being
understood and agreed that the only such information furnished by any Manager
consists of the following information in the International Prospectus furnished
on behalf of each Manager: the last paragraph at the bottom of the cover page
concerning the terms of the offering by the Managers, the legends concerning
over-allotments and stabilizing and transactions by persons participating in the
distribution on the inside front cover page, the concession and reallowance
figures appearing in the fifth, sixth, seventh, eighth, ninth and tenth
paragraphs under the caption "Subscription and Sale" and the information under
the caption "Notice to Canadian Residents".
(d) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a), (b) or (c) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a), (b) or (c) above. In case any such action
is brought against any indemnified party and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement
21
<PAGE>
of any pending or threatened action in respect of which any indemnified party is
or could have been a party and indemnity could have been sought hereunder by
such indemnified party unless such settlement includes an unconditional release
of such indemnified party from all liability on any claims that are the subject
matter of such action.
(e) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a), (b) or
(c) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a), (b) or (c) above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Managers on the
other from the offering of the International Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Stockholders on the one hand and the Managers on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Managers on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering of the
International Securities (before deducting expenses) received by the Company and
the Selling Stockholders bear to the total underwriting discounts and
commissions received by the Managers. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Stockholders on
the one hand or the Managers on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (e) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (e). Notwithstanding the provisions of this subsection (e), no
Manager shall be required to contribute any amount in excess of the amount by
which the total price at which the International Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Manager has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Managers' obligations in this
subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under this
Section shall be in addition to any liability which the Company or any Selling
Stockholder may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Manager within the meaning
of the Act; and the obligations of the Managers under this Section shall be in
addition to any liability which the respective Managers may otherwise have and
shall extend, upon the same terms and conditions, to each director of the
Company, to each officer of the Company who has signed a Registration Statement
and to each person, if any, who controls the Company within the meaning of the
Act.
8. DEFAULT OF MANAGERS. If any Manager or Managers default in their
obligations to purchase International Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of International
Securities that such defaulting Manager or Managers agreed but failed to
purchase does not exceed 10% of the total number of shares of International
Securities that the Managers are obligated to purchase on such Closing Date,
CSFBL may make arrangements satisfactory to the Company or the
22
<PAGE>
Selling Stockholders, as applicable, for the purchase of such International
Securities by other persons, including any of the Managers, but if no such
arrangements are made by such Closing Date, the non-defaulting Managers shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the International Securities that such defaulting Managers agreed but
failed to purchase on such Closing Date. If any Manager or Managers so default
and the aggregate number of shares of International Securities with respect to
which such default or defaults occur exceeds 10% of the total number of shares
of International Securities that the Managers are obligated to purchase on such
Closing Date and arrangements satisfactory to CSFBL and the Company or the
Selling Stockholders, as applicable, for the purchase of such International
Securities by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any non-
defaulting Manager, the Company or the Selling Stockholders, except as provided
in Section 9 (PROVIDED that if such default occurs with respect to International
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the International Firm Securities or any International Optional
Securities purchased prior to such termination). As used in this Agreement, the
term "Manager" includes any person substituted for a Manager under this Section.
Nothing herein will relieve a defaulting Manager from liability for its default.
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements or
certificates of the Company or its officers, of the Selling Stockholders and of
the several Managers set forth in or made pursuant to this Agreement will remain
in full force and effect, regardless of any investigation, or statement as to
the results thereof, made by or on behalf of any Manager, the Company, the
Selling Stockholders or any of their respective representatives, officers or
directors or any controlling person, and will survive delivery of and payment
for the International Securities. If this Agreement is terminated pursuant to
Section 8 or if for any reason the purchase of the International Securities by
the Managers is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company, the Selling Stockholders and the Managers pursuant
to Section 7 shall remain in effect, and if any International Securities have
been purchased hereunder the representations and warranties in Section 2 and all
obligations under Sections 5(c) and (h) shall also remain in effect. If the
purchase of the International Securities by the Managers is not consummated for
any reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in Section
6(c)(A) or clause (iii), (iv) or (v) of Section 6(c)(B), the Company will
reimburse the Managers for all out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by them in connection with the
offering of the International Securities.
10. NOTICES. All communications hereunder will be in writing and, (i) if
sent to the Managers, will be mailed, delivered or telexed and confirmed to
CSFBL at One Cabot Square, London E14 4QJ England, Attention: Company Secretary,
(ii) if sent to the Company, will be mailed, delivered or telegraphed and
confirmed to it at 16225 Park Ten Place, Suite 200, Houston, TX 77084,
Attention: Chief Financial Officer or (iii) if sent to the Selling Stockholders
or any of them, will be mailed, delivered or telegraphed and confirmed to them
at , Attention: ; PROVIDED, HOWEVER, that any notice to a
Manager pursuant to Section 7 will be mailed, delivered or telexed and confirmed
to such Manager.
11. SUCCESSORS. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. REPRESENTATION OF MANAGERS. CSFBL will act for the several Managers in
connection with this financing, and any action under this Agreement taken by
CSFBL will be binding upon all the Managers. Mr.
23
<PAGE>
Christopher J. O'Brien and Mr. Charles J. Philippin will act for the Selling
Stockholders in connection with such transactions, and any action under or in
respect of this Agreement taken by either of them will be binding upon all the
Selling Stockholders.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
Each of the Company and each Selling Stockholder hereby submits to the non-
exclusive jurisdiction of the Federal and state courts in the Borough of
Manhattan in The City of New York in any suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby.
24
<PAGE>
If the foregoing is in accordance with the Managers' understanding of our
agreement, kindly sign and return to the Company one of the counterparts hereof,
whereupon it will become a binding agreement among the Company, the Selling
Stockholders and the several Managers in accordance with its terms.
Very truly yours,
PRIME SERVICE, INC.,
By
------------------------------------
CHRISTOPHER J. O'BRIEN,
on behalf of each Selling Stockholder,
By
------------------------------------
Attorney-in-fact
The foregoing Subscription Agreement
is hereby confirmed and accepted
as of the date first above written.
CS FIRST BOSTON LIMITED
BY:
------------------------------------
[INSERT TITLE]
MERRILL LYNCH INTERNATIONAL LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
[OTHER MANAGERS]
EACH BY ITS DULY AUTHORIZED ATTORNEY-IN-FACT:
- ---------------------------------------
[INSERT NAME]
25
<PAGE>
SCHEDULE A
NUMBER OF
INTERNATIONAL
FIRM
SECURITIES
MANAGER TO BE SOLD
------- -------------
CS First Boston Limited . . . . . . . . . . . . . . . . . [ ]
Merrill Lynch International Limited . . . . . . . . . . . [ ]
Salomon Brothers International Limited . . . . . . . . . [ ]
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 1,450,000
---------
---------
26
<PAGE>
SCHEDULE B
Number of
U.S. Optional
Securities
Selling Stockholder to be Sold
------------------- ----------
Arlington Limited . . . . . . . . . . . . . . . . . .
Ballet Limited . . . . . . . . . . . . . . . . . . .
Denary Limited . . . . . . . . . . . . . . . . . . .
Equipment Equity Limited . . . . . . . . . . . . . .
Equipment Holding Limited . . . . . . . . . . . . . .
Equipment Investment Limited . . . . . . . . . . . .
Equipment Rental Limited . . . . . . . . . . . . . .
Eqity PEA Limited . . . . . . . . . . . . . . . . . .
Equity PEB Limited . . . . . . . . . . . . . . . . .
Equity PEC Limited . . . . . . . . . . . . . . . . .
Equity PED Limited . . . . . . . . . . . . . . . . .
Fleet Equity Limited . . . . . . . . . . . . . . . .
Freeport Limited . . . . . . . . . . . . . . . . . .
Gleam Limited . . . . . . . . . . . . . . . . . . . .
Highlands Limited . . . . . . . . . . . . . . . . . .
Investcorp Investment Equity Limited . . . . . . . .
Laporte Limited . . . . . . . . . . . . . . . . . . .
New Prime Equity Limited . . . . . . . . . . . . . .
New Prime Investments Limited . . . . . . . . . . . .
Noble Limited . . . . . . . . . . . . . . . . . . . .
Outrigger Limited . . . . . . . . . . . . . . . . . .
PE Holdings Limited . . . . . . . . . . . . . . . . .
PE Investments Limited . . . . . . . . . . . . . . .
Plano Limited . . . . . . . . . . . . . . . . . . . .
Prime Equity Limited . . . . . . . . . . . . . . . .
Prime Holdings Limited . . . . . . . . . . . . . . .
Quill Limited . . . . . . . . . . . . . . . . . . . .
Radial Limited . . . . . . . . . . . . . . . . . . .
Rental Equity Limited . . . . . . . . . . . . . . . .
Rental Holdings Limited . . . . . . . . . . . . . . .
Shoreline Limited . . . . . . . . . . . . . . . . . .
Zinnia Limited . . . . . . . . . . . . . . . . . . .
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . 217,500
-------
-------
27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
among
PRIME SERVICE, INC.
a Delaware corporation
and
the SHAREHOLDERS
listed on the signature pages hereof
------------------------------
Dated as of October 25, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
PREAMBLE.......................................................................1
RECITALS.......................................................................1
Section 1. Definitions.....................................................1
Section 2. Incidental Registration.........................................3
Section 3. Limitations on Incidental Registration..........................4
Section 4. Registration on Request.........................................5
Section 5. Underwritten Offerings..........................................6
Section 6. Registration Procedures.........................................7
Section 7. Expenses of Registration........................................7
Section 8. Indemnification.................................................8
Section 9. Miscellaneous..................................................10
Exhibit A Sample IPO Lock-Up Agreement
Exhibit B Schedule of Registrable Stock
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
October 25, 1996, among PRIME SERVICE, INC., a Delaware corporation (the
"Company"), and the entities listed on the signature pages of this Agreement as
the "SHAREHOLDERS" (the "Shareholders").
W I T N E S S E T H :
WHEREAS, the Company intends to effect an initial public offering
of its Common Stock (the "IPO");
WHEREAS, the shares of Common Stock held by the Shareholders are
eligible for sale in the public market in compliance with Rule 144 or Regulation
S, each promulgated under the Securities Act of 1933, as amended (the "Act");
WHEREAS, the Company believes that unorganized sales of shares of
Common Stock by the Shareholders in the public market could have an adverse
effect on prevailing market prices for the Common Stock and could adversely
impact the Company's ability to effect the IPO;
WHEREAS, in order to sustain an orderly market for the Common
Stock the Company desires that each of the Shareholders execute lock-up
agreements with respect to the shares of Common Stock held by each such
Shareholder (the "IPO Lock-Up Agreements") pursuant to which the Shareholders
agree, for a period of 180 days after the date of the IPO (the "IPO Lock-up
Period") not to offer, sell, transfer or otherwise dispose of any shares of
Common Stock without the prior written consent of the Underwriters; and
WHEREAS, in order to induce the Shareholders to enter into the
IPO Lock-Up Agreements, and in consideration therefor, the Company has agreed to
grant registration rights to the Shareholders with respect to the shares of
Common Stock as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement the following terms shall
have the following meanings:
"ACT": as defined in the preamble.
"COMMISSION": the Securities and Exchange Commission or any
other federal agency at the time administering the Act.
<PAGE>
"COMMON STOCK": the common stock, $0.01 par value, of the
Company.
"COMPANY": as defined in the preamble.
"EFFECTIVE DATE": the date on which the Registration
Statement, registration Number 333-11517, of the Company's Common Stock is
declared effective under the Act.
"EXCHANGE ACT": the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"GAAP": generally accepted accounting principles in the
United States of America in effect from time to time.
"HOLDER": a Shareholder or a Permitted Transferee.
"INITIATING SHAREHOLDER": means Investcorp S.A., so long as
such entity or one or more of its affiliates is holding Registrable Stock
outstanding at the time and initiating a request for registration pursuant to
Section 4(a).
"IPO": as defined in the preamble.
"IPO LOCK-UP AGREEMENTS": as defined in the preamble and a
copy of which is attached hereto as Exhibit A.
"IPO LOCK-UP PERIOD": as defined in the preamble.
"PERMITTED TRANSFER": any transfer of the Common Stock that
is permitted under the terms of the IPO Lock-Up Agreements.
"PERMITTED TRANSFEREE": any transferee that receives Common
Stock in a transfer of the Common Stock which is permitted under the terms of
the IPO Lock-Up Agreements, and who agrees in writing to become bound by the
terms of this Agreement.
"PERSON": an individual, partnership, joint venture,
corporation, trust, unincorporated organization or a government or any
department or agency thereof.
"PIGGYBACK NOTICE": as defined in Section 2.
"PROSPECTIVE SELLER": with respect to any registration, a
Holder that proposes to include shares of Registrable Stock in such
registration.
"REGISTER," "REGISTERED" and "REGISTRATION": a registration
effected by preparing and filing a registration statement in compliance with the
Act, the declaration or ordering of effectiveness of such registration statement
by the Commission and the compliance
2
<PAGE>
with all applicable state securities or blue sky laws which will permit the sale
of Registrable Stock to the public.
"REGISTRABLE STOCK": (i) those shares of Common Stock held
by Shareholders that were received by such Shareholders upon conversion of
shares of the Company's Class A Stock, Class C Stock or Class D Stock to Common
Stock upon the consummation of the IPO pursuant to the Company's Certificate of
Designations and (ii) any Common Stock issued or issuable with respect to or in
exchange for such shares of Common Stock by reason of a stock dividend or other
distribution on such shares or stock split or in connection with a combination
of shares, recapitalization, reclassification, exchange, offer, merger,
consolidation or other reorganization. Each share of Registrable Stock shall
cease to be Registrable Stock when (a) a registration statement with respect to
the sale of such stock shall have become effective under the Act and such stock
shall have been disposed of in accordance with such registration statement,
(b) such stock ceases to be outstanding, (c) such stock is no longer held by a
Holder or (d) the fourth anniversary of the IPO has occurred. A schedule of the
number of shares of Registrable Stock held by each Shareholder as of the date of
this Agreement is attached hereto as Exhibit B.
"REGISTRATION EXPENSES": as defined in Section 7.
"UNDERWRITTEN OFFERING": a registration in which securities
of the Company are sold to an underwriter for reoffering to the public.
(b) Unless otherwise specified therein, all terms defined
in this Agreement shall have the defined meanings when used in any certificate
or document made or delivered pursuant hereto.
(c) As used herein and in any certificate or other
documents made or delivered pursuant hereto, accounting terms not defined in
Section 1(a) and accounting terms partly defined in Section 1(a) to the extent
not defined, shall have the respective meanings given to them under GAAP.
(d) Any reference to any provision of or rule under the Act
shall encompass any successor provision or rule.
(e) The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and section,
subsection, schedule and exhibit references are to this Agreement unless
otherwise specified.
(f) The meanings given to terms defined herein shall be
equally applicable to the singular and plural forms of such terms.
2. INCIDENTAL REGISTRATION. If the Company proposes to
register any of its securities for sale (other than a registration relating to
the sale of securities to employees of the
3
<PAGE>
Company pursuant to a stock option, stock purchase or similar plan including a
registration statement on Form S-8, an exchange offer, a Rule 145 transaction or
in connection with the acquisition of the assets or shares of or merger or
consolidation with another company), and the registration form to be used may
also be used for the registration of the Registrable Stock, then it shall give
written notice (a "Piggyback Notice"), at its expense, to all Holders then
holding Registrable Stock of its intention to do so at least 10 business days
prior to the filing of a registration statement with respect to such
registration with the Commission. The Company shall specify in the Piggyback
Notice the form and manner of, and the other relevant facts involved in, such
proposed registration. If any Holder desires to dispose of all or part of its
Registrable Stock in such registration, it shall deliver to the Company, within
10 business days after receipt of the Piggyback Notice, written notice of such
request stating the number of shares of Registrable Stock so proposed to be sold
by such Holder. Any Holder may withdraw its request for inclusion at any time
prior to five days prior to the effective date of the registration statement for
such registration. The Company shall use its commercially reasonable efforts
(and, in any event, shall comply with the provisions of Section 6) to cause all
shares of Registrable Stock specified in such written notice to be included in
such registration, subject, however, to the limitations set forth in Section 3
and provided that, for purposes of this sentence, commercially reasonable
efforts shall not require the Company or any other seller of securities of the
Company (other than a Holder of Registrable Stock), to reduce the amount or sale
price of such securities proposed to be so registered. No registration of
Registrable Stock effected under this Section 2 shall relieve the Company of its
obligation to effect registration of Registrable Stock upon the request of the
Initiating Shareholder pursuant to Section 4.
3. LIMITATIONS ON INCIDENTAL REGISTRATION.
(a) If the registration of which the Company gives notice
pursuant to Section 2 is for the purpose of permitting a disposition of
securities pursuant to an Underwritten Offering, the Piggyback Notice shall so
state, and, if requested to do so by the managing underwriter of the offering,
the Company shall have the right to limit the aggregate size of the offering or
the number of shares of Registrable Stock to be included therein by the Holders
in accordance with the provisions of Section 3(b) below.
(b) Whenever the number of shares that may be registered
pursuant to Section 2 is limited by the provisions of Section 3(a) above, the
Company shall have priority as to sales over the Holders, and each Holder hereby
agrees that he or she shall withdraw his or her securities from such
registration to the extent necessary to allow the Company or any other seller of
securities of the Company (other than a Holder of Registrable Stock) to include
all the shares it desires to include in such registration, and thereafter the
number of shares of Registrable Stock to be included in such registration shall
be allocated pro rata among holders of Registrable Stock with such allocation to
be made on the basis of the number of shares requested to be included in such
registration by such holders.
(c) Nothing herein shall be construed as creating an
obligation on the part of the Company to register Registrable Stock if the Board
of Directors of the Company shall
4
<PAGE>
have determined in its sole discretion not to proceed with a registration of its
securities whether or not a Piggyback Notice shall have previously been sent by
the Company.
4. REGISTRATION ON REQUEST.
(a) At any time following the expiration of the IPO Lock-Up
Period, the Initiating Shareholder may make by written notice a request that the
Company effect the registration under the Act of all or part of such Initiating
Shareholder's Registrable Stock, specifying the intended method or methods of
disposition thereof; PROVIDED that the Initiating Shareholder is entitled to an
aggregate of four such registrations pursuant to this Section 4(a).
(b) Upon receipt of the request of the Initiating
Shareholder under Section 4(a), the Company shall give written notice of the
requested registration within 15 days of receipt of such request to all Holders
of Registrable Stock and thereupon shall use its commercially reasonable efforts
to effect the registration under the Act of:
(i) the Registrable Stock that the Company has been so
requested to register by the Initiating Shareholder, for disposition in
accordance with the intended method or methods of disposition stated in
such request; and
(ii) all other Registrable Stock that the Company has
been requested to register by the Holders thereof by written request
delivered to the Company within 15 days after the giving of such written
notice by the Company (which request shall specify the intended method or
methods of disposition of such Registrable Stock);
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Stock so to be
registered, PROVIDED that if the Initiating Shareholder shall determine that the
number of shares of Common Stock to be included in such registration should be
limited due to market conditions or otherwise, the Company shall include in such
registration the number of shares of Common Stock which the Company is so
advised by the Initiating Shareholder can be sold in such offering allocated
FIRST PRO RATA among the shares of Registrable Stock requested to be registered
by the Initiating Shareholder, and the shares of Registrable Stock held by
Holders requesting pursuant to Section 4(b)(ii) that such shares be included in
such registration and SECOND, if and to the extent additional shares may be
included, PRO RATA among the Company and any other holders of shares of Common
Stock, in each case such allocation to be made on the basis of the number of
shares requested to be included in such registration by such holders and the
Company.
(c) Each registration requested pursuant to this Section 4
shall be effected by the filing of a registration statement on the applicable
form agreed to in writing by the Initiating Shareholder.
5
<PAGE>
5. UNDERWRITTEN OFFERINGS.
(a) SELECTION OF UNDERWRITERS. Whenever a registration
requested pursuant to Section 4 hereof is for an Underwritten Offering, the
Initiating Shareholder shall select managing underwriter(s) of recognized
standing to administer the offering, subject to approval by the Company with
such approval not to be unreasonably withheld, and each Holder requesting
registration of its Registrable Stock for disposition in an Underwritten
Offering agrees to include such Registrable Stock in such underwritten offering
and shall be bound by the provisions of this Section 5.
(b) UNDERWRITING AGREEMENT. If requested by the
underwriters for any Underwritten Offering of Registrable Stock pursuant to a
registration requested under Section 4 hereof, the Company shall enter into an
underwriting agreement with such underwriters for such offering, such agreement
to contain representations and warranties by the Company and other terms and
provisions not inconsistent with this Agreement as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities to the effect and to the extent provided in
Section 8 hereof; and the Company will cooperate with such Holders of
Registrable Stock to the end that the conditions precedent to the obligations of
such Holders of Registrable Stock under such underwriting agreement shall not
include conditions that are not customary in underwriting agreements with
respect to secondary distributions and shall be otherwise satisfactory to such
Holders. The Holders on whose behalf shares of Registrable Stock are to be
distributed by such underwriters shall be parties to any such underwriting
agreement and the representations and warranties by, and the other agreements on
the part of the Company to and for the benefit of such underwriters, shall also
be made to and for the benefit of such Holders selling Registrable Stock. Such
Holders shall not be required by the Company to make any representations or
warranties to or agreements with the Company or the underwriters (including any
restrictions on sales inconsistent with Section 5(c) hereof) other than
reasonable representations, warranties or agreements regarding such Holder, such
Holder's Registrable Stock and such Holder's intended method or methods of
disposition and any other representation required by law. If requested by the
underwriters for any Underwritten Offering of Registrable Stock pursuant to a
registration under Section 2 hereof, the Holders on whose behalf shares of
Registrable Stock are to be distributed by such underwriters shall execute and
deliver to such underwriters and the Company an Underwriting Agreement, subject
to the limitations set forth in the preceding two sentences.
(c) RESTRICTIONS ON SALES BY HOLDERS. If any registration
subject to Section 2 or 4 shall be in connection with an Underwritten Offering
on a firm commitment basis, each Holder agrees, if and to the extent requested
in writing by the managing underwriter, not to effect any public sales or
distribution (other than as part of such Underwritten Offering pursuant to
Section 2 or 4, respectively) of Common Stock, any securities of the Company
similar to Common Stock or any securities of the Company convertible,
exchangeable or exercisable for Common Stock, including a sale pursuant to
Rule 144 or pursuant to a registered offering not being distributed on a firm
commitment basis by or through one or more underwriters, within the period from
seven days prior to the effective date of such registration statement up to
ninety (90)
6
<PAGE>
days after the effective date of such registration statement or such other
period not to exceed one hundred and eighty (180) days after the effective date
of such registration statement as may be required by such managing underwriter.
(d) RESTRICTIONS ON SALES BY THE COMPANY. The Company
agrees not to effect any public sale or distribution of any Common Stock, any
securities of the Company similar to Common Stock or any securities of the
Company convertible, exchangeable or exercisable for Common Stock (including
pursuant to a registered offering not being distributed on a firm commitment
basis by or through one or more underwriters) within the period from seven days
prior to the effective date of any registration statement that includes
Registrable Stock to be distributed by or through one or more underwriters on a
firm commitment basis up to ninety (90) days after the effective date of such
registration statement or such other period not to exceed one hundred and eighty
(180) days after the effective date of such registration statement as may be
required by such managing underwriter unless such sale or distribution is
pursuant to such registration statement (or a separate registration statement
filed concurrently); PROVIDED, HOWEVER, that the foregoing shall not prevent the
conversion or exchange of any securities pursuant to their terms into or for
other securities or the offer or sale of securities by the Company pursuant to a
dividend reinvestment plan or to its employees or directors pursuant to an
employee benefit plan.
6. REGISTRATION PROCEDURES.
(a) Each Prospective Seller shall furnish to the Company
such information as the Company may reasonably require for inclusion in the
registration statement (and the prospectus included therein).
(b) The Prospective Sellers shall not (until further
notice) effect sales of the shares covered by the registration statement after
receipt of telegraphic or written notice from the Company to suspend sales to
permit the Company to correct or update a registration statement or prospectus.
7. EXPENSES OF REGISTRATION. All expenses of registration
pursuant to either Section 2 or Section 4, including, without limitation, all
registration and filing fees, printing expenses (including reasonable expenses
of printing prospectuses), expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications or registrations (or the obtaining of exemptions
therefrom) of Registrable Stock), fees and disbursements of counsel, auditors or
experts for the Company, expenses of any audits incidental to or required by any
such registration, expenses of all marketing and promotional efforts requested
by the managing underwriter ("Registration Expenses") shall be borne by the
Company; PROVIDED, HOWEVER, that each Prospective Seller shall bear all
underwriting discounts, commissions or fees and all brokerage fees or
commissions relating to the sale of its Registrable Stock and the fees and
expenses of counsel for such Prospective Seller.
7
<PAGE>
8. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In connection with any
registration statement filed pursuant to Section 2 or 4 hereof, the Company
shall indemnify and hold harmless each Holder selling Registrable Stock covered
by such registration statement, its directors, officers, employees, agents, each
other Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such Holder or such
underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (including reasonable costs of investigation
and reasonable legal expenses), joint or several, to which such Person may
become subject, insofar as such losses, claims, damages, liabilities or expenses
(or actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Act, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment thereof or supplement
thereto, or any document incorporated by reference therein, or (ii) any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (iii) any
violation by the Company of any federal, state or common law rule or regulation
applicable to the Company and relating to action required of or inaction by the
Company in connection with any such registration, and the Company shall
reimburse such Indemnified Person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, liability, action or proceeding, provided that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or expense (or action or proceeding in respect thereof) arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such Indemnified Person
specifically stating that it is for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Person
and shall survive the transfer of such securities by such seller. The Company
shall agree to a provision for contribution relating to such indemnity as shall
be reasonably requested by any seller of Registrable Shares or the underwriters.
(b) INDEMNIFICATION BY THE SELLER. The Company may
require, as a condition to including any Registrable Stock in any registration
statement filed pursuant to Section 2 or 4 hereof, that the Company shall have
received an undertaking satisfactory to it from each Prospective Seller to
indemnify and hold harmless such Person, each director of such Person, each
officer of such Person who shall sign such registration statement, each Person
who participates as an underwriter (if such underwriter so requests) in the
offering or sale of such securities and each other Person, if any, who controls
the Company or any such underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, against any losses, claims, damages,
liabilities or expenses (including reasonable costs of investigation and
8
<PAGE>
reasonable legal expenses), joint or several, to which such Person may become
subject, insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Act, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment thereof or supplement
thereto, or any document incorporated by reference therein, or (ii) any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, if such
actual or alleged statement or omission described in (i) or (ii) above was made
in reliance upon and in conformity with written information furnished to such
Person through an instrument duly executed by such Prospective Seller
specifically stating that it is for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement. The indemnification obligations of any Prospective
Seller shall not be greater than the dollar amount of the net proceeds received
by such Prospective Seller upon the sale of the Registrable Stock giving rise to
such obligation. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Person or any such
director, officer, participating Person or controlling Person and shall survive
the transfer of such securities by such Prospective Seller.
(c) NOTICE OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action, proceeding,
investigation or threat involving a claim referred to in Section 8(a) or 8(b),
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action, proceeding, investigation or threat; PROVIDED that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 8 except to the extent that the indemnifying party
is actually prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless a conflict of interest between
such indemnified and indemnifying parties exists in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that it may wish, and after notice from the indemnifying party to such
indemnified party of its elections so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, which consent shall
not be unreasonably withheld or delayed, consent to entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a release
from all liability in respect to such claim or litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this Section 8 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Stock with respect to any required registration or other qualification of such
Registrable Stock under any state securities or blue sky law or regulation of a
governmental authority other than the Act.
9
<PAGE>
(e) CONTRIBUTION. If the indemnification provided for in
Section 8(a) or 8(b) above is unavailable or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities, in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and of the indemnified parties on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. Such relative fault shall be determined by reference to, among
other things, whether any untrue or alleged untrue statement of a material fact
or any omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party, or by the indemnified parties,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just
and equitable if contribution pursuant to this Section 8(e) were determined by
PRO RATA allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph; PROVIDED that the Company and each holder of Registrable Stock shall
agree with each other and the underwriters of the Registrable Stock, if
requested by such underwriters, that the underwriter's portion of such
contribution shall not exceed the underwriting discount. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities or actions in respect thereof referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
The contribution obligations of any Prospective Seller shall not be greater than
the excess of (A) the dollar amount of the net proceeds received by such
Prospective Seller upon the sale of the Registrable Stock giving rise to such
contribution obligation over (B) the dollar amount of any damages that such
Holder has otherwise been required to pay by reason of the untrue or alleged
untrue statement or omission or alleged omission giving rise to such obligation.
No Person guilty of fraudulent misrepresentations (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation.
(f) INDEMNIFICATION PAYMENTS. The indemnification required
by this Section 8 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
9. MISCELLANEOUS.
(a) Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be sent by
overnight courier service; or delivered (in person or by telecopy) against
receipt, in each case to the party to whom it is given: (i) if to the Company,
to it at 1625 Park Ten Place, Suite 200, Houston, Texas 77084, with a copy to
Gibson, Dunn & Crutcher LLP, 200 Park Avenue, 48th Floor, New York, New York
10
<PAGE>
10016, attention: Charles K. Marquis; and (ii) if to the Holders, to each at
the address set forth on Exhibit B to this Agreement.
Any notice or other communication given hereunder shall be
deemed given when sent, except for a notice changing a party's address, which
shall be deemed given at the time of receipt thereof.
(b) ASSIGNMENT. Except with respect to Permitted
Transferees, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by the Company or the Holders without
the prior written consent of the other party, and any purported assignment shall
be void.
(c) BINDING EFFECT. The provisions of this Agreement shall
be binding upon and inure to the benefit of the Company and the Holders and
their respective successors and permitted assigns.
(d) THIRD-PARTY BENEFICIARIES. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
Person not a party to this Agreement other than any assignee with respect to
whom the respective assignment was made in accordance with the terms hereof.
(e) EFFECTIVENESS. This Agreement shall be effective as of
the Effective Date.
(f) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(g) GOVERNING LAW. This Agreement and the rights and
obligations of the parties under this Agreement shall be governed by, and
construed and interpreted in accordance with, the substantive law of the State
of New York without regard to principles of choice or conflicts of laws.
(h) ATTORNEY'S FEES. In the event of litigation arising
between the parties respecting the subject matter hereof, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs.
(i) EXPENSES. Except as otherwise specifically set forth
herein, each party shall bear its own costs and expenses incurred in connection
with this Agreement or the transactions herein contemplated.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement or caused this Agreement to be executed by their respective officers
thereunto duly authorized as of the day and year first written above.
PRIME SERVICE, INC.
By: /s/ Thomas Bennett
-------------------
Name: Thomas Bennett
Title: Chief Executive Officer
SHAREHOLDERS:
ARLINGTON LIMITED
By: /s/
-------------------
BALLET LIMITED
By: /s/
-------------------
CHASE NOMINEES (GUERNSEY) LIMITED
By: /s/
-------------------
DENARY LIMITED
By: /s/
-------------------
EQUIPMENT EQUITY LIMITED
By: /s/
-------------------
EQUIPMENT HOLDINGS LIMITED
By: /s/
-------------------
EQUIPMENT INVESTMENT LIMITED
By: /s/
-------------------
EQUIPMENT RENTAL LIMITED
By: /s/
------------------
EQUITY PEA LIMITED
By: /s/
-----------------
EQUITY PEB LIMITED
By: /s/
-----------------
EQUITY PEC LIMITED
By: /s/
-----------------
EQUITY PED LIMITED
By: /s/
-----------------
FLEET EQUITY LIMITED
By: /s/
-----------------
FREEPORT LIMITED
By: /s/
-----------------
GLEAM LIMITED
By: /s/
-----------------
HIGHLANDS LIMITED
By: /s/
-----------------
INVESTCORP INVESTMENT EQUITY LIMITED
By: /s/
-----------------
LAPORTE LIMITED
By: /s/
-----------------
NEW PRIME EQUITY LIMITED
By: /s/
-----------------
NEW PRIME INVESTMENTS LIMITED
By: /s/
-----------------
NOBLE LIMITED
By: /s/
-----------------
OUTRIGGER LIMITED
By: /s/
-----------------
PE HOLDINGS LIMITED
By: /s/
-----------------
PE INVESTMENTS LIMITED
By: /s/
-----------------
PLANO LIMITED
By: /s/
-----------------
PRIME EQUITY LIMITED
By: /s/
-----------------
PRIME HOLDINGS LIMITED
By: /s/
-----------------
QUILL LIMITED
By: /s/
-----------------
RADIAL LIMITED
By: /s/
-----------------
RENTAL EQUITY LIMITED
By: /s/
-----------------
RENTAL HOLDINGS LIMITED
By: /s/
-----------------
SHORELINE LIMITED
By: /s/
-----------------
ZINNIA LIMITED
By: /s/
-----------------
12
<PAGE>
EXHIBIT A
SAMPLE IPO LOCK-UP AGREEMENT
October , 1996
PRIME SERVICE, INC.
16225 PARK TEN PLACE, SUITE 200
HOUSTON, TX 77084
CS FIRST BOSTON CORPORATION
MERRILL LYNCH & CO.
SALOMON BROTHERS INC.
As Representatives of the Several Underwriters,
c/o CS First Boston Corporation,
Park Avenue Plaza,
New York, N.Y. 10055
CS FIRST BOSTON LIMITED
MERRILL LYNCH INTERNATIONAL LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
c/o CS First Boston Limited
One Cabot Square
London, England E14 4QJ
Dear Sirs:
As an inducement (i) to the Underwriters to execute the Underwriting
Agreement and (ii) to the Managers to execute the Subscription Agreement, in
each case pursuant to which an offering will be made that is intended to
result in the establishment of a public market for the Common Stock, $0.01
par value per share (the "Securities"), of Prime Service, Inc., a Delaware
corporation (the "Company"), the undersigned hereby agrees that, for a period
of 180 days after the initial public offering (the "Commencement Date") of
the Securities pursuant to the Underwriting Agreement and the Subscription
Agreement, the undersigned will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any shares of Securities or
securities convertible into or exchangeable or exercisable for any shares of
Securities, or publicly disclose the intention to make any such offer, sale,
pledge or disposal without the prior written consent of CS First Boston
Corporation and CS First Boston Limited or unless pursuant to (a) a bona fide
gift, (b) transfers made to family members, trusts or other similar
transfers, in each case for estate planning purposes, (c) transfers to
affiliated entities and (d) pledges in connection with loans; PROVIDED,
HOWEVER, that any person receiving or holding such Securities pursuant to
clauses (a), (b), (c) or (d) above agrees in writing with you to be bound by
the provisions of this agreement.
In furtherance of the foregoing, the Company and its transfer agent and
registrar are hereby authorized to decline to make any transfer of shares of
Securities if such transfer would constitute a violation or breach of this
Agreement.
This Agreement shall be binding on the undersigned and the respective
successors, heirs, personal representatives and assigns of the undersigned.
This Agreement shall lapse and become null and void if the Commencement Date
shall not have occurred on or before November 30, 1996.
Very truly yours,
-----------------------------
13
<PAGE>
EXHIBIT B
SCHEDULE OF REGISTRABLE STOCK
COMMON
NAME STOCK OWNED ADDRESS CODE
---- ----------- ------------
Arlington Limited 616,594 (2)
Ballet Limited 8,349 (2)
Chase Nominees (Guernsey) Limited 512,893
Denary Limited 8,349 (1)
Equipment Equity Limited 607,889 (1)
Equipment Holdings Limited 1,197,900 (1)
Equipment Investment Limited 1,787,910 (1)
Equipment Rental Limited 1,094,380 (1)
Equity PEA Limited 901,863 (1)
Equity PEB Limited 901,863 (1)
Equity PEC Limited 1,240,062 (1)
Equity PED Limited 370,416 (1)
Fleet Equity Limited 1,197,900 (2)
Freeport Limited 616,594 (2)
Gleam Limited 8,349 (2)
Highlands Limited 8,349 (1)
Investcorp Investment Equity Limited 14,520 (2)
Laporte Limited 616,594 (1)
New Prime Equity Limited 459,757 (1)
New Prime Investments Limited 457,198 (2)
Noble Limited 8,349 (2)
Outrigger Limited 8,349 (1)
PE Holdings Limited 1,197,900 (1)
PE Investments Limited 1,197,900 (2)
Plano Limited 616,594 (1)
Prime Equity Limited 1,197,900 (1)
Prime Holdings Limited 1,197,900 (2)
Quill Limited 8,349 (2)
Radial Limited 8,349 (1)
Rental Equity Limited 1,197,900 (1)
Rental Holdings Limited 1,197,900 (2)
Shoreline Limited 8,349 (2)
Zinnia Limited 8,349 (2)
14
<PAGE>
ADDRESS CODES
(1) PO Box 1111, West Wind Building, Harbour Drive, George Town, Grand
Cayman, British West Indies.
(2) PO Box 2197, West Wind Building, Harbour Drive, George Town, Grand
Cayman, British West Indies.
15
<PAGE>
Amendment No. 1 to Employment Agreement
This Amendment No. 1 to Employment Agreement (this "Agreement") is made
and entered into effective as of October 25, 1996 by and between
Primeco Inc., a Texas corporation ("Employer"), Thomas E. Bennett ("Employee"),
and Prime Service, Inc., a Delaware corporation and parent company of Employer
("Parent").
WHEREAS, Employer and Employee have entered into an Employment Agreement,
dated as of December 2, 1994 (the "Employment Agreement");
WHEREAS, to induce Employee to stay in the employ of Employer, Employer
and Employee desire to amend certain terms and conditions of the Employment
Agreement, including providing for the issuance of options to purchase Common
stock of the Parent;
NOW THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Defined Terms. Capitalized terms not defined herein shall have the
-------------
meanings set forth in the Employment Agreement.
2. Extension of Period of Employment. The "Expiration Date" set forth
---------------------------------
in Section 1 of the Employment Agreement shall be amended to be December 2,
2001.
3. Incentive Compensation.
----------------------
(a) Section 3.1 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
"3.2 Incentive Compensation. In addition to the Base Salary
----------------------
provided for in Section 3.1 hereof, Employee shall participate in the
Management Cash Incentive Bonus Program (the "Program") as adopted by the
Board and pursuant to which Employee shall be entitled to annual cash
bonuses as set forth on Exhibit B hereto. Employer agrees that it will
not amend or modify the Program in any manner materially adverse to
Employee's interest thereunder without Employee's written consent.
It is understood that by its terms the Program terminates after payment
of bonuses for the year ended December 21, 2001 unless extended beyond
that date by the Board in its sole discretion."
(b) Exhibit B of the Employment Agreement is hereby amended and restated
in its entirety by Exhibit B attached hereto.
4. Stock Options. The Parent shall grant Employee options to purchase
-------------
154,275 shares of its Common Stock (the "Common Stock"), pursuant to the
Parent's 1996 Management Stock Incentive Plan (the "Plan") and a stock option
agreement approved by the committee administering the Plan (the "Committee"),
which options will become exercisable in accordance with the vesting schedule
set forth therein, provided that the Parent completes an initial public offering
of its Common Stock prior to November 30, 1996.
1
<PAGE>
5. Reload Options. Upon exercise of all or part of an option (other
--------------
than a Reload Option (as hereinafter defined)) to purchase shares of Common
Stock granted under the Plan (an "Option") within 30 days of vesting of the
portion of the Option so exercised, with all or part of the payment of the
exercise price in the form of shares of Common Stock, the Committee may, at its
sole and absolute discretion, grant Employee a new Option for shares of Common
Stock equal to the number of shares that were delivered by Employee to the
Parent to pay, in whole or in part, the exercise price of the previous Option (a
"Reload Option"). The exercise price of a Reload Option shall be equal to at
least 100% of the fair market value per share of the Common Stock, as determined
pursuant to Section 5 of the Plan, on the date of the exercise of the previous
Option. The Reload Option shall vest in full on the fifth anniversary of the
effective date (as such term is defined in Employee's stock option agreement
under the Plan) of the Option to which such Reload Option relates. Reload
Options shall not be granted for exercise of a Reload Option. Notwithstanding
the foregoing, no Reload Option shall be granted unless the Plan contains
sufficient shares of Common Stock for such grant.
6. Other Terms and Conditions. Except as expressly amended or modified
--------------------------
in this Agreement, all terms and conditions of the Employment Agreement remain
in full force and effect.
[SIGNATURES ON NEXT PAGE]
2
<PAGE>
IN WITNESS WHEREOF, each of the parties to this Agreement has executed
and delivered this Agreement as of the date first written above.
PRIMECO INC.
By: /s/ Brian Fontana
---------------------------------------
Name: Brian Fontana
-------------------------------------
Title: Chief Financial Officer
------------------------------------
PRIME SERVICE, INC.
By: /s/ Brian Fontana
---------------------------------------
Name: Brian Fontana
-------------------------------------
Title: Chief Financial Officer
------------------------------------
EMPLOYEE:
/s/ Thomas E. Bennett
-----------------------------------------
Thomas E. Bennett
3
<PAGE>
EXHIBIT B
Management Cash Bonus Incentive Program
---------------------------------------
1996 ONLY
- ---------
For 1996 only, cash bonuses shall be payable pursuant to the following
table, win an EBITDA target for 1996 of $90 million. For 1996 only, Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA") is defined as:
a. Consolidated Net Income (loss) of Prime Service, Inc. (the
"Company") and its subsidiaries as it would appear on a consolidated
statement of income (loss) of the Company prepared in accordance with
U.S. GAAP, consistently applied, which shall reflect a reduction for all
management and employee bonuses payable with respect to the Fiscal Year;
plus (minus)
b. Any provision (benefit) for taxes (including franchise taxes)
deducted (added) in calculating such consolidated net income (loss); plus
c. Any interest expense (net of interest income), deducted in
calculating such consolidated net income (loss); (minus)
d. Costs charged against any purchase accounting reserves
established in connection with the acquisition; (minus)
e. The effects of the reversal of an excess purchase accounting
reserves established in connection with the acquisition; plus
f. Amortization expenses deducted in calculating consolidated net
income (loss); plus
g. Depreciation expense deducted in calculating consolidated net
income (loss); plus
h. Management fees paid to Investcorp S.A. or its subsidiaries;
plus (minus)
i. Any unusual losses (gains) deducted (added) in calculating
consolidated net income (loss). (Unusual items are intended to include
transactions considered outside the ordinary course of business. EBITDA
will be adjusted to eliminate the effects, if any, of such transactions,
the intent being to calculate EBITDA as if such transactions had not
occurred); plus (minus)
j. Any compensation expense (income) deducted (added) in
calculating consolidated net income (loss) attributable to transactions
involving equity securities of Holding or its subsidiaries.
The Employee and his or her representative shall be provided reasonable
opportunity to review the computation of EBITDA and reasonable access to the
data and information supporting such computation and shall have the right to
challenge in good faith such computation.
4
<PAGE>
For 1996 only, the percentage of Base Salary payable as bonus shall be
determined as follows:
% of Base
% of 1996 EBITDA Salary Payable
Target Achieved as Bonus(1)
--------------- ---------
Equal To Or But Less
Greater Than: Than:
------------- -----
0 85 0
85 90 10-15
90 95 27-40
95 100 43-65
100 110 67-100
110 120 80-120
120 130 93-140
130 140 107-160
140 150 120-180
150 160 133-200
160 170 147-220
170 180 160-240
180 190 173-260
190 200 187-280
200 --- 200-300
--------------------
(1) The Company's Board of Directors (the "Board") in its
discretion shall set the bonus percentage amount for each fiscal
year within the ranges indicated, but not less than the bottom of
the range. The bonus percentage will be determined on an
individual basis and may differ among eligible employees.
5
<PAGE>
1997 THROUGH 2001
- -----------------
For 1997 through 2001, cash bonuses under the Management Cash Bonus
Incentive Program are payable to participants in the program in a given year if
the Company's net income for such year exceeds 90% of the net income target (the
"Net Income Percentage") in the Company's budget for such year, as approved by
the Board. EBITDA2 targets for such years shall be as set forth in the
Company's budget for such year, as approved by the Board. EBITDA and net income
targets shall be subject to change in the discretion of the Board for any change
to the capital structure of the Company or Primeco Inc., the Company's
subsidiary, in connection with any acquisitions, equity offerings or other
transactions that would, or would be likely to, materially affect EBITDA or net
income. Upon achievement of the Net Income Percentage, the percentage of Base
Salary payable as bonus shall be determined as follows:
% of Base
% of EBITDA Salary Payable
Target Achieved as Bonus(3)
--------------- ---------
Equal To Or But Less
Greater Than: Than:
------------- -----
0 90 0
90 100 60-80
100 110 80-100
110 120 100-120
120 130 120-130
130 140 130-140
140 150 140-150
150 160 150-160
160 170 160-170
170 180 170-180
180 190 180-190
190 200 190-200
200 --- 200
--------------------
(2) EBITDA for each of 1997 through 2001 shall be defined by
the Board in the budget for each year.
(3) The Board in its discretion shall set the bonus
percentage amount for each fiscal year within the ranges
indicated, but not less than the bottom of the range. The bonus
percentage will be determined on an individual basis andmay
differ among eligible employees.
6
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement (this "Agreement") is made
and entered into effective as of October 25, 1996 by and between Primeco Inc.,
a Texas corporation ("Employer"), Brian Fontana ("Employee"), and Prime Service,
Inc., a Delaware corporation and parent company of Employer ("Parent").
WHEREAS, Employer and Employee have entered into an Employment Agreement,
dated as of April 1, 1996 (the "Employment Agreement");
WHEREAS, to induce Employee to stay in the employ of Employer, Employer
and Employee desire to amend certain terms and conditions of the Employment
Agreement, including providing for the issuance of options to purchase Common
Stock of the Parent;
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. DEFINED TERMS. Capitalized terms not defined herein shall have
the meanings set forth in the Employment Agreement.
2. EXTENSION OF PERIOD OF EMPLOYMENT. The "Expiration Date" set
forth in Section 1 of the Employment Agreement shall be amended to be December
2, 1999.
3. INCENTIVE COMPENSATION.
(a) Section 3.1 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
"3.2 INCENTIVE COMPENSATION. In addition to the Base Salary
provided for in Section 3.1 hereof, Employee shall participate in the
Management Cash Incentive Bonus Program (the "Program") as adopted by the
Board and pursuant to which Employee shall be entitled to annual cash
bonuses as set forth on Exhibit B hereto. Employer agrees that it will
not amend or modify the Program in any manner materially adverse to
Employee's interest thereunder without Employee's written consent. It is
understood that by its terms the Program terminates after payment of
bonuses for the year ended December 21, 2001 unless extended beyond that
date by the Board in its sole discretion. Notwithstanding the foregoing,
Employee's bonus payment, if any, under the Program for fiscal 1996 shall
be based upon achievement of the applicable targets by Employer for the
entire fiscal year, but the amount of such bonus payment shall be
prorated in accordance with the number of days during the 1996 fiscal
year that Employee was employed hereunder."
(b) Exhibit B of the Employment Agreement is hereby amended and
restated in its entirety by Exhibit B attached hereto.
4. STOCK OPTIONS. The Parent shall grant Employee options to
purchase 36,300 shares of its Common Stock (the "Common Stock"), pursuant to the
Parent's 1996 Management
1
<PAGE>
Stock Incentive Plan (the "Plan") and a stock option agreement approved by the
committee administering the Plan (the "Committee"), which options will become
exercisable in accordance with the vesting schedule set forth therein, provided
that the Parent completes an initial public offering of its Common Stock prior
to November 30, 1996.
5. RELOAD OPTIONS. Upon exercise of all or part of an option (other
than a Reload Option (as hereinafter defined)) to purchase shares of Common
Stock granted under the Plan (an "Option") within 30 days of vesting of the
portion of the Option so exercised, with all or part of the payment of the
exercise price in the form of shares of Common Stock, the Committee may, at its
sole and absolute discretion, grant Employee a new Option for shares of Common
Stock equal to the number of shares that were delivered by Employee to the
Parent to pay, in whole or in part, the exercise price of the previous Option (a
"Reload Option"). The exercise price of a Reload Option shall be equal to at
least 100% of the fair market value per share of the Common Stock, as determined
pursuant to Section 5 of the Plan, on the date of the exercise of the previous
Option. The Reload Option shall vest in full on the fifth anniversary of the
effective date (as such term is defined in Employee's stock option agreement
under the Plan) of the Option to which such Reload Option relates. Reload
Options shall not be granted for exercise of a Reload Option. Notwithstanding
the foregoing, no Reload Option shall be granted unless the Plan contains
sufficient shares of Common Stock for such grant.
6. OTHER TERMS AND CONDITIONS. Except as expressly amended or
modified in this Agreement, all terms and conditions of the Employment Agreement
remain in full force and effect.
[SIGNATURES ON NEXT PAGE]
2
<PAGE>
IN WITNESS WHEREOF, each of the parties to this Agreement has executed
and delivered this Agreement as of the date first written above.
PRIMECO INC.
By: /s/ Thomas Bennett
------------------------
Name: Thomas Bennett
------------------------
Title: Chief Executive Officer
------------------------
PRIME SERVICE, INC.
By: /s/ Thomas Bennett
------------------------
Name: Thomas Bennett
------------------------
Title: Chief Executive Officer
------------------------
EMPLOYEE:
/s/ Brian Fontana
-----------------------------
Brian Fontana
3
<PAGE>
EXHIBIT B
MANAGEMENT CASH BONUS INCENTIVE PROGRAM
1996 ONLY
For 1996 only, cash bonuses shall be payable pursuant to the following
table, with an EBITDA target for 1996 of $90 million. For 1996 only, Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA") is defined as:
a. Consolidated Net Income (loss) of Prime Service, Inc. (the
"Company") and its subsidiaries as it would appear on a consolidated
statement of income (loss) of the Company prepared in accordance with
U.S. GAAP, consistently applied, which shall reflect a reduction for all
management and employee bonuses payable with respect to the Fiscal Year;
plus (minus)
b. Any provision (benefit) for taxes (including franchise
taxes) deducted (added) in calculating such consolidated net income
(loss); plus
c. Any interest expense (net of interest income), deducted in
calculating such consolidated net income (loss); (minus)
d. Costs charged against any purchase accounting reserves
established in connection with the acquisition; (minus)
e. The effects of the reversal of any excess purchase
accounting reserves established in connection with the acquisition; plus
f. Amortization expenses deducted in calculating consolidated
net income (loss); plus
g. Depreciation expense deducted in calculating consolidated
net income (loss); plus
h. Management fees paid to Investcorp S.A. or its
subsidiaries; plus (minus)
i. Any unusual losses (gains) deducted (added) in calculating
consolidated net income (loss). (Unusual items are intended to include
transactions considered outside the ordinary course of business. EBITDA
will be adjusted to eliminate the effects, if any, of such transactions,
the intent being to calculate EBITDA as if such transactions had not
occurred); plus (minus)
j. Any compensation expense (income) deducted (added) in
calculating consolidated net income (loss) attributable to transactions
involving equity securities of Holding or its subsidiaries.
The Employee and his or her representative shall be provided reasonable
opportunity to review the computation of EBITDA and reasonable access to the
data and information supporting such computation and shall have the right to
challenge in good faith such computation.
4
<PAGE>
For 1996 only, the percentage of Base Salary payable as bonus shall be
determined as follows:
% of Base
% of 1996 EBITDA Salary Payable
Target Achieved as Bonus(1)
-------------------------- --------------------
Equal To Or But Less
Greater Than: Than:
--------------- ------------
0 85 0
85 90 10-15
90 95 27-40
95 100 43-65
100 110 67-100
110 120 80-120
120 130 93-140
130 140 107-160
140 150 120-180
150 160 133-200
160 170 147-220
170 180 160-240
180 190 173-260
190 200 187-280
200 --- 200-300
- ---------------------------
(1) The Company's Board of Directors (the "Board") in its discretion shall
set the bonus percentage amount for each fiscal year within the ranges
indicated, but not less than the bottom of the range. The bonus percentage will
be determined on an individual basis and may differ among eligible employees.
5
<PAGE>
1997 THROUGH 2001
For 1997 through 2001, cash bonuses under the Management Cash Bonus
Incentive Program are payable to participants in the program in a given year if
the Company's net income for such year exceeds 90% of the net income target (the
"Net Income Percentage") in the Company's budget for such year, as approved by
the Board. EBITDA2 targets for such years shall be as set forth in the
Company's budget for such year, as approved by the Board. EBITDA and net income
targets shall be subject to change in the discretion of the Board for any change
to the capital structure of the Company or Primeco Inc., the Company's
subsidiary, in connection with any acquisitions, equity offerings or other
transactions that would, or would be likely to, materially affect EBITDA or net
income. Upon achievement of the Net Income Percentage, the percentage of Base
Salary payable as bonus shall be determined as follows:
% of Base
% of EBITDA Salary Payable
Target Achieved as Bonus(3)
-------------------------- ------------------
Equal To Or But Less
Greater Than: Than:
---------------- -----------
0 90 0
90 100 50-80
100 110 60-100
110 120 100-105
120 130 105-110
130 140 110-115
140 150 115-120
150 160 120-125
160 170 125-130
170 180 130-135
180 190 135-140
190 200 140-145
200 --- 145-150
- ---------------------------
(2) EBITDA for each of 1997 through 2001 shall be defined by the Board in the
budget for each year.
(3) The Board in its discretion shall set the bonus percentage amount for
each fiscal year within the ranges indicated, but not less than the bottom of
the range. The bonus percentage will be determined on an individual basis and
may differ among eligible employees.
6
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement (this "Agreement") is made and
entered into effective as of October 25, 1996 by and between Primeco Inc., a
Texas corporation ("Employer"), Kevin L. Loughlin ("Employee"), and Prime
Service, Inc., a Delaware corporation and parent company of Employer ("Parent").
WHEREAS, Employer and Employee have entered into an Employment Agreement,
dated as of December 2, 1994 (the "Employment Agreement");
WHEREAS, to induce Employee to stay in the employ of Employer, Employer and
Employee desire to amend certain terms and conditions of the Employment
Agreement, including providing for the issuance of options to purchase Common
Stock of the Parent;
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. DEFINED TERMS. Capitalized terms not defined herein shall have the
meanings set forth in the Employment Agreement.
2. EXTENSION OF PERIOD OF EMPLOYMENT. The "Expiration Date" set forth in
Section 1 of the Employment Agreement shall be amended to be December 2, 1999.
3. INCENTIVE COMPENSATION.
(a) Section 3.1 of the Employment Agreement is hereby amended and restated
in its entirety as follows:
"3.2 INCENTIVE COMPENSATION. In addition to the Base Salary provided
for in Section 3.1 hereof, Employee shall participate in the Management
Cash Incentive Bonus Program (the "Program") as adopted by the Board and
pursuant to which Employee shall be entitled to annual cash bonuses as set
forth on Exhibit B hereto. Employer agrees that it will not amend or
modify the Program in any manner materially adverse to Employee's interest
thereunder without Employee's written consent. It is understood that by
its terms the Program terminates after payment of bonuses for the year
ended December 21, 2001 unless extended beyond that date by the Board in
its sole discretion."
(b) Exhibit B of the Employment Agreement is hereby amended and restated
in its entirety by Exhibit B attached hereto.
4. STOCK OPTIONS. The Parent shall grant Employee options to purchase
25,410 shares of its Common Stock (the "Common Stock"), pursuant to the Parent's
1996 Management Stock Incentive Plan (the "Plan") and a stock option agreement
approved by the committee administering the Plan (the "Committee"), which
options will become exercisable in accordance with the vesting schedule set
forth therein, provided that the Parent completes an initial public offering of
its Common Stock prior to November 30, 1996.
1
<PAGE>
5. RELOAD OPTIONS. Upon exercise of all or part of an option (other than
fifth anniversary of the effective date (as such term is defined in Employee's
stock option agreement under the Plan) of the Option to which such Reload Option
relates. Reload Options shall not be granted for exercise of a Reload Option.
Notwithstanding the foregoing, no Reload Option shall be granted unless the a
Reload Option (as hereinafter defined)) to purchase shares of Common Stock
granted under the Plan (an "Option") within 30 days of vesting of the portion of
the Option so exercised, with all or part of the payment of the exercise price
in the form of shares of Common Stock, the Committee may, at its sole and
absolute discretion, grant Employee a new Option for shares of Common Stock
equal to the number of shares that were delivered by Employee to the Parent to
pay, in whole or in part, the exercise price of the previous Option (a "Reload
Option"). The exercise price of a Reload Option shall be equal to at least 100%
of the fair market value per share of the Common Stock, as determined pursuant
to Section 5 of the Plan, on the date of the exercise of the previous Option.
The Reload Option shall vest in full on the Plan contains sufficient shares of
Common Stock for such grant.
6. OTHER TERMS AND CONDITIONS. Except as expressly amended or modified
in this Agreement, all terms and conditions of the Employment Agreement remain
in full force and effect.
[SIGNATURES ON NEXT PAGE]
2
<PAGE>
IN WITNESS WHEREOF, each of the parties to this Agreement has executed and
delivered this Agreement as of the date first written above.
PRIMECO INC.
By: /s/ Thomas E. Bennett
---------------------------
Name: Thomas Bennett
-------------------------
Title: Chief Executive Officer
------------------------
PRIME SERVICE, INC.
By: /s/ Thomas E. Bennett
---------------------------
Name: Thomas Bennett
-------------------------
Title: Chief Executive Officer
------------------------
EMPLOYEE:
/s/ Kevin L. Loughlin
------------------------------
Kevin L. Loughlin
3
<PAGE>
EXHIBIT B
MANAGEMENT CASH BONUS INCENTIVE PROGRAM
1996 ONLY
For 1996 only, cash bonuses shall be payable pursuant to the following
table, with an EBITDA target for 1996 of $90 million. For 1996 only, Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA") is defined as:
a. Consolidated Net Income (loss) of Prime Service, Inc. (the
"Company") and its subsidiaries as it would appear on a consolidated
statement of income (loss) of the Company prepared in accordance with U.S.
GAAP, consistently applied, which shall reflect a reduction for all
management and employee bonuses payable with respect to the Fiscal Year;
plus (minus)
b. Any provision (benefit) for taxes (including franchise taxes)
deducted (added) in calculating such consolidated net income (loss); plus
c. Any interest expense (net of interest income), deducted in
calculating such consolidated net income (loss); (minus)
d. Costs charged against any purchase accounting reserves
established in connection with the acquisition; (minus)
e. The effects of the reversal of any excess purchase accounting
reserves established in connection with the acquisition; plus
f. Amortization expenses deducted in calculating consolidated net
income (loss); plus
g. Depreciation expense deducted in calculating consolidated net
income (loss); plus
h. Management fees paid to Investcorp S.A. or its subsidiaries; plus
(minus)
i. Any unusual losses (gains) deducted (added) in calculating
consolidated net income (loss). (Unusual items are intended to include
transactions considered outside the ordinary course of business. EBITDA
will be adjusted to eliminate the effects, if any, of such transactions,
the intent being to calculate EBITDA as if such transactions had not
occurred); plus (minus)
j. Any compensation expense (income) deducted (added) in calculating
consolidated net income (loss) attributable to transactions involving
equity securities of Holding or its subsidiaries.
The Employee and his or her representative shall be provided reasonable
opportunity to review the computation of EBITDA and reasonable access to the
data and information supporting such computation and shall have the right to
challenge in good faith such computation.
4
<PAGE>
For 1996 only, the percentage of Base Salary payable as bonus shall be
determined as follows:
% of Base
% of 1996 EBITDA Salary Payable
Target Achieved as Bonus(1)
---------------------------- ---------------
Equal To Or But Less
Greater Than: Than:
------------- --------
0 85 0
85 90 10-15
90 95 27-40
95 100 43-65
100 110 67-100
110 120 80-120
120 130 93-140
130 140 107-160
140 150 120-180
150 160 133-200
160 170 147-220
170 180 160-240
180 190 173-260
190 200 187-280
200 --- 200-300
___________________________
(1) The Company's Board of Directors (the "Board") in its discretion shall set
the bonus percentage amount for each fiscal year within the ranges indicated,
but not less than the bottom of the range. The bonus percentage will be
determined on an individual basis and may differ among eligible employees.
5
<PAGE>
1997 THROUGH 2001
For 1997 through 2001, cash bonuses under the Management Cash Bonus
Incentive Program are payable to participants in the program in a given year if
the Company's net income for such year exceeds 90% of the net income target (the
"Net Income Percentage") in the Company's budget for such year, as approved by
the Board. EBITDA2 targets for such years shall be as set forth in the
Company's budget for such year, as approved by the Board. EBITDA and net income
targets shall be subject to change in the discretion of the Board for any change
to the capital structure of the Company or Primeco Inc., the Company's
subsidiary, in connection with any acquisitions, equity offerings or other
transactions that would, or would be likely to, materially affect EBITDA or net
income. Upon achievement of the Net Income Percentage, the percentage of Base
Salary payable as bonus shall be determined as follows:
% of Base
% of EBITDA Salary Payable
Target Achieved as Bonus3
-------------------------- -------------
Equal To Or But Less
Greater Than: Than:
------------- --------
0 90 0
90 100 50-80
100 110 60-100
110 120 100-105
120 130 105-110
130 140 110-115
140 150 115-120
150 160 120-125
160 170 125-130
170 180 130-135
180 190 135-140
190 200 140-145
200 --- 145-150
_____________________________
(2) EBITDA for each of 1997 through 2001 shall be defined by the Board in the
budget for each year.
(3) The Board in its discretion shall set the bonus percentage amount for each
fiscal year within the ranges indicated, but not less than the bottom of the
range. The bonus percentage will be determined on an individual basis and may
differ among eligible employees.
6
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement (this "Agreement") is made and
entered into effective as of October 25, 1996, by and between Primeco
Inc., a Texas corporation ("Employer"), Peter A. Post ("Employee"), and Prime
Service, Inc., a Delaware corporation and parent company of Employer
("Parent").
WHEREAS, Employer and Employee have entered into an Employment Agreement,
dated as of December 2, 1994 (the "Employment Agreement");
WHEREAS, to induce Employee to stay in the employ of Employer, Employer and
Employee desire to amend certain terms and conditions of the Employment
Agreement, including providing for the issuance of options to purchase Common
Stock of the Parent;
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. DEFINED TERMS. Capitalized terms not defined herein shall have the
meanings set forth in the Employment Agreement.
2. EXTENSION OF PERIOD OF EMPLOYMENT. The "Expiration Date" set forth in
Section 1 of the Employment Agreement shall be amended to be December 2, 1999.
3. INCENTIVE COMPENSATION.
(a) Section 3.1 of the Employment Agreement is hereby amended and restated
in its entirety as follows:
"3.2 INCENTIVE COMPENSATION. In addition to the Base Salary provided
for in Section 3.1 hereof, Employee shall participate in the Management
Cash Incentive Bonus Program (the "Program") as adopted by the Board and
pursuant to which Employee shall be entitled to annual cash bonuses as set
forth on Exhibit B hereto. Employer agrees that it will not amend or
modify the Program in any manner materially adverse to Employee's interest
thereunder without Employee's written consent. It is understood that by
its terms the Program terminates after payment of bonuses for the year
ended December 21, 2001 unless extended beyond that date by the Board in
its sole discretion."
(b) Exhibit B of the Employment Agreement is hereby amended and restated
in its entirety by Exhibit B attached hereto.
4. STOCK OPTIONS. The Parent shall grant Employee options to purchase
19,965 shares of its Common Stock (the "Common Stock"), pursuant to the Parent's
1996 Management Stock Incentive Plan (the "Plan") and a stock option agreement
approved by the committee administering the Plan (the "Committee"), which
options will become exercisable in accordance with the vesting schedule set
forth therein, provided that the Parent completes an initial public offering of
its Common Stock prior to November 30, 1996.
1
<PAGE>
5. RELOAD OPTIONS. Upon exercise of all or part of an option (other than
a Reload Option (as hereinafter defined)) to purchase shares of Common Stock
granted under the Plan (an "Option") within 30 days of vesting of the portion of
the Option so exercised, with all or part of the payment of the exercise price
in the form of shares of Common Stock, the Committee may, at its sole and
absolute discretion, grant Employee a new Option for shares of Common Stock
equal to the number of shares that were delivered by Employee to the Parent to
pay, in whole or in part, the exercise price of the previous Option (a "Reload
Option"). The exercise price of a Reload Option shall be equal to at least 100%
of the fair market value per share of the Common Stock, as determined pursuant
to Section 5 of the Plan, on the date of the exercise of the previous Option.
The Reload Option shall vest in full on the fifth anniversary of the effective
date (as such term is defined in Employee's stock option agreement under the
Plan) of the Option to which such Reload Option relates. Reload Options shall
not be granted for exercise of a Reload Option. Notwithstanding the foregoing,
no Reload Option shall be granted unless the Plan contains sufficient shares of
Common Stock for such grant.
6. OTHER TERMS AND CONDITIONS. Except as expressly amended or modified
in this Agreement, all terms and conditions of the Employment Agreement remain
in full force and effect.
[SIGNATURES ON NEXT PAGE]
2
<PAGE>
IN WITNESS WHEREOF, each of the parties to this Agreement has executed and
delivered this Agreement as of the date first written above.
PRIMECO INC.
By: /s/ Thomas E. Bennett
--------------------------------------------------
Name: Thomas E. Bennett
--------------------------------------------------
Title: Chief Executive Officer
--------------------------------------------------
PRIME SERVICE, INC.
By: /s/ Thomas E. Bennett
--------------------------------------------------
Name: Thomas E. Bennett
--------------------------------------------------
Title: Chief Executive Officer
--------------------------------------------------
EMPLOYEE:
/s/ Peter A. Post
--------------------------------------------------
Peter A. Post
3
<PAGE>
EXHIBIT B
MANAGEMENT CASH BONUS INCENTIVE PROGRAM
1996 ONLY
For 1996 only, cash bonuses shall be payable pursuant to the following
table, with an EBITDA target for 1996 of $90 million. For 1996 only, Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA") is defined as:
a. Consolidated Net Income (loss) of Prime Service, Inc. (the
"Company") and its subsidiaries as it would appear on a consolidated
statement of income (loss) of the Company prepared in accordance with U.S.
GAAP, consistently applied, which shall reflect a reduction for all
management and employee bonuses payable with respect to the Fiscal Year;
plus (minus)
b. Any provision (benefit) for taxes (including franchise taxes)
deducted (added) in calculating such consolidated net income (loss); plus
c. Any interest expense (net of interest income), deducted in
calculating such consolidated net income (loss); (minus)
d. Costs charged against any purchase accounting reserves
established in connection with the acquisition; (minus)
e. The effects of the reversal of any excess purchase accounting
reserves established in connection with the acquisition; plus
f. Amortization expenses deducted in calculating consolidated net
income (loss); plus
g. Depreciation expense deducted in calculating consolidated net
income (loss); plus
h. Management fees paid to Investcorp S.A. or its subsidiaries; plus
(minus)
i. Any unusual losses (gains) deducted (added) in calculating
consolidated net income (loss). (Unusual items are intended to include
transactions considered outside the ordinary course of business. EBITDA
will be adjusted to eliminate the effects, if any, of such transactions,
the intent being to calculate EBITDA as if such transactions had not
occurred); plus (minus)
j. Any compensation expense (income) deducted (added) in calculating
consolidated net income (loss) attributable to transactions involving
equity securities of Holding or its subsidiaries.
The Employee and his or her representative shall be provided reasonable
opportunity to review the computation of EBITDA and reasonable access to the
data and information supporting such computation and shall have the right to
challenge in good faith such computation.
4
<PAGE>
For 1996 only, the percentage of Base Salary payable as bonus shall be
determined as follows:
% of Base
% of 1996 EBITDA Salary Payable
Target Achieved as Bonus(1)
-----------------------------------
Equal To Or But Less
Greater Than: Than:
------------------- -------------
0 85 0
85 90 10-15
90 95 27-40
95 100 43-65
100 110 67-100
110 120 80-120
120 130 93-140
130 140 107-160
140 150 120-180
150 160 133-200
160 170 147-220
170 180 160-240
180 190 173-260
190 200 187-280
200 --- 200-300
- ---------------------------
1 The Company's Board of Directors (the "Board") in its discretion shall set
the bonus percentage amount for each fiscal year within the ranges indicated,
but not less than the bottom of the range. The bonus percentage will be
determined on an individual basis and may differ among eligible employees.
5
<PAGE>
1997 THROUGH 2001
For 1997 through 2001, cash bonuses under the Management Cash Bonus
Incentive Program are payable to participants in the program in a given year if
the Company's net income for such year exceeds 90% of the net income target (the
"Net Income Percentage") in the Company's budget for such year, as approved by
the Board. EBITDA2 targets for such years shall be as set forth in the
Company's budget for such year, as approved by the Board. EBITDA and net income
targets shall be subject to change in the discretion of the Board for any change
to the capital structure of the Company or Primeco Inc., the Company's
subsidiary, in connection with any acquisitions, equity offerings or other
transactions that would, or would be likely to, materially affect EBITDA or net
income. Upon achievement of the Net Income Percentage, the percentage of Base
Salary payable as bonus shall be determined as follows:
% of EBITDA
Target Achieved % of Base
Salary Payable
as Bonus3
Equal To Or
Greater Than: But Less
Than:
% of Base
% of EBITDA Salary Payable
Target Achieved as Bonus(3)
-----------------------------------
Equal To Or But Less
Greater Than: Than:
------------------- -------------
0 90 0
90 100 50-80
100 110 60-100
110 120 100-105
120 130 105-110
130 140 110-115
140 150 115-120
150 160 120-125
160 170 125-130
170 180 130-135
180 190 135-140
190 200 140-145
200 --- 145-150
- ----------------------------
2 EBITDA for each of 1997 through 2001 shall be defined by the Board in the
budget for each year.
3 The Board in its discretion shall set the bonus percentage amount for each
fiscal year within the ranges indicated, but not less than the bottom of the
range. The bonus percentage will be determined on an individual basis and may
differ among eligible employees.
6
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement (this "Agreement") is made and entered into effective
as of October 25, 1996, by and between Primeco Inc., a Texas corporation
("Employer"), and James O. York ("Employee").
Employer hereby agrees to employ Employee, and Employee hereby accepts
such employment, on the terms and conditions hereinafter set forth.
1. PERIOD OF EMPLOYMENT. The period of Employee's employment under
this Agreement (the "Period of Employment") shall commence on the date hereof
(the "Effective Date") and shall expire on December 2, 1999 (the "Expiration
Date"), subject to any extension as may be agreed or any earlier termination of
Employee's employment as provided in Section 6 hereof. Upon the expiration of
the initial term of this Agreement, and each subsequent term or extension
thereof, this Agreement shall automatically be extended for an additional term
of one year, unless the employer or the Employee shall have notified the other
party hereto of its election to terminate this Agreement not later than 90 days
prior to the scheduled Expiration Date. If Employee's employment is terminated
pursuant to Section 4 hereof, the Period of Employment shall expire as of the
Date of Termination (as hereinafter defined).
<PAGE>
2. DUTIES. During the Period of Employment, Employee will
faithfully perform those duties and responsibilities assigned by the Board of
Directors of the corporate parent ("Parent") of Employer (the "Board") or the
Chief Executive Officer of Employer and Employee will devote his full working
time and use his best efforts to advance the business and welfare of Employer in
furtherance of the policies established by the Board. During the Period of
Employment, Employee shall not engage in any other employment activities for any
direct or indirect remuneration without the concurrence of the Board, except
that Employee may continue to devote reasonable time to the management of
investments and to participation in community and charitable affairs, so long as
such activities do not interfere with his duties under this Agreement. Employee
shall have such title as the Board shall determine from time to time; Employee's
initial title is set forth on Exhibit A hereto.
3. COMPENSATION.
3.1 BASE SALARY. During the Period of Employment, Employer shall pay
Employee a Base Salary at the rate of $125,000 per annum payable at least as
frequently as bi-weekly and subject to payroll deductions as may be necessary or
customary in respect of Employer's salaried employees in general. The amount of
Employee's Base Salary shall be subject to annual review by the Board, provided
that the level of such Base Salary shall not be subject to reduction.
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3.2 INCENTIVE COMPENSATION. In addition to the Base Salary provided
for in Section 3.1 hereof, Employee shall participate in the Management Cash
Incentive Bonus Program (the "Program") as adopted by the Board and pursuant to
which Employee shall be entitled to annual cash bonuses as set forth on Exhibit
B hereto. Employer agrees that it will not amend or modify the Program in any
manner materially adverse to Employee's interest thereunder without Employee's
written consent. It is understood that by its terms the Program terminates
after payment of bonuses for the year ended December 21, 2001 unless extended
beyond that date by the Board in its sole discretion. Notwithstanding the
foregoing, Employee's bonus payment, if any, under the Program for fiscal 1996
shall be based upon achievement of the applicable targets by Employer for the
entire fiscal year, but the amount of such bonus payment shall be prorated in
accordance with the number of days during the 1996 fiscal year that Employee was
employed by Employer, including periods prior to the date of this Agreement.
3.3 BENEFITS. During the Period of Employment, Employee shall be
entitled to participate in all fringe benefit programs maintained by Employer
that are available to its executive officers generally. Any payments or
benefits payable to Employee hereunder in respect of any calendar year during
which Employee is employed by Employer for less than the entire year shall,
unless otherwise provided in the applicable plan or arrangement, be prorated in
accordance with
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the number of days in such calendar year during which he is so employed.
Employee acknowledges that he shall have no vested rights under or to
participate in any such program except as expressly provided under the terms
hereof or thereof.
3.4 EXPENSES. Employer will pay or reimburse Employee for such
reasonable travel, entertainment or other expenses as he may incur on behalf of
Employer during the Period of Employment in connection with the performance of
his duties hereunder but only to the extent that such expenses were either
specifically authorized by Employer or incurred in accordance with policies
established by the Board and provided that Employee shall furnish Employer with
such evidence relating to such expenses as Employer may reasonably require to
substantiate such expenses for tax purposes.
4. TERMINATION OF EMPLOYMENT.
4.1 CIRCUMSTANCES OF TERMINATION. Notwithstanding the terms set
forth in Section 1 hereof, Employee's employment shall terminate under any of
the following circumstances:
(a) DEATH. In the event of Employee's death.
(b) PERMANENT DISABILITY. If during the Period of
Employment Employee becomes physically or mentally incapacitated or disabled so
that (i) he is unable to perform for Employer substantially the same services as
he performed prior to incurring such incapacity or disability or to devote his
full working time or use his best efforts to advance the
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business and welfare of Employer or otherwise to perform his duties under this
Agreement and (ii) such condition exists for an aggregate of six months in any
12 consecutive calendar month period (Employer, at its option and expense, being
entitled to retain a physician reasonably acceptable to Employee to confirm the
existence of such incapacity or disability, and the determination of such
physician being binding upon Employer and Employee).
(c) CAUSE. At the option of Employer, because Employee:
(i) has been convicted of, or has pled guilty or NOLO CONTENDERE to,
a felony or a crime involving moral turpitude, or
(ii) has embezzled or misappropriated Employer funds or property, or
(iii) has continued use of alcohol or drugs to an extent that
interferes with the performance by Employee of his employment
responsibilities, or
(iv) has violated Section 6.1, Section 6.2, Section 6.3 or Section 6.4
hereof, or
(v) has willfully failed or refused to perform those duties
reasonably assigned or delegated to him by the Board of Directors or the
Chief Executive Officer, which failure or refusal continues following
(a) the Board of
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Directors giving the Employee written notice setting forth the facts or
events constituting such failure or refusal and (b) a reasonable
opportunity to correct the deficiencies or other problems specified in such
notice to the reasonable satisfaction of the Board of Directors.
(d) NOT FOR CAUSE. At the option of Employer at any time
for any reason other than those referred to above or for no reason at all,
whereupon the Employer shall become obligated to make those payments set forth
in Section 5.1(d) hereof.
4.2 NOTICE OF TERMINATION. Any termination of Employee's
employment by Employer (other than termination pursuant to Section 4.1(a)
hereof) or by Employee shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section 7.2. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice terminating Employee's
employment by Employer. If a Notice of Termination is given by Employer, such
notice shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
that provide a basis for termination of Employee's employment under the
provision so indicated. For purposes of this Agreement, the "Date of
Termination" shall be the date on which the Notice of Termination is delivered
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except that with respect to Section 4.1(a) the "Date of Termination" shall be
the date of Employee's death.
5. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
5.1 PAYMENTS. In the event that Employee's employment is
terminated prior to the Expiration Date (including any extension thereof), the
Period of Employment shall expire as of the Date of Termination.
(a) If Employer terminates Employee's employment for Cause
or if Employee voluntarily terminates his employment, Employer's obligation to
compensate Employee shall in all respects cease as of the Date of Termination,
except that Employer shall pay Employee the Base Salary accrued under Section 3
and the reimbursable expenses incurred under Section 3.4 of this Agreement up to
such Date of Termination (the "Accrued Obligations");
(b) If Employee's employment is terminated upon the death of
Employee, Employer's obligation to compensate Employee shall in all respects
cease as of the Date of Termination, except that within thirty (30) days after
the Date of Termination Employer shall (i) pay Employee's estate or legal
representative the Accrued Obligations and a lump sum payment equal to 25% of
the Employee's annual Base Salary payable under Section 3 hereof at the rate in
effect immediately prior to such termination and (ii) continue to maintain
during the three-month period following the Date of Termination for the benefit
of the Employee's dependents, basic health and dental insurance and related
medical expenses
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coverage on terms no less favorable to the Employee than Employer provides to
its executive officers generally, as such benefits may be modified from time to
time during such period;
(c) If Employee's employment is terminated upon the
Permanent Disability of Employee, Employer's obligation to compensate Employee
shall in all respects cease as of the Date of Termination, except that within
thirty (30) days after the Date of Termination Employer shall (i) pay Employee
Accrued Obligations and a lump sum payment equal to 50% of the Employee's annual
Base Salary payable under Section 3 hereof at the rate in effect immediately
prior to such termination less the amount of any disability payments payable to
Employee during the six-month period following the Date of Termination pursuant
to any Employer-paid or state sponsored insurance policy or employer
self-insured program and (ii) continue to maintain during the six-month period
following the Date of Termination for the benefit of Employee and his
dependents, basic health, disability and dental insurance and related medical
expenses coverage on terms no less favorable to the Employee than Employer
provides to its executive officers generally, as such benefits may be modified
from time to time during such period PROVIDED that the Employee shall continue
to be obligated to make any contributions or payments in connection with such
benefits to the same extent as other executive officers generally; and
(d) If Employee's employment is terminated by Employer
pursuant to Section 4.1(d), Employer's obligation
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to compensate Employee shall in all respects cease, except that within thirty
(30) days after the Date of Termination Employer shall pay to Employee the
Accrued Obligations and during the period ending on the earlier of the
Expiration Date or the first anniversary of the Date of Termination (the
"Severance Period"), Employer shall (i) pay to Employee on a monthly basis the
sum of one-twelfth (1/12th) of the annual Base Salary of Employee in effect at
the Date of Termination (the "Continuation Payments") and (ii) continue to
maintain, during the Severance Period for the benefit of the Employee and his
dependents, basic health, dental and life insurance and related medical expenses
coverage (including disability and hospitalization coverage) (the "Continuation
Benefits") on terms no less favorable to the Employee than the Employer provides
to its executive officers generally, as such benefits may be modified from time
to time during the Severance Period. During the Severance Period, Employee
shall be required to make any contributions required to maintain such
Continuation Benefits, which may be withheld from the Continuation Payments;
PROVIDED that such contributions are also required to be made by the Employer's
executive officers generally. If at any time during the Severance Period
Employee shall obtain employment with a third party (the "Substitute Employer")
in which Employee is entitled to receive basic health benefits in connection
with such employment on terms provided by the Substitute Employer to its
similarly situated employees generally, the Employer shall no longer be required
to provide
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Continuation Benefits to the Employee, regardless of whether such benefits
differ in any respect from the Continuation Benefits. The Employer shall be
excused from its obligations to make payments under this Section 5.1(d) if the
Employee breaches its obligations hereunder (including its obligations under
Article 6 hereof).
5.2 RELEASE AND SATISFACTION. With respect to Employee, his
heirs, successors and assigns, payment by Employer of the amounts provided under
this Section 5 shall release, relinquish and forever discharge Employer and any
director, officer, employee, shareholder or agent of Employer from any and all
claims, damages, losses, costs, expenses, liabilities or obligations, whether
known or unknown (other than any such claims, damages, losses, costs, expenses,
liabilities or obligations (a) covered by any indemnification arrangement of
Employer with respect to Employee or (b) arising under any written employee
benefit plan or arrangement (whether or not tax-qualified) covering Employee),
which Employee has incurred or suffered or may incur or suffer as a result of
Employee's employment by Employer or the termination of such employment.
5.3 EFFECT ON THIS AGREEMENT. Any termination of Employee's
employment and any expiration of the Period of Employment under this Agreement
shall not affect the continuing operation and effect of Sections 5.2, 6.1, 6.2,
6.3, 6.4 and 6.5 hereof, which shall continue in full force and effect with
respect to Employer and Employee, and its and
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his heirs, successors and assigns. Nothing in Section 5.1 hereof shall be
deemed to operate or shall operate as a release, settlement or discharge of any
liability of Employee to Employer or others from any action or omission by
Employee enumerated in Section 4.1(c) hereof as a possible basis for termination
of Employee's employment for Cause.
5.4 NO DUTY TO MITIGATE. Subject to the provisions of
Sections 6.1, 6.2, 6.3, 6.4 and 6.5 hereof, Employee shall be free to accept
such employment and engage in such business as Employee may desire following the
termination of his employment hereunder, and no compensation received by
Employee therefrom shall reduce or affect any payments required to be made by
Employer hereunder except to the extent expressly provided in the benefit plans
of Employer.
6. NON-DISCLOSURE OF PROPRIETARY INFORMATION, SURRENDER OF RECORDS;
INVENTIONS AND PATENTS; NON-COMPETE.
6.1 PROPRIETARY INFORMATION. Employee shall not during the
Period of Employment or at any time thereafter (irrespective of the
circumstances under which Employee's employment by Employer terminates),
directly or indirectly use for his own purpose or for the benefit of any person
or entity other than Employer, nor otherwise disclose, any proprietary
information, as defined below, to any individual or entity, unless such
disclosure has been authorized in writing by the Board or is otherwise required
by law. For purposes of this Agreement, the term "proprietary information"
shall include, but is not limited to: (a) the name or address of any
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customer, vendor or affiliate of Employer or any information concerning the
transactions or relations of any customer, vendor or affiliate of Employer with
Employer or any of its shareholders; (b) any information concerning any product,
technology or procedure employed by Employer but not generally known to its
customers, vendors or competitors, or under development by or being tested by
Employer but not at the time offered generally to customers or vendors; (c) any
information relating to Employer's computer software, computer systems, pricing
or marketing methods, sales margins, cost of goods, cost of material, capital
structure, operating results, borrowing arrangements or business plans; (d) any
information which is generally regarded as confidential or proprietary in any
line of business engaged in by Employer; (e) any information contained in any of
Employer's written or oral policies and procedures or employee manuals; (f) any
information belonging to customers, vendors or affiliates of Employer which
Employer has agreed to hold in confidence; (g) any inventions, innovations or
improvements covered by Section 6.3 below; (h) any other information which the
Board has reasonably determined by resolution and communicated to Employee to be
confidential or proprietary; and (i) all written, graphic and other material
relating to any of the foregoing. Information that is not novel or copyrighted
or patented may nonetheless be proprietary information. However, proprietary
information shall not include (i) any information that is or becomes generally
known to the industries in which
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Employer competes through sources independent of Employer or through authorized
publication to persons other than Employer's employees by Employer or (ii) other
non-sensitive information that may be disclosed by Employee in the ordinary
course of business, the disclosure of which is not reasonably likely to
adversely affect Employer's business operations, their relationships with
customers, vendors or employees or the results of their operations.
6.2 CONFIDENTIALITY AND SURRENDER OF RECORDS. Employee shall
not during the Period of Employment or at any time thereafter (irrespective of
the circumstances under which Employee's employment by Employer terminates),
except as required by law, directly or indirectly give any "confidential
records" (as hereinafter defined) to, or permit any inspection or copying of
confidential records by, any individual or entity other than in the course of
such individual's or entity's employment or retention by Employer, nor shall he
retain, and will deliver promptly to Employer, any of the same following
termination of his employment. For purposes hereof, "confidential records"
means all correspondence, memoranda, files, manuals, books, lists, financial,
operating or marketing records, magnetic tape, or electronic or other media or
equipment of any kind which may be in Employee's possession or under his control
or accessible to him which contain any proprietary information as defined in
Section 6.1. above. All confidential records shall be and remain the sole
property of Employer during the Period of Employment and thereafter.
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6.3 INVENTIONS AND PATENTS. All inventions, innovations or
improvements in Employer's method of conducting its business (including
policies, procedures, products, improvements, software, ideas and discoveries,
whether paten- table or copyrightable or not) conceived or made by Employee,
either alone or jointly with others, during the Period of Employment belong to
Employer. Employee will promptly disclose in writing such inventions,
innovations or improvements to the Board and perform all actions reasonably
requested by the Board to establish and confirm such ownership by Employer,
including, but not limited to, cooperating with and assisting Employer in
obtaining patents for Employer in the United States and in foreign countries.
Any patent application filed by Employee within a year after termination of his
employment hereunder shall be presumed to relate to an invention which was made
during the Period of Employment unless Employee can provide evidence to the
contrary.
6.4 COVENANT NOT TO COMPETE; NO SOLICITATION.
(a) Employee acknowledges and recognizes the highly
competitive nature of Employer's business and, in consideration of the payment
by Employer to Employee of amounts that may hereafter be paid to Employee
pursuant to Sections 5.1 and 6.4(d) hereof, Employee agrees that during the
period (the "Covered Time") beginning on the Date of Termination and ending
(i) if Employee's employment is terminated for any reason other than pursuant to
Section
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4.1(d) hereof, on the second anniversary of the Date of Termination or (ii) if
Employee's employment is terminated pursuant to Section 4.1(d) hereof and
subject to Section 6.4(d) hereof, on the earlier of (A) the first anniversary of
the Date of Termination or (B) the last day of the Period of Employment
remaining under Section 1 hereof immediately prior to the Date of Termination,
Employee will not compete with the business of Employer, which means that
Employee will not engage, directly or indirectly, in the "Covered Business" (as
hereinafter defined) in any state of the United States of America in which the
Employer is conducting business or proposes to conduct business as of the Date
of Termination and any states contiguous therewith (these areas are hereinafter
collectively referred to as the "Covered Area"). For purposes of this
Agreement, (i) "Covered Business" shall mean the renting and selling of the
following types of equipment (and parts and supplies for such equipment):
high-reach booms, forklifts, tractors, dump trucks, air compressors and
high-reach scissor lifts, and small tools such as electrical generators, power
saws and hand tools; and (ii) the phrase "engage, directly or indirectly" shall
mean engaging directly or having an interest, directly or indirectly, as owner,
partner, shareholder, independent contractor, capital investor, lender, renderer
of consultation services or advice or otherwise (other than as the holder of
less than 2% of the outstanding stock of a publicly-traded corporation), either
alone or in association with others, in the operation of any
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aspect of any type of business or enterprise engaged in any aspect of the
Covered Business. Employee shall be deemed engaged in business in the Covered
Area if his place of business is located in the Covered Area or if he solicits
customers located anywhere in, or delivers products anywhere in, the Covered
Area.
(b) Employee agrees that during the term of this Agreement
(including any extensions thereof) and during the Covered Time he shall not (i)
directly or indirectly solicit or attempt to solicit any of the employees,
agents or representatives of Employer or affiliates of Employer to leave any of
such entities; (ii) directly or indirectly solicit or attempt to solicit any of
the employees, agents, consultants or representatives of Employer or affiliates
of Employer to become employees agents, representatives or consultants of any
other person or entity; or (iii) directly or indirectly solicit or attempt to
solicit any customer, vendor or distributor of Employer or affiliates of
Employer with respect to any product or service being furnished, made, sold or
leased by Employer.
(c) Employee understands that the provisions of
Section 6.4(a) may limit his ability to earn a livelihood in a business similar
to the business of Employer but nevertheless agrees and hereby acknowledges that
the consideration provided under this Agreement, including any amounts or
benefits provided under Section 5 hereof, is sufficient to justify the
restrictions contained in such
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provisions and in consideration thereof and in light of Employee's education,
skills and abilities, Employee agrees that he will not assert that, and it
should not be considered that, such provisions prevent him from earning a living
or otherwise are void or unenforceable or should be voided or held
unenforceable. Employee acknowledges and agrees that his duties with Employer
are of an executive nature and that he is a member of Employer's management
group.
(d) If Employee's employment is terminated pursuant to
Section 4.1(d) hereof, Employer may extend the Covered Time to extend up to and
through the second anniversary of the Date of Termination by delivering written
notice to Employee (specifying the duration of the extended Covered Time),
within ten (10) days of such Date of Termination, that Employer has elected to
continue to pay to Employee the Continuation Payments and provide the
Continuation Benefits (on terms no less favorable to Employee than Employer
provides to its executive officers generally, as such benefits may be modified
from time to time) for each month of such extended Covered Time. During the
extended Covered Time, Employee shall be required to make any contributions
required to maintain such Continuation Benefits, which may be withheld from the
Continuation Payments; PROVIDED that such contributions are also required to be
made by the Employer's executive officers generally. If at any time during the
extended Covered Time Employee shall obtain employment with a Substitute
Employer in which Employee is
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entitled to receive basic health benefits in connection with such employment on
terms provided by the Substitute Employer to its similarly situated employees
generally, Employer shall no longer be required to provide Continuation Benefits
to the Employee, regardless of whether such benefits differ in any respect from
the Continuation Benefits. Employer shall be excused from its obligations to
make payments under this Section 6.4(d) if Employee breaches its obligations
hereunder.
6.5 LITIGATION ASSISTANCE. Employee agrees that after the Date
of Termination he shall, at the request of Employer, render all assistance and
perform all lawful acts that Employer considers necessary or advisable in
connection with any litigation involving Employer or any director, officer,
employee, shareholder, agent, representative, consultant, customer or vendor of
Employer. In the event that Employer requests Employee's assistance under this
Section 6.5, Employer shall pay to Employee for each day such assistance is
rendered an amount equal to the annual Base Salary of Employee in effect at the
Date of Termination divided by 250 and shall promptly pay or reimburse Employee
for such reasonable travel expenses as he may incur in connection with rendering
assistance hereunder.
6.6 DEFINITION OF EMPLOYER. For purposes of this Section 6, the
term Employer shall include Employer and any and all of its subsidiaries,
ventures or affiliates, whether currently existing or hereafter formed, which
are engaged in the Covered Business or a portion thereof, as well
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as any person to whom this Agreement is assigned as permitted by Section 7.8
hereof.
6.7 ENFORCEMENT.
(a) The parties hereto agree and acknowledge that the
covenants and agreements contained herein are reasonably necessary in duration
and to protect the reasonable competitive business interests of Employer,
including, without limitation, the value of the proprietary information and
goodwill of Employer.
(b) Employee agrees that the covenants and undertakings
contained in Article 6 of this Agreement relate to matters which are of a
special, unique and extraordinary character and that Employer cannot be
reasonably or adequately compensated in damages in an action at law in the event
Employee breaches any of these covenants or undertakings. Therefore, Employee
agrees that Employer shall be entitled, as a matter of course, without the need
to prove irreparable injury, to an injunction, restraining order or other
equitable relief from any court of competent jurisdiction, restraining any
violation or threatened violation of any of such terms by Employee and such
other persons as the court shall order. Employee agrees to pay costs and legal
fees incurred by Employer in obtaining such injunction.
(c) Rights and remedies provided for in this Section are
cumulative and shall be in addition to rights
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and remedies otherwise available to the parties under any other agreement or
applicable law.
(d) In the event that any provision of this Agreement shall
to any extent be held invalid, unreasonable or unenforceable in any
circumstances, the parties hereto agree that the remainder of this Agreement and
the application of such provision of this Agreement to other circumstances shall
be valid and enforceable to the fullest extent permitted by law. If any
provision of this Agreement, or any part thereof, is held to be unenforceable
because of the scope or duration of or the area covered by such provision, the
parties hereto agree that the court or arbitrator making such determination
shall reduce the scope, duration and/or area of such provision (and shall
substitute appropriate provisions for any such unenforceable provisions) in
order to make such provision enforceable to the fullest extent permitted by law,
and/or shall delete specific words and phrases, and such modified provision
shall then be enforceable and shall be enforced. The parties hereto recognize
that if, in any judicial proceeding, a court shall refuse to enforce any of the
separate covenants contained in this Agreement, then that unenforceable covenant
contained in this Agreement shall be deemed eliminated from these provisions to
the extent necessary to permit the remaining separate covenants to be enforced.
In the event that any court or arbitrator determines that the time period or the
area, or both, are unreasonable and that any of the covenants
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is to that extent unenforceable, the parties hereto agree that such covenants
will remain in full force and effect, first, for the greatest time period, and
second, in the greatest geographical area that would not render them
unenforceable.
7. MISCELLANEOUS.
7.1 KEY MAN INSURANCE. Employee recognizes and acknowledges
that Employer or its affiliates may seek and purchase one or more policies
providing key man life insurance with respect to Employee, the proceeds of which
would be payable to Employer or such affiliate. Employee hereby consents to
Employer or its affiliates seeking and purchasing such insurance and will
provide such information, undergo such medical examinations (at Employer's
expense), execute such documents, and otherwise take any and all actions
necessary or desirable in order for Employer or its affiliates to seek, purchase
and maintain in full force and effect such policy or policies.
7.2 NOTICE. Any notice required or permitted to be given
hereunder shall be deemed sufficiently given if sent by registered or certified
mail, postage prepaid, addressed to the addressee at his or its address last
provided the sender in writing by the addressee for purposes of receiving
notices hereunder or, unless or until such address shall be so furnished, to the
address indicated opposite his or its signature to this Agreement. For purposes
of this Agreement, notice sent in conformity with this Section 7.2
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shall be deemed to have been received on the third business day following the
date on which such notices are so sent.
7.3 MODIFICATION AND NO WAIVER OF BREACH. No waiver or
modification of this Agreement shall be binding unless it is in writing signed
by the parties hereto. No waiver by a party of a breach hereof by the other
party shall be deemed to constitute a waiver of a future breach, whether of a
similar or dissimilar nature, except to the extent specifically provided in any
written waiver under this Section 7.3.
7.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
AND ALL QUESTIONS RELATING TO THE VALIDITY AND PERFORMANCE HEREOF AND REMEDIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAW.
7.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same agreement.
7.6 CAPTIONS. The captions used herein are for ease of
reference only and shall not define or limit the provisions hereof.
7.7 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto relating to the matters encompassed hereby
and supersedes any prior oral or written agreements.
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7.8 ASSIGNMENT. The rights of Employer under this Agreement
may, without the consent of Employee, be assigned by Employer to any person,
firm, corporation, or other business entity which at any time, whether by
purchase, merger, or otherwise, directly or indirectly, acquires all or material
portions of the stock, assets or any line of business of Employer.
7.9 NON-TRANSFERABILITY OF INTEREST. None of the rights of
Employee to receive any form of compensation payable pursuant to this Agreement
shall be assignable or transferable except through a testamentary disposition or
by the laws of descent and distribution upon the death of Employee. Any
attempted assignment, transfer, conveyance, or other disposition (other than as
aforesaid) of any interest in the rights of Employee to receive any form of
compensation to be made by Employer pursuant to this Agreement shall be void.
7.10 ARBITRATION. The parties shall endeavor to settle all
disputes by amicable negotiations. Except as otherwise provided herein, any
claim, dispute, disagreement or controversy that arises among the parties
relating to this Agreement that is not amicably settled shall be resolved by
arbitration, as follows:
(a) Any such arbitration shall be heard in The City of New
York, New York, before a panel consisting of one (l) to three (3) arbitrators,
each of whom shall be impartial. Upon the written Request of Arbitration of
either party hereto to commence arbitration hereunder, the parties
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shall attempt to mutually agree as to the number and identity of the
arbitrator(s), within thirty (30) days of the date of such Request. Except as
the parties may otherwise agree, all arbitrators (if not selected by the parties
hereto within thirty (30) days of a written Request for Arbitration) shall be
appointed pursuant to the commercial arbitration rules of the American
Arbitration Association. In determining the number and appropriate background
of the arbitrators, the appointing authority shall give due consideration to the
issues to be resolved, but his or her decision as to the number of arbitrators
and their identity shall be final.
(b) An arbitration may be commenced by any party to this
Agreement by the service of a written Request for Arbitration upon the other
affected parties. Such Request for Arbitration shall summarize the controversy
or claim to be arbitrated.
(c) All attorneys' fees and costs of the arbitration shall
in the first instance be borne by the respective party incurring such costs and
fees, but the arbitrators shall have the discretion to award costs and/or
attorneys' fees as they deem appropriate under the circumstances. The parties
hereby expressly waive punitive damages, and under no circumstances shall an
award contain any amount that in any way reflects punitive damages.
(d) Judgment on the award rendered by the arbitrators may
be entered in any court having jurisdiction thereof.
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(e) It is intended that controversies or claims submitted
to arbitration under this Section 9.10 shall remain confidential, and to that
end it is agreed by the parties that neither the facts disclosed in the
arbitration, the issues arbitrated, nor the views or opinions of any persons
concerning them, shall be disclosed to third persons at any time, except to the
extent necessary to enforce an award or judgment or as required by law or in
response to legal process or in connection with such arbitration.
(f) Any arbitration under this Section 7.10 shall be
conducted pursuant to the commercial arbitration rules of the American
Arbitration Association.
7.11 JURISDICTION; VENUE. Subject to Section 7.10 hereof, the
parties hereto irrevocably and unconditionally submit to the exclusive
jurisdiction of any State or Federal court sitting in The City of New York over
any suit, action or proceeding arising out of or relating to this Agreement.
Service of any process, summons, notice or document by registered mail addressed
to any party as provided in Section 7.2 hereof shall be effective service of
process for any action, suit or proceeding brought against such party in any
such court. The parties hereto irrevocably and unconditionally waive any
objection to the laying of venue of any such suit, action or proceeding brought
in any such court and any claim that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum. A final judgment
in any suit, action or proceeding brought in
25
<PAGE>
any such court shall be conclusive and binding upon the parties and may be
enforced in any other courts to whose jurisdiction a party is or may be subject,
by suit upon such judgment.
26
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed effective as
of the day and year first written above.
Address for notices: PRIMECO INC.
16225 Park Ten Place, Suite 200
Houston, Texas 77084
By:
/s/ THOMAS E. BENNETT
-----------------------------
With a copy to:
INVESTCORP International Inc.
280 Park Avenue, 37th Floor
New York, New York 10017
Attention: Christopher J. O'Brien
EMPLOYEE
/s/ JAMES O. YORK
- ------------------------- -----------------------------
- ------------------------- JAMES O. YORK
27
<PAGE>
EXHIBIT A
Employee's initial title shall be:
VICE PRESIDENT OF SALES AND MARKETING
EXHIBIT B
MANAGEMENT CASH BONUS INCENTIVE PROGRAM
1996 ONLY
For 1996 only, cash bonuses shall be payable pursuant to the following
table, with an EBITDA target for 1996 of $90 million. For 1996 only, Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA") is defined as:
a. Consolidated Net Income (loss) of Prime Service, Inc. (the
"Company") and its subsidiaries as it would appear on a consolidated
statement of income (loss) of the Company prepared in accordance with U.S.
GAAP, consistently applied, which shall reflect a reduction for all
management and employee bonuses payable with respect to the Fiscal Year;
plus (minus)
b. Any provision (benefit) for taxes (including franchise taxes)
deducted (added) in calculating such consolidated net income (loss); plus
c. Any interest expense (net of interest income), deducted in
calculating such consolidated net income (loss); (minus)
d. Costs charged against any purchase accounting reserves
established in connection with the acquisition; (minus)
e. The effects of the reversal of any excess purchase accounting
reserves established in connection with the acquisition; plus
f. Amortization expenses deducted in calculating consolidated net
income (loss); plus
g. Depreciation expense deducted in calculating consolidated net
income (loss); plus
h. Management fees paid to Investcorp S.A. or its subsidiaries; plus
(minus)
i. Any unusual losses (gains) deducted (added) in calculating
consolidated net income (loss). (Unusual items are intended to include
transactions considered outside the ordinary course of business. EBITDA
will be adjusted to eliminate the effects, if any, of such transactions,
the intent being to calculate EBITDA as if such transactions had not
occurred); plus (minus)
j. Any compensation expense (income) deducted (added) in calculating
consolidated net income (loss) attributable to transactions involving
equity securities of Holding or its subsidiaries.
The Employee and his or her representative shall be provided reasonable
opportunity to review the computation of EBITDA and reasonable access to the
data and information supporting such computation and shall have the right to
challenge in good faith such computation.
28
<PAGE>
For 1996 only, the percentage of Base Salary payable as bonus shall be
determined as follows:
% of Base
% of 1996 EBITDA Salary Payable
Target Achieved as Bonus(1)
-------------------------------- ---------------
Equal To Or But Less
Greater Than: Than:
0 85 0
85 90 10-15
90 95 27-40
95 100 43-65
100 110 67-100
110 120 80-120
120 130 93-140
130 140 107-160
140 150 120-180
150 160 133-200
160 170 147-220
170 180 160-240
180 190 173-260
190 200 187-280
200 --- 200-300
___________________________
1 The Company's Board of Directors (the "Board") in its discretion shall set
the bonus percentage amount for each fiscal year within the ranges
indicated, but not less than the bottom of the range. The bonus percentage
will be determined on an individual basis and may differ among eligible
employees.
<PAGE>
1997 THROUGH 2001
For 1997 through 2001, cash bonuses under the Management Cash Bonus
Incentive Program are payable to participants in the program in a given year if
the Company's net income for such year exceeds 90% of the net income target (the
"Net Income Percentage") in the Company's budget for such year, as approved by
the Board. EBITDA2 targets for such years shall be as set forth in the
Company's budget for such year, as approved by the Board. EBITDA and net income
targets shall be subject to change in the discretion of the Board for any change
to the capital structure of the Company or Primeco Inc., the Company's
subsidiary, in connection with any acquisitions, equity offerings or other
transactions that would, or would be likely to, materially affect EBITDA or net
income. Upon achievement of the Net Income Percentage, the percentage of Base
Salary payable as bonus shall be determined as follows:
% of Base
% of EBITDA Salary Payable
Target Achieved as Bonus(3)
--------------------------- ------------------
Equal To Or But Less
Greater Than: Than:
-------------- ---------
0 90 0
90 100 50-80
100 110 60-100
110 120 100-105
120 130 105-110
130 140 110-115
140 150 115-120
150 160 120-125
160 170 125-130
170 180 130-135
180 190 135-140
190 200 140-145
200 --- 145-150
_____________________________
2 EBITDA for each of 1997 through 2001 shall be defined by the Board in
the budget for each year.
3 The Board in its discretion shall set the bonus percentage amount for
each fiscal year within the ranges indicated, but not less than the
bottom of the range. The bonus percentage will be determined on an
individual basis and may differ among eligible employees.
<PAGE>
PRIME SERVICE, INC.
1996 MANAGEMENT STOCK INCENTIVE PLAN
1. ESTABLISHMENT AND PURPOSE OF THE PLAN. This 1996 Management Stock
Incentive Plan (the "Plan") is established by Prime Service, Inc., a Delaware
corporation (the "Company"), as of October 25, 1996. The Plan is designed to
enable the Company to attract, retain and motivate members of the senior
management and certain other officers and key employees of the Company and of
Primeco, Inc., a Delaware corporation ("Primeco"), by providing for or
increasing their proprietary interest in the Company. The Plan provides for the
grant of options ("Options") that qualify as incentive stock options ("Incentive
Stock Options") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), as well as Options that do not so qualify ("Non-Qualified
Options"), for the grant of stock appreciation rights ("Stock Appreciation
Rights") and for the sale or grant of restricted stock ("Restricted Stock").
2. STOCK SUBJECT TO THE PLAN. The maximum number of shares of stock that
may be subject to Options or Stock Appreciation Rights granted hereunder and the
number of shares of stock that may be sold as Restricted Stock hereunder, when
combined with the number of shares of stock subject to Options or Stock
Appreciation Rights granted, or Restricted Stock sold, under the Management
Stock Incentive Plan previously established by the Company, shall not in the
aggregate exceed 1,500,000 shares of the Class C Stock, one cent ($0.01) par
value (the "Shares"), of the Company, subject to adjustment under Section 15
hereof. The Shares that may be subject to Options granted and Restricted Stock
sold or granted under the Plan may be authorized and unissued Shares or Shares
reacquired by the Company and held as treasury stock.
Shares that are subject to the unexercised portions of any Options that
expire, terminate or are cancelled, and Shares that are not required to satisfy
the exercise of any Stock Appreciation Rights that expire, terminate or are
cancelled, and Shares of Restricted Stock that are reacquired by the Company
pursuant to the restrictions thereon, may again become available for the grant
of Options or Stock Appreciation Rights and the sale or grant of Restricted
Stock under the Plan. If a Stock Appreciation Right is exercised, any Option or
portion thereof that is surrendered in connection with such exercise shall
terminate and the Shares theretofore subject to the Option or portion thereof
shall not be available for further use under the Plan.
3. SHARES SUBJECT TO CERTIFICATE OF DESIGNATION. All Shares issuable
under Options or Stock Appreciation Rights and all Shares of Restricted Stock
sold or granted pursuant to the Plan shall be subject to the terms and
restrictions contained in the Certificate of Designation of the Company. A copy
of the Certificate of Designation shall be delivered to the recipient of an
Option, Stock Appreciation Right or Restricted Stock at the time of grant or
issuance.
4. RESTRICTIONS ON TRANSFERS OF SHARES ISSUABLE UPON EXERCISE. Subject
to Section 5 hereof, prior to the earlier of (a) the termination of the Lock-Up
Period following an Initial Public Offering or (b) an Approved Sale (as such
term is defined in the Certificate of Designation) Shares acquired upon exercise
of an Option (the "Option Shares") shall not be transferable or transferred,
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) except that the Optionee may transfer the Option Shares (i) to his or
her spouse, child, estate, personal representative, heir or successor or to a
trust for the benefit of the Optionee or his or her spouse,
<PAGE>
child or heir, or (ii) pursuant to Section 4 or Section 5 of the Certificate of
Designation. This restriction shall be binding on and enforceable against any
person who is a permitted transferee of the Option Shares except a person who
acquires the Option Shares pursuant to Section 4 of the Certificate of
Designation. The stock certificates issued to evidence Option Shares upon
exercise of the Option hereunder shall bear a legend referring to this
restriction. For purposes of the Plan, (y) the term "Initial Public Offering"
shall mean the effectiveness of a registration statement under the Securities
Act of 1933 covering any of the capital stock of the Company (other than
preferred stock that is not convertible into common stock) and the completion of
a sale of such stock thereunder, if as a result of such sale (i) the Company
becomes a reporting company under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and (ii) such stock is
traded on the New York Stock Exchange or the American Stock Exchange, or is
quoted on the Nasdaq Stock Market or is traded or quoted on any other national
stock exchange or securities system, and (z) the term "Lock-Up Period shall mean
the 180-day period commencing on the effective date of the registration
statement covering capital stock of the Company sold in the Initial Public
Offering.
5. REDEMPTION OF OPTION SHARES.
(a) In the event that the Optionee ceases to be employed by Primeco for
any reason prior to an Initial Public Offering or an Approved Sale, the Company,
during the ninety (90) day period (the "Repurchase Period") following the date
on which the Optionee ceases to be so employed for any reason (the "Termination
Date"), shall have a one-time right to redeem all, but not less than all, of the
Option Shares. If the Company elects to redeem the Option Shares, it shall
notify the Optionee at or before the end of the Repurchase Period of such
election and the redemption price shall be paid in cash at a time set by the
Company (the "Redemption Date") within thirty (30) days after the end of the
Repurchase Period provided that the Optionee has presented to the Company a
stock certificate evidencing the Option Shares duly endorsed for transfer (the
"Endorsed Certificate"). In the event that the Optionee does not own any Option
Shares on the Termination Date, the Company may notify the Optionee that the
Company will redeem any Option Shares that the Optionee may thereafter acquire
upon the exercise of the Option and shall set the Redemption Date (which shall
not be later than thirty (30) days after the acquisition of the Option Shares by
the Optionee) and shall redeem such Option Shares, if any, pursuant to the terms
of this Section 5. The redemption price for each Option Share will equal Fair
Market Value on the Termination Date, or, if the Optionee is terminated for
Cause, the exercise price of the Option. If the Company does not redeem the
Option Shares, any restrictions on transfer thereof contained in the relevant
Option Agreement, other than transfer restrictions designed to insure
compliance with the Exchange Act or restrictions imposed under the Certificate
of Designation, shall terminate and be of no further force and effect.
Notwithstanding the Optionee's failure to deliver the Endorsed Certificate, the
Option Shares represented thereby shall be deemed to have been redeemed upon (i)
the payment by the Company of the redemption price to the Optionee or his or her
permitted transferee or (ii) notice to the Optionee or such permitted transferee
that the Company is holding the redemption price for the account of the Optionee
or such permitted transferee, and upon such payment or notice the Optionee and
such permitted transferee will have no further rights in or to such Option
Shares.
(b) The Fair Market Value shall be determined in good faith by the
Company's Board of Directors. The Board of Directors shall make its
determination of Fair Market Value annually (the "Annual Valuation") promptly
after the completion of the Company's audited financial statements for
2
<PAGE>
the year then completed and such determination shall remain in effect until the
Board of Directors makes the next Annual Valuation. Notwithstanding the
foregoing, if the Board of Directors or an investment banker or appraiser
appointed by the Company makes a determination of Fair Market Value other than
an Annual Valuation, such determination shall supersede the Annual Valuation
then in effect and shall establish the Fair Market Value until the next Annual
Valuation. The Fair Market Value shall be based on an assumed sale of 100% of
the outstanding capital stock of the Company (without reduction for minority
discount or lack of liquidity of the Option Shares). Any determination of Fair
Market Value made pursuant to this Section 5(b) shall be conclusive and binding
on the Company and the Optionee.
6. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
committee (the "Committee") appointed by the Board of Directors (the "Board") of
the Company. If no persons are designated by the Board to serve on the
Committee, the Plan shall be administered by the Board and all references herein
to the Committee shall refer to the Board. From time to time, the Board shall
have the discretion to add, remove or replace members of the Committee, and
shall have the sole authority to fill vacancies on the Committee.
All actions of the Committee shall be authorized by a majority vote thereof
at a duly called meeting. The Committee shall have the sole authority, in its
absolute discretion, to adopt, amend, and rescind such rules and regulations as,
in its opinion, may be advisable in the administration of the Plan, to construe
and interpret the Plan, the rules and regulations, and the agreements and other
instruments evidencing Options and Stock Appreciation Rights granted and
Restricted Stock sold or granted under the Plan and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations, and interpretations of the Committee shall be
final and conclusive upon the Eligible Employees, as hereinafter defined.
Notwithstanding the foregoing, any dispute arising under any Agreement (as
defined below) shall be resolved pursuant to the dispute resolution mechanism
(if any) set forth in such Agreement.
Subject to the express provisions of the Plan, the Committee shall
determine the number of Shares subject to grants or sales and the terms thereof,
including the provisions relating to the exercisability of Options and Stock
Appreciation Rights, lapse and non-lapse restrictions upon the Shares obtained
or obtainable under the Plan and the termination and/or forfeiture of Options
and Stock Appreciation Rights and Restricted Stock under the Plan. The terms
upon which Options and Stock Appreciation Rights are granted and Restricted
Stock is sold or granted shall be evidenced by a written agreement executed by
the Company and the Participant to whom such are sold or granted (the
"Agreement").
7. ELIGIBILITY. Persons who shall be eligible for grants of Options or
Stock Appreciation Rights or sales or grants of Restricted Stock hereunder
("Eligible Employees") shall be directors of the Company of Primeco and those
employees of the Company or Primeco who are members of a select group of
management or other key employees that the Committee may from time to time
designate to participate under the Plan ("Participants") through grants of
Non-Qualified Options, Incentive Stock Options and, if applicable, Stock
Appreciation Rights, and/or through sales or grants of Restricted Stock.
8. TERMS AND CONDITIONS OF OPTIONS. No Incentive Stock Option shall be
granted for a term of more than ten years and no Non-Qualified Option shall be
granted for a term of more than ten years and thirty days. Options may, in the
discretion of the Committee, be granted with
3
<PAGE>
associated Stock Appreciation Rights or be amended so as to provide for
associated Stock Appreciation Rights. The Agreement may contain such other
terms, provisions, and conditions as may be determined by the Committee as long
as such terms, conditions and provisions are not inconsistent with the Plan.
The Committee shall designate as such those Options intended to be eligible to
qualify and be treated as Incentive Stock Options and, correspondingly, those
Options not intended to be eligible to qualify and be treated as Incentive Stock
Options.
9. EXERCISE PRICE OF OPTIONS. The exercise price for each Non-Qualified
Option granted hereunder shall be set forth in the Agreement. The exercise
price of any Option intended to be eligible to qualify and be treated as an
Incentive Stock Option shall not be less than the Fair Market Value of the
Shares on the date such Incentive Stock Option is granted, except that if such
Incentive Stock Option is granted to a Participant who on the date of grant is
treated under Section 424(d) of the Code as owning stock (not including stock
purchasable under outstanding options) possessing more than ten percent of the
total combined voting power of all classes of the Company's stock, the exercise
price shall not be less than one hundred ten percent (110%) of the Fair Market
Value of the Shares on the date such Incentive Stock Option is granted.
Payment for Shares purchased upon exercise of any Option granted hereunder
shall be in cash at the time of exercise, except that, if either the Agreement
so provides or the Committee so permits, and if the Company is not then
prohibited from purchasing or acquiring Shares, such payment may be made in
whole or in part with shares of stock of the same class as the stock then
subject to the Option. The Committee also may on an individual basis permit
payment or agree to permit payment by such other alternative means as may be
lawful, including by delivery of an executed exercise notice together with
irrevocable instructions to a broker promptly to deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price.
10. DETERMINATION OF FAIR MARKET Value. Except as otherwise provided for
in Section 5(b), the Fair Market Value of Shares for the purposes of the Plan
shall be determined in good faith by the Board, whose valuation shall be binding
upon each Participant.
11. NON-TRANSFERABILITY. Unless provided otherwise in the Agreement, any
Option granted under the Plan shall by its terms be nontransferable by the
Participant other than by will or the laws of descent and distribution (in which
case such descendant or beneficiary shall be subject to all terms of the Plan
applicable to Participants) and is exercisable during the Participant's lifetime
only by the Participant or by the Participant's guardian or legal
representative.
12. INCENTIVE STOCK OPTIONS. The provisions of the Plan are intended to
satisfy the requirements set forth in Section 422 of the Code and the
regulations promulgated thereunder (including the aggregate fair market value
limits set forth in Section 422(d) of the Code) with respect to Incentive Stock
Options granted under the Plan. For the purpose of this Section 12, the Fair
Market Value of the Shares shall be determined at the time the Incentive Stock
Option is granted.
13. STOCK APPRECIATION RIGHTS. The Committee may, under such terms and
conditions as it deems appropriate, grant to any Eligible Employee selected by
the Committee Stock Appreciation Rights, which may or may not be associated with
Options. Upon exercise of a Stock Appreciation Right, the Participant shall be
entitled to receive payment of an amount equal to the excess of the Fair Market
Value, as defined by the Committee, of the underlying Shares on the date of
exercise
4
<PAGE>
over the Stock Appreciation Rights' exercise price. Such payment may be made in
additional Shares valued at their Fair Market Value on the date of exercise or
in cash, or partly in Shares and partly in cash, as the Committee may designate.
The Committee may require that any Stock Appreciation Right shall be subject to
the condition that the Committee may at any time in its absolute discretion not
allow the exercise of such Stock Appreciation Right. The Committee may further
impose such conditions on the exercise of Stock Appreciation Rights as may be
necessary or desirable to comply with Rule 16b-3 under the Exchange Act.
14. RESTRICTED STOCK. The Committee may sell or grant Restricted Stock
under the Plan (either independently or in connection with the exercise of
options or Stock Appreciation Rights under the Plan) to Eligible Employees
selected by the Committee. The Committee shall in each case determine the
number of Shares of Restricted Stock to be sold or granted, the price at which
such Shares are sold, if applicable, and the terms or duration of the
restrictions to be imposed upon those Shares.
15. ADJUSTMENTS. If at any time the class of Shares subject to the Plan
is changed into or exchanged for a different number or kind of shares or
securities, as the result of any one or more reorganizations, recapitalizations,
stock splits, reverse stock splits, stock dividends or similar events, an
appropriate adjustment shall be made in the number, exercise or sale price
and/or type of shares or securities for which Options or Stock Appreciation
Rights may thereafter be granted and Restricted Stock may thereafter be sold or
granted under the Plan. The Committee also shall designate the appropriate
changes that shall be made in Options or Stock Appreciation Rights, or rights to
purchase Restricted Stock under the Plan, and the Committee may do so either at
the time the Option or Stock Appreciation Right is granted or Restricted Stock
offered or at that time of the event causing the adjustment. Any such
adjustment in outstanding Options shall be made without changing the aggregate
exercise price applicable to the unexercised portions of such Options. Any such
adjustments in outstanding rights to purchase Restricted Stock shall be made
without changing the aggregate purchase price of such Restricted Stock.
16. INVESTMENT REPRESENTATION. Each Agreement may contain an agreement
that, upon demand by the Committee for such a representation, the optionee shall
deliver to the Committee at the time of any exercise of an Option a written
representation that the Shares to be acquired upon such exercise are to be
acquired for investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such representation prior to the
delivery of any Shares issued upon exercise of an Option shall be a condition
precedent to the right of the optionee or such other person to purchase any
Shares.
17. DURATION OF THE PLAN. Options may not be granted and Restricted Stock
may not be sold or granted under the Plan after October 25, 2006.
18. AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any time
alter, amend, suspend or terminate the Plan. The Committee may amend the Plan
or any Agreement issued hereunder to the extent necessary for any Option or
Stock Appreciation Right granted or Restricted Stock sold or granted under the
Plan to comply with applicable tax or securities laws. If the Company shall
become a reporting Company under the Exchange Act and if such is required under
Exchange Act Rule 16b-3 or any successor or similar rule or regulation, no such
action of the Board
5
<PAGE>
or the Committee, unless taken with or ratified by the approval of the
stockholders of the Company (insofar as the same may be required under
applicable tax or securities laws), may materially:
(a) increase the maximum number of Shares subject to the Plan;
(b) reduce the minimum exercise price of Options granted under the Plan or
the minimum purchase price of Restricted Stock sold under the Plan;
(c) increase the benefits accruing to Participants under the Plan; or
(d) modify the requirements as to eligibility for participation in the
Plan.
No Option or Stock Appreciation Right may be granted or Restricted Stock
sold or granted during any suspension or after the termination of the Plan. No
amendment, suspension or termination of the Plan or of any Agreement issued
hereunder shall, without the consent of the affected holder of such Option or
Stock Appreciation Right or Restricted Stock, alter or impair any rights or
obligations in any Option or Stock Appreciation Right or Restricted Stock
theretofore granted or sold to such holder under the Plan.
19. NATURE OF THE PLAN. The Plan is intended to qualify as a compensatory
benefit plan within the meaning of Rule 701 under the Securities Act of 1933.
The Plan is intended to constitute an unfunded arrangement for a select group of
management or other key employees.
20. CANCELLATION OF OPTIONS. Any Option granted under the Plan may be
canceled at any time with the consent of the holder and a new Option may be
granted to such holder in lieu thereof.
21. WITHHOLDING TAXES. Whenever Shares are to be issued with respect to
the exercise of Options or amounts are to be paid or income earned with respect
to Stock Appreciation Rights or Restricted Stock under the Plan, the Committee
in its discretion may require the Participant to remit to the Company, prior to
the delivery of any certificate or certificates for such Shares or the payment
of any such amounts, all or any part of the amount determined in the Committee's
discretion to be sufficient to satisfy federal, state and local withholding tax
obligations (the "Withholding Obligation") that the Company or its counsel
determines may arise with respect to such exercise, issuance or payment.
Pursuant to a procedure established by the Committee, the Participant may
(i) request the Company to withhold delivery of a sufficient number of Shares or
a sufficient amount of the Participant's compensation or (ii) deliver a
sufficient number of previously-issued Shares, to satisfy the Withholding
Obligation.
6
<PAGE>
ST&B DRAFT - 10/18/96
PRIMECO INC.
------------------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of October ___, 1996
------------------------------------
$298,500,000
Credit Facility
------------------------------------
THE CHASE MANHATTAN BANK
as Administrative Agent,
THE CIT GROUP/BUSINESS CREDIT, INC.,
as Collateral Agent,
and
CHASE SECURITIES INC.
and
BT SECURITIES CORPORATION,
as Arrangers
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS...................................................... 1
1.1 Defined Terms...................................................... 1
1.2 Other Definitional Provisions...................................... 26
SECTION 2. TERM LOANS.......................................................26
2.1 Term Loans......................................................... 26
2.2 Repayment of Term Loans............................................ 27
2.3 Use of Proceeds.................................................... 27
2.4 Procedure for Effective Date....................................... 27
SECTION 3.AMOUNT AND TERMS OF REVOLVING
CREDIT COMMITMENTS................................................. 27
3.1 Revolving Credit Commitments....................................... 27
3.2 Commitment Fee..................................................... 28
3.3 Proceeds of Revolving Credit Loans................................. 29
3.4 Swing Line Commitment.............................................. 29
3.5 Issuance of Letters of Credit...................................... 30
3.6 Participating Interests............................................ 31
3.7 Procedure for Opening Letters of Credit............................ 31
3.8 Payments in Respect of Letters of Credit........................... 31
3.9 Letter of Credit Fees.............................................. 32
3.10 Letter of Credit Reserves......................................... 32
3.11 Further Assurances................................................ 33
3.12 Obligations Absolute.............................................. 34
3.13 Assignments....................................................... 34
3.14 Participations.................................................... 34
SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS...........................35
4.1 Procedure for Borrowing............................................ 35
4.2 Conversion and Continuation Options................................ 35
4.3 Changes of Commitment Amounts...................................... 36
4.4 Optional and Mandatory Prepayments; Repayments of Term Loans....... 37
4.5 Interest Rates and Payment Dates................................... 40
4.6 Computation of Interest and Fees................................... 40
4.7 Certain Fees....................................................... 41
4.8 Inability to Determine Interest Rate............................... 41
4.9 Pro Rata Treatment and Payments.................................... 41
4.10 Illegality........................................................ 44
4.11 Requirements of Law............................................... 44
4.12 Indemnity......................................................... 47
4.13 Repayment of Loans; Evidence of Debt.............................. 47
4.14 Interest Rate Protection.......................................... 48
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Page
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4.15 Replacement of Lenders
SECTION 5. REPRESENTATIONS AND WARRANTIES...................................49
5.1 Financial Condition................................................ 49
5.2 No Change.......................................................... 50
5.3 Corporate Existence; Compliance with Law........................... 50
5.4 Corporate Power; Authorization..................................... 51
5.5 Enforceable Obligations............................................ 51
5.6 No Legal Bar....................................................... 52
5.7 No Material Litigation............................................. 52
5.8 Investment Company Act............................................. 52
5.9 Federal Regulation................................................. 52
5.10 No Default........................................................ 52
5.11 Taxes............................................................. 53
5.12 Subsidiaries...................................................... 53
5.13 Ownership of Property; Liens...................................... 53
5.14 ERISA............................................................. 53
5.15 Collateral Documents.............................................. 54
5.16 Copyrights, Permits, Trademarks and Licenses...................... 55
5.17 Environmental Matters............................................. 55
5.18 Accuracy and Completeness of Information.......................... 56
SECTION 6. CONDITIONS PRECEDENT.............................................56
6.1 Conditions to Initial Loans and Letters of Credit.................. 56
6.2 Conditions to All Loans and Letters of Credit...................... 57
SECTION 7. AFFIRMATIVE COVENANTS............................................58
7.1 Financial Statements............................................... 58
7.2 Certificates; Other Information.................................... 59
7.3 Payment of Obligations............................................. 60
7.4 Conduct of Business and Maintenance of Existence................... 61
7.5 Maintenance of Property; Insurance................................. 61
7.6 Inspection of Property; Books and Records; Discussions............. 61
7.7 Notices............................................................ 62
7.8 Environmental Laws................................................. 63
7.9 After Acquired Real Property; Filing of Mortgages.................. 63
7.10 Notices of Redemption............................................. 64
SECTION 8. NEGATIVE COVENANTS...............................................64
8.1 Indebtedness....................................................... 64
8.2 Limitation on Liens................................................ 65
8.3 Limitation on Contingent Obligations............................... 67
8.4 Prohibition of Fundamental Changes................................. 67
8.5 Prohibition on Sale of Assets...................................... 67
8.6 Limitation on Investments, Loans and Advances...................... 69
8.7 Capital Expenditures............................................... 70
8.8 Consolidated EBITDA................................................ 70
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Page
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8.9 Debt Coverage Ratio................................................ 71
8.10 Interest Coverage................................................. 72
8.11 Limitation on Dividends........................................... 73
8.12 Transactions with Affiliates...................................... 74
8.13 Prepayments and Amendments of Subordinated Debt and Equity........ 74
8.14 Limitation on Changes in Fiscal Year.............................. 74
8.15 Limitation on Lines of Business................................... 74
SECTION 9. EVENTS OF DEFAULT................................................74
SECTION 10. THE ADMINISTRATIVE AGENT; THE COLLATERAL
AGENT; THE ISSUING LENDER.......................................... 78
10.1 Appointment....................................................... 78
10.2 Delegation of Duties.............................................. 78
10.3 Exculpatory Provisions............................................ 78
10.4 Reliance by Administrative Agent and the Collateral Agent......... 78
10.5 Notice of Default................................................. 79
10.6 Non-Reliance on Administrative Agent, the Collateral Agent and
Other Lenders .................................................... 79
10.7 Indemnification................................................... 80
10.8 The Administrative Agent and the Collateral Agent in their
Individual Capacities.............................................. 80
10.9 Successor Agent................................................... 80
10.10 Issuing Lender as Issuer of Letters of Credit.................... 81
SECTION 11. MISCELLANEOUS...................................................81
11.1 Amendments and Waivers............................................ 81
11.2 Notices........................................................... 82
11.3 No Waiver; Cumulative Remedies.................................... 83
11.4 Survival of Representations and Warranties........................ 84
11.5 Payment of Expenses and Taxes..................................... 84
11.6 Successors and Assigns; Participations and Assignments............ 85
11.7 Adjustments; Set-off.............................................. 88
11.8 Counterparts...................................................... 89
11.9 Governing Law; No Third Party Rights.............................. 89
11.10 Submission to Jurisdiction; Waivers.............................. 89
11.11 Releases......................................................... 90
11.12 Interest......................................................... 90
11.13 Special Indemnification.......................................... 91
11.14 Permitted Payments and Transactions.............................. 91
-iii-
<PAGE>
SCHEDULES
Schedule I-A List of Addresses for Notices; Lending Offices; Continuing
Commitment Amounts
Schedule I-B Refinanced Commitment Amounts
Schedule 3.5(a) Existing Letters of Credit
Schedule 5.13 Fee and Leased Properties
Schedule 5.15(b) UCC Filing Offices
Schedule 5.16 Trademarks and Copyrights
Schedule 8.1(a) Indebtedness to Remain Outstanding
Schedule 8.2 Existing Liens
Schedule 8.3(d) Existing Contingent Obligations
EXHIBITS
EXHIBIT A Form of Revolving Credit Note
EXHIBIT B Form of Term Loan Note
EXHIBIT C Form of Swing Line Note
EXHIBIT D Form of Assignment and Acceptance
EXHIBIT E Form of Company Security Agreement
EXHIBIT F Form of Holdings Guarantee
EXHIBIT G Form of Holdings Pledge Agreement
EXHIBIT H Form of L/C Participation Certificate
EXHIBIT I Form of Mortgage
EXHIBIT J Form of Swing Line Loan Participation Certificate
EXHIBIT K-1 Form of Opinion of Gibson, Dunn & Crutcher in Existing
Credit Agreement
EXHIBIT K-2 Form of Opinion of Gibson, Dunn & Crutcher
EXHIBIT L Form of Subsection 4.11(d)(2) Certificate
EXHIBIT M-1 Form of Company Closing Certificate
EXHIBIT M-2 Form of Holdings Closing Certificate
EXHIBIT N Form of Borrowing Base Certificate
EXHIBIT O Form of Warehouseman Notice
-iv-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of October ___, 1996,
among PRIMECO INC., a Texas corporation (the "COMPANY"), the several lenders
from time to time parties hereto (the "LENDERS"), THE CHASE MANHATTAN BANK, a
New York banking corporation, as administrative agent for the Lenders (in such
capacity, the "ADMINISTRATIVE AGENT") and THE CIT GROUP/BUSINESS CREDIT, INC., a
New York corporation, as collateral agent for the Lenders (the "COLLATERAL
AGENT").
W I T N E S S E T H :
WHEREAS, the Company, the lenders parties thereto on the date hereof
(the "EXISTING LENDERS") and the Administrative Agent are parties to the Credit
Agreement, dated as of December 1, 1994 (as amended, supplemented or otherwise
modified to the date hereof, the "EXISTING CREDIT AGREEMENT"); and
WHEREAS, the Company has requested the Lenders parties hereto on the
date hereof and the Administrative Agent to amend and restate the Existing
Credit Agreement as of the Effective Date (as herein defined) to provide for,
INTER ALIA, (i) the reallocation of the Commitments (as herein defined), (ii)
extending the tenor of the term loans to December 31, 2002, (iii) rescheduling
the amortization of the term loans, (iv) extending to that date which is five
years from the Effective Date (as herein defined) the revolving credit
commitments under the Existing Credit Agreement and (v) reducing the pricing;
and
WHEREAS, the Lenders and the Administrative Agent are so willing to
amend and restate the Existing Credit Agreement as of the Effective Date, but
only on, and subject to, the terms and conditions hereof;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company, the Lenders, the Administrative Agent
and the Collateral Agent hereby amend and restate the Existing Credit Agreement,
effective as of the Effective Date but not before, as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the terms defined in
the caption or in the "Whereas" clauses hereto shall have the meanings set forth
therein, and the following terms have the following meanings:
"ACCOUNT": as defined in the definition of Eligible Accounts
Receivable.
"ADJUSTMENT DATE": (a) the second Business Day following receipt by
the Administrative Agent of both (i) the financial statements required to
be delivered pursuant to subsections 7.1(a) or 7.1(b) for the most recently
completed fiscal period and (ii) the compliance certificate required
pursuant to subsection 7.2(b) with respect to such financial statements or
(b) if such compliance certificate and financial statements have not been
<PAGE>
2
delivered in a timely manner, the latest date upon which the compliance
certificate required to be delivered pursuant to subsection 7.2(b) for the
most recently completed fiscal period was due; PROVIDED, HOWEVER, that in
the event that the Adjustment Date is determined in accordance with the
provisions of clause (b) of this definition, then the date which is two
Business Days following the date of receipt of the financial statements and
compliance certificate referenced in clause (a) of this definition also
shall be deemed to constitute an "Adjustment Date".
"AFFILIATE": of any Person (a) any Person (other than a Subsidiary)
which, directly or indirectly, is in control of, is controlled by, or is
under common control with such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or
(iii) of any Person described in clause (a) above. For purposes of this
definition, control of a Person shall mean the power, direct or indirect
(i) to vote 25% or more of the securities having ordinary voting power for
the election of directors of such Person, whether by ownership of
securities, contract, proxy or otherwise, or (ii) to direct or cause the
direction of the management and policies of such Person, whether by
ownership of securities, contract, proxy or otherwise.
"AGREEMENT": this Credit Agreement, as amended, supplemented or
modified from time to time.
"ALTERNATE BASE RATE": for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a)
the Prime Rate in effect on such day, (b) the Base CD Rate in effect on
such day plus 1% and (c) the Federal Funds Effective Rate in effect on such
day plus 1/2 of 1%. For purposes hereof: "PRIME RATE" shall mean the rate
of interest per annum publicly announced from time to time by the
Administrative Agent as its prime rate in effect at its principal office in
New York City (the Prime Rate not being intended to be the lowest rate of
interest charged by the Administrative Agent in connection with extensions
of credit to debtors); "BASE CD RATE" shall mean the sum of (a) the product
of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator
of which is one and the denominator of which is one minus the C/D Reserve
Percentage and (b) the C/D Assessment Rate; "THREE-MONTH SECONDARY CD RATE"
shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or, if
such day shall not be a Business Day, the next preceding Business Day) by
the Board of Governors of the Federal Reserve System (together with any
successor, the "BOARD") through the public information telephone line of
the Federal Reserve Bank of New York (which rate will, under the current
practices of the Board, be published in Federal Reserve Statistical Release
H.15(519) during the week following such day), or, if such rate shall not
be so reported on such day or such next preceding Business Day, the average
of the secondary market quotations for three-month certificates of deposit
of major money center banks in New York City received at approximately
10:00 A.M., New York City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by the Administrative
Agent from three New York City negotiable certificate of deposit dealers of
recognized standing selected by it; and "FEDERAL FUNDS EFFECTIVE RATE"
shall mean, for any day, the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if
<PAGE>
3
such rate is not so published for any day which is a Business Day, the
average of the quotations for the day of such transactions received by the
Administrative Agent from three federal funds brokers of recognized
standing selected by it. Any change in the Alternate Base Rate due to a
change in the Prime Rate, the Base CD Rate or the Federal Funds Effective
Rate shall be effective as of the opening of business on the effective day
of such change in the Prime Rate, the Base CD Rate or the Federal Funds
Effective Rate, respectively.
"ALTERNATE BASE RATE LENDING OFFICE": as to each Lender, the office
of such Lender located within the United States which shall be making or
maintaining Alternate Base Rate Loans.
"ALTERNATE BASE RATE LOANS": Loans at such time as they are made
and/or being maintained at a rate of interest based upon the Alternate Base
Rate.
"APPLICABLE MARGIN": for Term Loans, Revolving Credit Loans and Swing
Line Loans of the Type set forth below, if the applicable Debt Coverage
Ratio is:
(i) greater than 3.75, the rate per annum set forth under the
relevant column heading below:
ABR LOANS EURODOLLAR LOANS
--------- ----------------
Term Loans: 1.50% 2.75%
Revolving Credit Loans: 1.00% 2.25%
Swing Line Loans: 1.00% N/A
(ii) less than or equal to 3.75 but greater than 3.25, the rate
per annum set forth under the relevant column heading below:
ABR LOANS EURODOLLAR LOANS
--------- ----------------
Term Loans: 1.25% 2.50%
Revolving Credit Loans: .75% 2.00%
Swing Line Loans: .75% N/A
<PAGE>
4
(iii) less than or equal to 3.25 but greater than 2.75, the rate
per annum set forth under the relevant column heading below:
ABR LOANS EURODOLLAR LOANS
--------- ----------------
Term Loans: 1.00% 2.25%
Revolving Credit Loans: 0.50% 1.75%
Swing Line Loans: 0.50% N/A
(iv) less than or equal to 2.75 but greater than 2.25, the rate
per annum set forth under the relevant column heading below:
ABR LOANS EURODOLLAR LOANS
--------- ----------------
Term Loans: 0.75% 2.00%
Revolving Credit Loans: 0.25% 1.50%
Swing Line Loans: 0.25% N/A
(v) less than or equal to 2.25 but greater than 1.75, the rate
per annum set forth under the relevant column heading below:
ABR LOANS EURODOLLAR LOANS
--------- ----------------
Term Loans: 0.50% 1.75%
Revolving Credit Loans: 0.00% 1.25%
Swing Line Loans: 0.00% N/A
(vi) less than or equal to 1.75, the rate per annum set forth
under the relevant column heading below:
ABR LOANS EURODOLLAR LOANS
--------- ----------------
Term Loans: 0.50% 1.75%
Revolving Credit Loans: 0.00% 1.00%
Swing Line Loans: 0.00% N/A
The Applicable Margin for the period commencing with each Adjustment Date
and ending on the next succeeding Adjustment Date, shall be determined by
reference to the Debt Coverage Ratio of the Company set forth on the
certificate most recently required to be delivered to the Lenders pursuant
to subsection 7.2(b); PROVIDED, that, (a) until the first Adjustment Date,
the Applicable Margin shall be as set forth in clause (v) of this
definition and (b) if for any reason the certificate required by subsection
7.2(b) is not timely delivered to the Lenders, the Debt Coverage Ratio
shall be (i) during the period from the date upon which such certificate
was required to be delivered until the date upon which it actually is
delivered, the Applicable Margin in effect immediately prior to the date
such financial statements were due, and (ii) if such certificate, when
actually
<PAGE>
5
delivered, would have required an increase in the Applicable Margin over
the Applicable Margin in effect immediately prior to the date such
certificate was due, the Company shall, within ten days following the
delivery of such certificate pay to the Lenders and the Administrative
Agent any additional amounts of interest or fees which would have been
payable on any previous Interest Payment Date had such higher Applicable
Margin been in effect from the date such certificate was required to be
delivered; and PROVIDED, FURTHER, that any change in the Applicable Margin
as a result of a change in the Debt Coverage Ratio shall apply to all Loans
for each day during the period commencing on the effective date of such
change and ending on the date immediately preceding the effective date of
the next such change in Applicable Margin.
"ASSET SALE": any sale, sale-leaseback, or other disposition by the
Company or any Subsidiary thereof of any of its property or assets,
including the stock of any Subsidiary of the Company, other than (a) the
redemption of Class D Preferred Shares of 2633-460 Quebec Inc., a
corporation organized under the laws of Quebec, held by the Company for an
aggregate redemption price of Canadian $1,000,000 and (b) sales and
dispositions permitted by subsections 8.5(a), (b), (c), (e), (f) and (g).
"ASSIGNEE": as defined in subsection 11.6(c).
"ASSIGNMENT AND ACCEPTANCE": an assignment and acceptance
substantially in the form of Exhibit D.
"AVAILABLE REVOLVING CREDIT COMMITMENT": as to any Lender, at a
particular time, an amount equal to (a) the amount of such Lender's
Revolving Credit Commitment at such time, LESS (b) the sum of (i) the
aggregate unpaid principal amount at such time of all Revolving Credit
Loans made by such Lender pursuant to subsection 3.1, (ii) such Lender's
Revolving Credit Commitment Percentage of the aggregate unpaid principal
amount at such time of all Swing Line Loans, PROVIDED that for purposes of
calculating the Revolving Credit Commitments pursuant to subsection 3.2 the
amount referred to in this clause (ii) shall be zero, (iii) such Lender's
L/C Participating Interest in the aggregate amount available to be drawn at
such time under all outstanding Letters of Credit issued by the Issuing
Lender and (iv) such Lender's Revolving Credit Commitment Percentage of the
aggregate outstanding amount of L/C Obligations; collectively, as to all
the Lenders, the "AVAILABLE REVOLVING CREDIT COMMITMENTS".
"BANKRUPTCY CODE": Title I of the Bankruptcy Reform Act of 1978, as
amended and codified at Title 11 of the United States Code.
"BOARD": as defined in the definition of "Alternate Base Rate".
"BORROWING BASE": as of any date to which a Borrowing Base
Certificate relates, the sum of (a) 80% of Type I Eligible Rental Fleet
Equipment, (b) 70% of Type II Eligible Rental Fleet Equipment, (c) 60% of
Type III Eligible Rental Fleet Equipment, (d) 50% of Type IV Eligible
Rental Fleet Equipment, (e) 65% of Eligible Inventory, (f) 80% of Eligible
Accounts Receivable, (g) 80% of Eligible New Equipment for Sale and (h) 50%
of Eligible Fixed Assets.
<PAGE>
6
"BORROWING BASE CERTIFICATE": as defined in subsection 7.2(g).
"BORROWING BASE DEFICIENCY": a condition wherein the sum of (a) the
aggregate principal amount of all Revolving Credit Loans and Swing Line
Loans outstanding at such time, (b) the aggregate unexpired and undrawn
face amount of all Letters of Credit outstanding at such time, (c) the
aggregate amount of L/C Obligations outstanding at such time and (d) at any
time after June 30, 2000, the aggregate principal amount of all Term Loans
outstanding exceeds the Borrowing Base as set forth on the most recent
Borrowing Base Certificate delivered by the Company.
"BORROWING DATE": any Business Day specified in a notice pursuant to
(a) subsection 3.4 or 4.1 as a date on which the Company requests the Swing
Line Lender or the Lenders to make Loans hereunder or (b) subsection 3.5 as
a date on which the Company requests the Issuing Lender to issue a Letter
of Credit hereunder.
"BTCO": Bankers Trust Company, a New York banking corporation, and
its successors.
"BUSINESS DAY": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law
to close.
"CAPITAL EXPENDITURES": for any period, all amounts which would, in
accordance with GAAP, be set forth as capital expenditures (exclusive of
any amount attributable to capitalized interest) on the consolidated
statement of cash flows or other similar statement of the Company and its
Subsidiaries for such period and shall in any event include expenditures to
acquire all or a portion of the Capital Stock or assets of any Person but
shall exclude any expenditures made with the proceeds of condemnation or
eminent domain proceedings affecting real property or with insurance
proceeds; PROVIDED that any Capital Expenditures financed with the proceeds
of any Indebtedness permitted hereunder (other than Indebtedness incurred
hereunder) shall be deemed to be a Capital Expenditure only in the period
in which, and by the amount which, any principal of such Indebtedness is
repaid.
"CAPITAL STOCK": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.
"CASH EQUIVALENTS": (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof having maturities of not more than six months from
the date of acquisition, (b) certificates of deposit and eurodollar time
deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any Lender or with any
domestic commercial bank having capital and surplus in excess of
$300,000,000, (c) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (a) and
(b) entered into with any financial institution meeting the qualifications
specified in clause (b) above, and (d) commercial paper issued by any
Lender or the
<PAGE>
7
parent corporation of any Lender, and commercial paper rated A-1 or the
equivalent thereof by Standard & Poor's Ratings Group or P-1 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within six months after the date of acquisition.
"C/D ASSESSMENT RATE": for any day the net annual assessment rate
(rounded upwards, if necessary, to the next 1/100 of 1%) determined by the
Administrative Agent to be payable on such day to the Federal Deposit
Insurance Corporation or any successor ("FDIC") for FDIC's insuring time
deposits made in Dollars at offices of the Administrative Agent in the
United States.
"C/D RESERVE PERCENTAGE": for any day as applied to any Base CD Rate,
that percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board for determining the maximum reserve requirement for
a Depositary Institution (as defined in Regulation D of the Board) in
respect of new non-personal time deposits in Dollars having a maturity of
30 days or more.
"CHANGE IN LAW": with respect to any Lender, the adoption of any law,
rule, regulation, policy, guideline or directive (whether or not having the
force of law) or any change therein or in the interpretation or application
thereof by any Governmental Authority having jurisdiction over such Lender,
in each case after the Effective Date.
"CHANGE OF CONTROL": shall be considered to have occurred if any
Person (other than INVESTCORP S.A., any of its Affiliates or Subsidiaries,
any Person that is a member of the senior management of the Company or
Holdings, any entity the majority of the equity ownership interests of
which is owned by such senior management of the Company or Holdings or any
Person acting in the capacity of an underwriter), whether singly or in
concert with one or more Persons, shall, directly or indirectly, have
acquired, or acquire the power to vote or direct the voting of, 25% or
more, on a fully diluted basis, of the outstanding common stock of the
Company or of the common stock of Holdings.
"CHASE": The Chase Manhattan Bank, a New York banking corporation,
and its successors.
"CLOSING DATE": the date on which the Lenders made their initial
Loans or the Issuing Lender issued the initial Letter of Credit.
"CODE": the Internal Revenue Code of 1986, as amended from time to
time.
"COMMERCIAL L/C": a commercial documentary Letter of Credit under
which the Issuing Lender agrees to make payments in Dollars for the account
of the Company, on behalf of the Company or a Subsidiary thereof, in
respect of obligations of the Company or such Subsidiary in connection with
the purchase of goods or services in the ordinary course of business.
"COMMITMENT": as to any Lender at any time, such Lender's Swing Line
Commitment, Term Loan Commitment and Revolving Credit Commitment;
collectively, as to all the Lenders, the "COMMITMENTS".
<PAGE>
8
"COMMITMENT PERCENTAGE": as to any Lender at any time, its Term Loan
Commitment Percentage or its Revolving Credit Commitment Percentage, as the
context may require.
"COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated,
which is under common control with the Company within the meaning of
Section 414(b) or (c) of the Code.
"COMPANY SECURITY AGREEMENT": the Company Security Agreement,
substantially in the form of Exhibit E, to be made by the Company in favor
of the Collateral Agent for the ratable benefit of the Lenders, as the same
may be amended, modified or supplemented from time to time.
"CONSOLIDATED CURRENT ASSETS": at a particular date, all amounts
which would, in conformity with GAAP, be included under current assets on a
consolidated balance sheet of the Company and its Subsidiaries as at such
date.
"CONSOLIDATED CURRENT LIABILITIES": at a particular date, all amounts
which would, in conformity with GAAP, be included under current liabilities
on a consolidated balance sheet of the Company and its Subsidiaries as at
such date, excluding the current portion of long-term debt and the entire
outstanding principal amount of the Revolving Credit Loans.
"CONSOLIDATED EBITDA": for any period, the consolidated net income of
the Company and its Subsidiaries for such period, plus, without duplication
and to the extent reflected as a charge in the statement of such
consolidated net income for such period, the sum of (a) taxes measured by
income, (b) interest expense, amortization or writeoff of debt discount,
debt issuance, warrant and other equity issuance costs and commissions,
discounts, redemption premium and other fees and charges associated with
the Loans, Standby L/Cs, the Subordinated Debt or with the acquisition or
repayment of any debt securities of the Company permitted hereunder, and
net costs associated with Interest Rate Agreements to which the Company is
a party in respect of the Loans, (c) costs of surety bonds, (d)
depreciation and amortization expense, (e) amortization of inventory
write-up under APB 16, amortization of intangibles (including, but not
limited to, goodwill and costs of interest-rate caps and the cost of
non-competition agreements) and organization costs, (f) non-cash
amortization of Financing Leases, (g) franchise taxes, (h) management fees
paid as contemplated by subsection 11.14(a) and (i) any other write-downs,
write-offs, minority interests and other non-cash charges (including all
extraordinary non-cash charges) in determining such consolidated net income
for such period.
"CONSOLIDATED FUNDED INDEBTEDNESS": at a particular date, all
Indebtedness (other than Indebtedness described in clauses (b), (c), (d) or
(e) of the definition of "Indebtedness" included in this subsection 1.1) of
the Company and its Subsidiaries determined on a consolidated basis in
accordance with GAAP at such date.
"CONTINGENT OBLIGATION": as to any Person, any obligation of such
Person guaranteeing or in effect guaranteeing any Indebtedness, dividends
or other obligations ("PRIMARY OBLIGATIONS") of any other Person (the
"PRIMARY OBLIGOR") in any manner,
<PAGE>
9
whether directly or indirectly, including, without limitation, any
obligation of such Person, whether or not contingent (a) to purchase any
such primary obligation or any property constituting direct or indirect
security therefor, (b) to advance or supply funds (i) for the purchase or
payment of any such primary obligation or (ii) to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the net
worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of
any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof; PROVIDED, HOWEVER, that the term Contingent Obligation shall not
include endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Contingent Obligation shall
be deemed to be an amount equal to the stated or determinable amount (based
on the maximum reasonably anticipated net liability in respect thereof as
determined by the Company in good faith) of the primary obligation or
portion thereof in respect of which such Contingent Obligation is made or,
if not stated or determinable, the maximum reasonably anticipated net
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by the Company in good faith.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of the
property owned by it is bound.
"CREDIT DOCUMENTS": the collective reference to this Agreement, the
Notes, the Pledge Agreements, the Security Agreements, the Guarantees and
the Mortgages.
"CREDIT PARTIES": the collective reference to Holdings, the Company
and each Subsidiary of the Company from time to time party to a Guarantee.
"DEBT COVERAGE RATIO": on the last day of any fiscal quarter of the
Company, the ratio of (a) Consolidated Funded Indebtedness as of the last
day of such fiscal quarter to (b) Consolidated EBITDA for the period of
four fiscal quarters ending on such day.
"DEFAULT": any of the events specified in Section 9, whether or not
any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"DOLLARS" and "$": dollars in lawful currency of the United States of
America.
"DOMESTIC SUBSIDIARY": any Subsidiary of the Company other than a
Foreign Subsidiary.
"EFFECTIVE DATE": as defined in subsection 6.1.
"ELIGIBLE ACCOUNTS RECEIVABLE": the amount equal to the gross
outstanding balance, less all finance charges, late fees, other fees that
are unearned and unpaid and extended warranty charges, of accounts
receivable of the Company arising out of sales or rentals of goods,
equipment or services made by the Company in the ordinary course of
business ("ACCOUNTS") (determined by reference to the most recent Borrowing
Base
<PAGE>
10
Certificate provided to the Collateral Agent pursuant to Section 7.2(g)),
less such reserves as the Administrative Agent, the Collateral Agent and
the Managing Agents in their sole discretion, shall jointly deem
appropriate. Without in any way limiting the discretion of the
Administrative Agent, the Collateral Agent and the Managing Agents to deem
an Account eligible or ineligible, the Administrative Agent, the Collateral
Agent and the Managing Agents do not currently intend to treat an Account
as eligible if:
(a) any representation or warranty contained in this Agreement
or in any other Credit Documents applicable either to Accounts in
general or to any such specific Account has been breached with respect
to such Account;
(b) 50% or more of the outstanding Accounts from the Account
debtor that constituted Eligible Accounts Receivable at the time they
arose have become, or have been jointly determined by the
Administrative Agent, the Collateral Agent and the Managing Agents to
be, ineligible;
(c) the Account debtor has filed a petition for relief under the
Bankruptcy Code (or similar action under any successor law), made a
general assignment for the benefit of creditors, had filed against it
any petition or other application for relief under the Bankruptcy Code
(or similar action under any successor law), failed, suspended
business operations, become insolvent, called a meeting of its
creditors for the purpose of obtaining any financial concession or
accommodation, or had or suffered a receiver or a trustee to be
appointed for all or a significant portion of its assets or affairs;
(d) such Account has remained unpaid for a period exceeding 90
days from invoice date or the Company or any of its Subsidiaries has
reason to believe such Account to be uncollectible;
(e) the sale or rental represented by such Account is to an
Account debtor outside the United States (except to the extent payment
thereof is supported by a letter of credit in form and substance and
issued by a bank, satisfactory to the Administrative Agent, the
Collateral Agent and the Managing Agents jointly);
(f) the Account debtor is an Affiliate, Subsidiary, director,
officer or employee of the Company or any of its Subsidiaries;
(g) the Account debtor is a supplier or creditor of the Company
or any of its Subsidiaries;
(h) such Account is denominated in other than Dollars or payable
outside the United States;
(i) the sale represented by such Account is on a bill-and-hold,
undelivered sale, guaranteed sale, sale or return, consignment, or
sale on approval basis;
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11
(j) the Administrative Agent, the Collateral Agent and the
Managing Agents jointly determine, in their sole discretion, that the
collection of such Account is insecure or that such Account may not be
paid;
(k) such Account is subject to any material claim or dispute by
the Account debtor;
(l) such Account does not constitute a valid and binding
obligation of the Account debtor to pay the balance thereof in
accordance with its terms or is subject to any defense, set-off,
recoupment or counterclaim;
(m) such Account is not assignable or a first priority security
interest in such Account in favor of the Collateral Agent for the
benefit of the Lenders has not been obtained or a first priority
security interest in favor of the Collateral Agent for the benefit of
the Lenders cannot be fully perfected by possession or by filing
Uniform Commercial Code financing statements against the Company (as
any such first priority security interest may be affected by the
existence of Permitted Liens);
(n) such Account is subject to any Lien whatsoever, other than
Liens permitted pursuant to subsections 8.2(a) and (f);
(o) the Company or such Subsidiary, in order to be entitled to
collect such Account, is required to perform any additional service
for, or perform or incur any additional obligation to, the Account
debtor; or
(p) such Account is an account of the United States government
or any agency or instrumentality thereof, and the Collateral Agent
does not perfect a first priority security interest in such Account.
The Administrative Agent, the Collateral Agent and the Managing Agents
shall have discretion to classify any account into any of the
foregoing categories or such other categories as the Administrative
Agent, the Collateral Agent and the Managing Agents, in their sole
discretion, jointly deem appropriate in determining the eligibility of
such Account.
"ELIGIBLE FIXED ASSETS": at any time, (a) the appraised value of the
real property owned by the Company as set forth in the appraisal delivered
pursuant to subsection 6.1(p)(i) of the Existing Credit Agreement, PLUS (b)
the appraised value of the personal property of the Company and its
Subsidiaries other than the Rental Fleet Equipment (such equipment, the
"NON-RENTAL FLEET EQUIPMENT") as determined by Manufacturer's Appraisers in
connection with the appraisal delivered pursuant to subsection 6.1(p)(ii)
of the Existing Credit Agreement PLUS (c) the aggregate amount of Capital
Expenditures made since the Closing Date with respect to real property and
Non-Rental Fleet Equipment (net of any proceeds of real property and
Non-Rental Fleet Equipment sold by the Company and its Subsidiaries or
otherwise disposed of, in any case, subsequent to the Closing Date) MINUS
(d) the aggregate amount of accumulated depreciation with respect to real
property and Non-Rental Fleet Equipment owned by the Company and its
<PAGE>
12
Subsidiaries since the Closing Date. Without in any way limiting the
discretion of the Administrative Agent, the Collateral Agent and the
Managing Agent to deem any fixed asset ineligible, the Administrative
Agent, the Collateral Agent and the Managing Agents do not currently intend
to treat any fixed asset as eligible if a first priority security interest
in such fixed asset in favor of the Collateral Agent for the benefit of the
Lenders has not been obtained or a first priority security interest in such
fixed asset in favor of the Collateral Agent for the benefit of the Lenders
cannot be perfected by possession or by filing a Mortgage or Uniform
Commercial Code financing statements against the Company or by notation of
the Collateral Agent's security interest on a certificate of title in
respect of such fixed asset in accordance with the law of the relevant
jurisdiction (as any such first priority security interest may be affected
by the existence of Permitted Liens).
"ELIGIBLE INVENTORY": the amount equal to the gross amount of the
Company's inventory (other than Eligible New Equipment for Sale and
Eligible Rental Fleet Equipment) that conforms to the representations and
warranties contained in this Agreement and the other Credit Documents and
which at all times continues to be jointly acceptable to the Administrative
Agent, the Collateral Agent and the Managing Agents in the exercise of
their reasonable business judgment, less such reserves as the
Administrative Agent, the Collateral Agent and the Managing Agents, in
their sole discretion, shall deem appropriate. Without in any way limiting
the discretion of the Administrative Agent, the Collateral Agent and the
Managing Agents to deem inventory ineligible, the Administrative Agent, the
Collateral Agent and the Managing Agents do not currently intend to treat
inventory as eligible if (a) such inventory is not present in the United
States of America, (b) such inventory is to be returned to the Company's
suppliers, (c) such inventory is in transit to third parties (other than
the Company's agents or warehouses), (d) such inventory is owned by the
Company and consigned to other Persons or is owned by other Persons and
consigned to the Company or (e) a first perfected security interest in such
inventory in favor of the Collateral Agent for the benefit of the Lenders
has not been obtained or a first priority security interest in such
inventory in favor of the Collateral Agent for the benefit of the Lenders
cannot be perfected by possession or by filing Uniform Commercial Code
financing statements against the Company (as any such first priority
security interest may be affected by the existence of Permitted Liens).
"ELIGIBLE NEW EQUIPMENT FOR SALE": the amount equal to the gross
amount of all new equipment held for sale by the Company that conforms to
the representations and warranties contained in this Agreement and the
other Credit Documents and which at all times continues to be jointly
acceptable to the Administrative Agent, the Collateral Agent and the
Managing Agents in the exercise of their reasonable business judgment, less
such reserves as the Administrative Agent, the Collateral Agent and the
Managing Agents, in their sole discretion, shall deem appropriate. Without
in any way limiting the discretion of the Administrative Agent, the
Collateral Agent and the Managing Agents to deem an item of new equipment
eligible or ineligible, the Administrative Agent, the Collateral Agent and
the Managing Agents do not currently intend to treat any item of new
equipment as eligible if (a) such new equipment is not present in the
United States of America, (b) such new equipment is to be returned to the
Company's suppliers, (c) such new equipment is in transit to third parties
(other than the Company's agents or
<PAGE>
13
warehouses), (d) such new equipment is owned by the Company and consigned to
other Persons or is owned by other Persons and consigned to the Company or (e) a
first perfected security interest in such new equipment in favor of the
Collateral Agent for the benefit of the Lenders has not been obtained or a first
priority security interest in such new equipment in favor of the Collateral
Agent for the benefit of the Lenders cannot be perfected by possession or by
filing Uniform Commercial Code financing statements against the Company (as any
such first priority security interest may be affected by the existence of
Permitted Liens).
"ELIGIBLE RENTAL FLEET EQUIPMENT": the amount equal to the sum of the
purchase prices paid by the Company with respect to all equipment held for
rental by the Company in the ordinary course of business and used rental
equipment held for sale by the Company in the ordinary course of business
(collectively, "RENTAL FLEET EQUIPMENT") (determined by reference to the
most recent Borrowing Base Certificate provided to the Collateral Agent
pursuant to subsection 7.2(g)), less such reserves as the Administrative
Agent, the Collateral Agent and the Managing Agents, in their sole
discretion, shall jointly deem appropriate. Without in any way limiting
the discretion of the Administrative Agent, the Collateral Agent and the
Managing Agents to deem an item of Rental Fleet Equipment eligible or
ineligible, the Administrative Agent, the Collateral Agent and the Managing
Agents do not currently intend to treat any item of Rental Fleet Equipment
as eligible if:
(a) any representation or warranty contained in this Agreement
or in any other Credit Document applicable to either Rental Fleet
Equipment in general or to any such specific item of Rental Fleet
Equipment has been breached with respect to such item of Rental Fleet
Equipment;
(b) such item of Rental Fleet Equipment is owned by the Company
and consigned to other Persons or is owned by other Persons and
consigned to the Company;
(c) such item of Rental Fleet Equipment is returned, defective
or unmerchantable;
(d) (i) such item of Rental Fleet Equipment is not assignable
or (ii) a first priority security interest in such item of Rental
Fleet Equipment in favor of the Collateral Agent for the benefit of
the Lenders has not been obtained (or, in respect of any item of
Rental Fleet Equipment held by the Company on the Closing Date in
respect of which a first priority security interest is obtained by
notation of a security interest on a certificate of title, all
applications for certificates of title indicating the Collateral
Agent's first priority security interest in such item and any other
necessary documentation shall not have been filed in each office in
each jurisdiction which the Collateral Agent shall deem advisable to
perfect its security interest in such item on or prior to the sixtieth
day after the Closing Date) or (iii) a first priority security interest
in such item of Rental Fleet Equipment in favor of the Collateral Agent
for the benefit of the Lenders cannot be perfected by possession or by
filing Uniform Commercial Code financing statements against the Company
or by notation of the Collateral Agent's security
<PAGE>
14
interest on a certificate of title in respect of such item of Rental
Fleet Equipment in accordance with the law of the relevant
jurisdiction (as any such first priority security interest may be
affected by the existence of Permitted Liens); or
(e) such item of Rental Fleet Equipment is subject to any Lien
whatsoever (including, without limitation, all Rental Fleet Equipment
then located at a Public Warehouse with respect to which (i) the
Collateral Agent has not received a duly executed Warehousemen Notice
which is then in full force and effect or (ii) the Company is in
arrears on its rental and other payments), other than (without
prejudice to the reductions made pursuant to paragraph (d) above),
Liens permitted pursuant to Sections 8.2(a), (b) and (f).
The Administrative Agent, the Collateral Agent and the Managing Agents
shall have joint discretion to classify any item of Rental Fleet Equipment
into any of the foregoing categories or such other categories as the
Administrative Agent, the Collateral Agent and the Managing Agents, in
their sole discretion, jointly deem appropriate in determining the
eligibility of such item of Rental Fleet Equipment.
"ENVIRONMENTAL AUDIT": The Environmental Audit (referred to in
subsection 6.3(e)(ii) of the Stock Purchase Agreement) together with the
addenda thereto dated November 16, 1994, as prepared by ViroGroup Inc. and
previously delivered to the Administrative Agent pursuant to subsection
6.1(g) of the Existing Credit Agreement and, with respect to Vibroplant
U.S., Inc. and any assets acquired in the Vibroplant Acquisition, any
environmental report delivered to the Administrative Agent prior to the
consummation of the Vibroplant Acquisition; and environmental reports
obtained in connection with the acquisition of substantially all of the
assets of Alpine Equipment Rentals & Supply Company, Inc.
"ENVIRONMENTAL LAWS": any and all Federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements of any Governmental Authority or requirements of law
(including court-ordered requirements of common law) regulating or imposing
liability or standards of conduct concerning, environmental or public
health protection matters, including, without limitation, Hazardous
Materials, as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EUROCURRENCY RESERVE REQUIREMENTS": as defined in the definition of
Eurodollar Rate.
"EURODOLLAR LENDING OFFICE": as to any Lender the office of such
Lender which shall be making or maintaining Eurodollar Loans.
"EURODOLLAR LOANS": Loans at such time as they are made and/or being
maintained at a rate of interest based upon a Eurodollar Rate.
<PAGE>
15
"EURODOLLAR RATE": with respect to each day during any Interest
Period for any Eurodollar Loan, the rate per annum equal to the quotient of
(a) the average (rounded upwards to the nearest whole multiple of one
sixteenth of one percent) of the respective rates notified to the
Administrative Agent by the Reference Lenders as the rate at which each of
their Eurodollar Lending Offices is offered Dollar deposits two Business
Days prior to the beginning of such Interest Period in the interbank
eurodollar market where the foreign currency and exchange operations of
such Eurodollar Lending Office are customarily conducted at or about 10:00
A.M., New York City time, for delivery on the first day of such Interest
Period for the number of days comprised therein and in an amount comparable
to the amount of the Eurodollar Loan of such Reference Lenders to be
outstanding during such Interest Period, divided by (b) a number equal to
1.00 minus the aggregate (without duplication) of the rates (expressed as a
decimal) of reserve requirements current on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having
jurisdiction with respect thereto), as now and from time to time hereafter
in effect, dealing with reserve requirements prescribed for Eurocurrency
funding (currently referred to as "Eurocurrency liabilities" in Regulation
D of such Board) maintained by a member bank of such System (such rates of
reserve requirements being referred to herein as "EUROCURRENCY RESERVE
REQUIREMENTS") (such Eurodollar Rate to be rounded upwards, if necessary,
to the next higher 1/100 of one percent).
"EVENT OF DEFAULT": any of the events specified in Section 9,
PROVIDED that any requirement for the giving of notice, the lapse of time,
or both, has been satisfied.
"EXCESS CASH FLOW": for any fiscal year of the Company, commencing
with the fiscal year ending on December 31, 1996, the excess of (a) the
sum, without duplication, of (i) Consolidated EBITDA for such fiscal year
PLUS (ii) the book value of all property sold (other than pursuant to
eminent domain or condemnation proceedings) by the Company and its
Subsidiaries during such fiscal year over (b) the sum, without duplication,
of (i) the aggregate amount actually paid by the Company and its
Subsidiaries in cash during such fiscal year on account of capital
expenditures (other than capital expenditures made with the proceeds of
eminent domain or condemnation proceedings to the extent such proceeds are
not included in the determination of EBITDA for such fiscal year), (ii) the
aggregate amount of payments of principal in respect of any Indebtedness
during such fiscal year (other than any such payments of principal (x) from
the Net Proceeds of the IPO, (y) pursuant to subsection 4.4(b)(iii) or (z)
in respect of any revolving credit facility to the extent that there is not
an equivalent reduction in such facility), (iii) increases in working
capital (calculated as Consolidated Current Assets at the end of such
fiscal year MINUS Consolidated Current Liabilities as at the end of such
fiscal year) of the Company and its Subsidiaries for such fiscal year
(excluding any increase in cash or Cash Equivalents above an increase
deemed in good faith by the Company to be necessary or desirable for the
operation of the business of the Company and its Subsidiaries), (iv) cash
interest expense (including fees paid in connection with Letters of Credit
and surety bonds) of the Company, (v) the amount of dividends actually paid
in cash by the Company to Holdings during such fiscal year as permitted by
subsection 8.11(c)(iv) and, to the extent not deducted from revenues in
determining consolidated net income of the Company and its Subsidiaries for
such fiscal year, by subsection 8.11(c)(i) and (ii), (vi) the amount of
taxes actually paid in cash by the
<PAGE>
16
Company and its Subsidiaries for such fiscal year either during such fiscal year
or within a normal payment period thereof, (vii) the amount of cash actually
paid to repurchase Capital Stock of Holdings pursuant to subsection 8.11(c)(iii)
and (viii) to the extent added to consolidated net income of the Company and its
Subsidiaries in calculating Consolidated EBITDA for such fiscal year, the net
cost of Interest Rate Agreements, franchise taxes and management fees.
"FEE PROPERTY": as defined in subsection 5.13.
"FINANCING LEASE": (a) any lease of property, real or personal, the
obligations under which are capitalized on a consolidated balance sheet of
the Company and its consolidated Subsidiaries and (b) any other such lease
to the extent that the then present value of any rental commitment
thereunder should, in accordance with GAAP, be capitalized on a balance
sheet of the lessee.
"FOREIGN SUBSIDIARY": any Subsidiary of the Company which is not
organized under the laws of the United States of America or any state
thereof or the District of Columbia.
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any state or
other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GUARANTEES": the collective reference to the Holdings Guarantee and
any guarantee which may from time to time be executed and delivered by a
Subsidiary of the Company pursuant to subsection 8.6(b).
"HAZARDOUS MATERIALS": any hazardous materials, hazardous wastes,
hazardous pesticides, hazardous or toxic substances, defined, listed,
classified or regulated as such in or under any Environmental Law,
including, without limitation, asbestos, petroleum, any other petroleum
products (including gasoline, crude oil or any fraction thereof)
polychlorinated biphenyls and urea-formaldehyde insulation.
"HEDGE LENDER": (a) Salomon Brothers Holding Company Inc ("SALOMON"),
as party to that certain Interest Rate and Currency Exchange Agreement,
dated as of March 7, 1990 (the "SALOMON INTEREST RATE AGREEMENT"), between
the Company and Salomon, as supplemented by the schedule thereto dated as
of March 7, 1990, the Confirmation of the Swap Transaction dated March 7,
1990 between the Company and Salomon and the letter agreement dated as of
December 1, 1994 between the Company and Salomon and (b) any successor or
assignee of Salomon reasonably acceptable to the Administrative Agent in
respect of the Salomon Interest Rate Agreement.
"HOLDINGS": Prime Service, Inc., a Delaware corporation.
<PAGE>
17
"HOLDINGS GUARANTEE": the Holdings Guarantee, substantially in the
form of Exhibit F, to be made by Holdings in favor of the Collateral Agent
for the ratable benefit of the Lenders, as the same may be amended,
modified or supplemented from time to time.
"HOLDINGS PLEDGE AGREEMENT": the Pledge Agreement, substantially in
the form of Exhibit G, to be made by Holdings in favor of the Collateral
Agent for the ratable benefit of the Lenders, as the same may be amended,
modified or supplemented from time to time.
"INDEBTEDNESS": of a Person, at a particular date, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, (b) the undrawn face amount of all letters
of credit issued for the account of such Person and, without duplication,
all drafts drawn thereunder and unpaid reimbursement obligations with
respect thereto, (c) all liabilities (other than Lease Obligations) secured
by any Lien on any property owned by such Person, even though such Person
has not assumed or become liable for the payment thereof, (d) Financing
Leases and (e) all indebtedness of such Person arising under acceptance
facilities; but excluding (i) trade and other accounts payable and accrued
expenses payable in the ordinary course of business which are not overdue
for a period of more than 90 days or, if overdue for more than 90 days, as
to which a dispute exists and adequate reserves in conformity with GAAP
have been established on the books of such Person and (ii) letters of
credit supporting the purchase of goods in the ordinary course of business
and expiring no more than six months from the date of issuance.
"INSOLVENCY": with respect to a Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of such term as used in
Section 4245 of ERISA.
"INSTALLMENT PAYMENT DATE": as defined in subsection 4.4(c).
"INTEREST COVERAGE RATIO": on the last day of any fiscal quarter of
the Company, the ratio of (a) Consolidated EBITDA for the period of four
fiscal quarters ending on such day to (b) cash interest expense (excluding
fees payable on account of Letters of Credit and, to the extent included in
interest expense in accordance with GAAP, net costs associated with
Interest Rate Agreements to which the Company is party in respect of the
Loans and amortization of debt discount (including discount of liabilities
and reserves established under APB 16), costs of debt issuance and interest
expense on customer deposits) for such period net of interest income, in
each case for or during such period on a consolidated basis for the Company
and its Subsidiaries.
"INTEREST PAYMENT DATE": (a) as to Alternate Base Rate Loans, the
last day of each March, June, September and December, commencing on the
first such day to occur after any Alternate Base Rate Loans are made or any
Eurodollar Loans are converted to Alternate Base Rate Loans, (b) as to any
Eurodollar Loan in respect of which the Company has selected an Interest
Period of one, two or three months, the last day of such Interest Period
and (c) as to any Eurodollar Loan in respect of which the Company has
selected an Interest Period of six months, the date which is three months
after the beginning thereof and the last day of such Interest Period.
<PAGE>
18
"INTEREST PERIOD": with respect to any Eurodollar Loan:
(a) initially, the period commencing on, as the case may be, the
Borrowing Date or conversion date with respect to such Eurodollar Loan
and ending one, two, three, six or, if available, nine or twelve
months thereafter as selected by the Company in its notice of
borrowing as provided in subsection 4.1 or its notice of conversion as
provided in subsection 4.2; and
(b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three, six or, if available, nine or twelve months
thereafter as selected by the Company by irrevocable notice to the
Administrative Agent not less than three Business Days prior to the
last day of the then current Interest Period with respect to such
Eurodollar Loan;
PROVIDED that the foregoing provisions relating to Interest Periods are
subject to the following:
(A) if any Interest Period would otherwise end on a day which is
not a Business Day, that Interest Period shall be extended to the next
succeeding Business Day, unless the result of such extension would be
to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the immediately preceding
Business Day;
(B) any Interest Period that would otherwise extend beyond (i)
in the case of an Interest Period for a Term Loan, the final
Installment Payment Date for such Term Loan shall end on such
Installment Payment Date or, if such Installment Payment Date shall
not be a Business Day, on the next preceding Business Day and (ii) in
the case of any Interest Period for a Revolving Credit Loan, the
Revolving Credit Termination Date shall end on the Revolving Credit
Termination Date, or if the Revolving Credit Termination Date shall
not be a Business Day, on the next preceding Business Day;
(C) if the Company shall fail to give notice as provided above
in clause (b), it shall be deemed to have selected a conversion of a
Eurodollar Loan into an Alternate Base Rate Loan (which conversion
shall occur automatically and without need for compliance with the
conditions for conversion set forth in subsection 4.2);
(D) any Interest Period that begins on the last day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month; and
(E) the Company shall select Interest Periods so as not to
require a prepayment (to the extent practicable) or a scheduled
payment of a Eurodollar Loan during an Interest Period for such
Eurodollar Loan.
<PAGE>
19
"INTEREST RATE AGREEMENT": any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement, currency hedge
agreement or other similar agreement or arrangement; PROVIDED that the
amount of any such Interest Rate Agreement for purposes of Section 9(e)
shall be based on calculation of payments for early termination in a
reasonable manner in accordance with customary industry practices.
"IPO": the sale by Holdings through a public offering of a portion of
its common stock pursuant to an effective registration statement, as
amended, as originally filed on Form S-1, Registration Statement No.
333-11517, with the Securities and Exchange Commission on September 6, 1996
(or on such other registration statement determined by Holdings, on the
advice of its counsel, to be appropriate other than a registration
statement on Form S-4, S-8 or any successor or similar forms) filed under
the Securities Act of 1933, as amended.
"ISSUING LENDER": Chase and any of its Affiliates, including The
Chase Manhattan Bank Delaware, issuing Letters of Credit.
"L/C APPLICATION": as defined in subsection 3.5(a).
"L/C OBLIGATIONS": the obligations of the Company to reimburse the
Issuing Lender for any payments made by the Issuing Lender under any Letter
of Credit that have not been reimbursed by the Company pursuant to
subsection 3.8(a).
"L/C PARTICIPATING INTEREST": an undivided participating interest in
the face amount of each issued and outstanding Letter of Credit and the L/C
Application relating thereto.
"L/C PARTICIPATION CERTIFICATE": the certificate in substantially the
form of Exhibit H.
"LEASE OBLIGATIONS": of the Company and its Subsidiaries, as of the
date of any determination thereof, the rental commitments of the Company
and its Subsidiaries determined on a consolidated basis, if any, under
leases for real and/or personal property (net of rental commitments from
sub-leases thereof), excluding however, obligations under Financing Leases.
"LEASED PROPERTIES": as defined in subsection 5.13.
"LETTERS OF CREDIT": the collective reference to the Commercial L/Cs
and the Standby L/Cs; individually, a "LETTER OF CREDIT."
"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any
kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of any of the foregoing
except for the filing of financing statements in connection with Lease
Obligations incurred by the Company or its Subsidiaries to the
<PAGE>
20
extent that such financing statements relate to the property subject to
such lease Obligations).
"LOANS": the collective reference to the Swing Line Loans, the Term
Loans and the Revolving Credit Loans; individually, a "LOAN".
"MANAGING AGENTS": Chase and BTCo in their capacities as managing
agents hereunder.
"MATURITY DATE": December 31, 2002.
"MORTGAGED PROPERTY": (a) the fee real property listed on Schedule
5.13 covered by Mortgages delivered pursuant to subsection 7.9 of the
Existing Credit Agreement and (b) any fee real property covered by a
Mortgage delivered pursuant to subsection 7.9 hereof.
"MORTGAGES": collective reference to the mortgages and/or deeds of
trust or other similar documents, as the case may be, delivered pursuant to
sections 7.9 or 7.10 of the Existing Credit Agreement, or substantially in
the form of Exhibit I (with any changes necessary to comply with applicable
state law requirements), to be executed and delivered by the Company or any
Subsidiary to the Collateral Agent pursuant to subsection 7.9, as the same
may be amended, supplemented, or otherwise modified from time to time.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"NET PROCEEDS": the aggregate cash proceeds received by Holdings, the
Company or any Subsidiary of the Company in respect of:
(a) (i) any issuance or borrowing of any debt securities or
loans by the Company or any Subsidiary other than debt or loans
permitted to be incurred or borrowed pursuant to subsection 8.1 or
(ii) any issuance of Capital Stock in the IPO net of proceeds used to
redeem (x) Holdings subordinated debt in the principal amount of
$10,000,000 plus a $350,000 redemption premium and (y) $33,300,000 of
the Company's 12.75% senior subordinated notes due March 1, 2005 plus
a $4,200,000 redemption premium.
(b) any Asset Sale, excluding (i) any net proceeds received upon
any condemnation or exercise of rights of eminent domain to the extent
the same shall be deemed not to constitute Net Proceeds pursuant to
the proviso to subsection 8.5(d) and (ii) any proceeds of insurance
received upon any casualty or loss;
(c) any cash received in respect of substantially like-kind
exchanges of property to the extent provided in the proviso to
subsection 8.5(e); and
(d) any cash payments received in respect of promissory notes
delivered to the Company or such Subsidiary in respect of an Asset
Sale;
<PAGE>
21
in each case net of (without duplication) (A) the amount required to repay
any Indebtedness (other than the Loans) secured by a Lien on any assets of
the Company or a Subsidiary of the Company that are collateral for any such
debt securities or loans that are sold or otherwise disposed of in
connection with such Asset Sale, (B) the reasonable expenses (including
legal fees and brokers' and underwriters' commissions, lenders fees or
credit enhancement fees, in any case, paid to third parties or, to the
extent permitted hereby, Affiliates) incurred in effecting such issuance or
sale and (C) any taxes reasonably attributable to such sale and reasonably
estimated by the Company or such Subsidiary to be actually payable.
"NON-FUNDING LENDER": as defined in subsection 4.9(c).
"NOTES": the collective reference to the Swing Line Note, the
Revolving Credit Notes and the Term Loan Notes; each of the Notes, a
"NOTE".
"PARTICIPANTS": as defined in subsection 11.6(b).
"PARTICIPATING LENDER": any Lender (other than the Issuing Lender)
with respect to its L/C Participating Interest in each Letter of Credit.
"PAYMENT SHARING NOTICE": a written notice from the Company or any
Lender informing the Administrative Agent that an Event of Default has
occurred and is continuing and directing the Administrative Agent to
allocate payments thereafter received from or on behalf of the Company in
accordance with the provisions of subsection 4.9.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA or any successor.
"PERMITTED LIENS": Liens permitted to exist under subsection 8.2.
"PERSON": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"PLAN": at any particular time, any employee benefit plan as defined
in Section 3(3) of ERISA and not excluded by Section 4(b) of ERISA and in
respect of which the Company or a Commonly Controlled Entity is (or, if
such plan were terminated at such time, would under Section 4069 of ERISA
be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"PLEDGE AGREEMENTS": the collective reference to the Holdings Pledge
Agreement and any pledge agreement from time to time executed and delivered
by the Company providing for the pledge of the Capital Stock of any
Subsidiary pursuant to subsection 8.6(b).
"PRIME EQUIPMENT": Prime Equipment Company, a Texas corporation, and
a wholly-owned Subsidiary of the Company.
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22
"PUBLIC WAREHOUSE": any warehouse other than a warehouse which is
(a) owned or leased by the Company or (b) under the control and management
of the Company.
"REFERENCE LENDERS": Chase and BTCo.
"REFUNDED SWING LINE LOANS": as defined in subsection 3.4(b).
"REGISTER": as defined in subsection 11.6(d).
"REGULATION U": Regulation U of the Board of Governors of the Federal
Reserve System, as from time to time in effect.
"RELATED DOCUMENT": any agreement, certificate, document or
instrument relating to a Letter of Credit.
"RENTAL FLEET EQUIPMENT": as defined in the definition of "Eligible
Rental Fleet Equipment".
"REORGANIZATION": with respect to a Multiemployer Plan, the condition
that such Plan is in reorganization as such term is used in Section 4241 of
ERISA.
"REPORTABLE EVENT": any of the events set forth in Section 4043(b) of
ERISA other than those events as to which the thirty day notice period is
waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
Section 2615.
"REQUIRED LENDERS": at a particular time, the holders of at least 51%
of the sum of (i) the aggregate unpaid principal amount of the Term Loans,
if any, and (ii) the Revolving Credit Commitments or, if the Revolving
Credit Commitments are terminated, the aggregate unpaid principal amount of
the Revolving Credit Loans. The Term Loans and the Revolving Credit
Commitments of any Non-Funding Lender shall be disregarded in determining
Required Lenders at any time.
"REQUIREMENT OF LAW": as to any Person, the Articles or Certificate
of Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation, order, or
determination of an arbitrator or a court or other Governmental Authority,
in each case applicable to or binding upon such Person or any of its
property, or to which such Person or any of its property is subject.
"RESPONSIBLE OFFICER": with respect to any Person, the president,
chief executive officer, the chief operating officer, the chief financial
officer, treasurer, controller or any vice president of such Person.
"REVOLVING CREDIT COMMITMENT": as to any Lender, its obligations as
provided for in subsection 3.1 to make Revolving Credit Loans to the
Company pursuant to subsection 3.1, and to purchase its L/C Participating
Interest in any Letter of Credit, in an aggregate amount not to exceed the
sum of the amounts set forth under such Lender's name in Schedule I
opposite the caption "Revolving Credit Commitment" or in Schedule 1 to the
Assignment and Acceptance by which such Lender acquired its Revolving
Credit
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23
Commitment, as the same may be reduced from time to time pursuant to
subsection 4.3 or 4.4(b) or adjusted pursuant to subsection 11.6(c);
collectively, as to all the Lenders, the "REVOLVING CREDIT COMMITMENTS".
"REVOLVING CREDIT COMMITMENT PERCENTAGE": as to any Lender at any
time, the percentage of the aggregate Revolving Credit Commitments then
constituted by such Lender's Revolving Credit Commitment.
"REVOLVING CREDIT COMMITMENT PERIOD": the period from and including
the Effective Date to but not including the Revolving Credit Termination
Date.
"REVOLVING CREDIT LOAN" and "REVOLVING CREDIT LOANS": as defined in
subsection 3.1(a).
"REVOLVING CREDIT NOTE": as defined in subsection 4.13(e).
"REVOLVING CREDIT TERMINATION DATE": the earlier of (a) the fifth
anniversary of the Effective Date and (b) such other date as the Revolving
Credit Commitments shall terminate hereunder.
"SECTION 4.4 LENDERS": at a particular time, the holders of (a) at
least 51% of the aggregate unpaid principal amount of the Term Loans, if
any, and (b) at least 51% of the Revolving Credit Commitments or, if the
Revolving Credit Commitments are terminated, the aggregate unpaid principal
amount of the Revolving Credit Loans. The Term Loans and the Revolving
Credit Commitments of any Non-Funding Lender shall be disregarded in
determining Section 4.4 Lenders at any time.
"SECTION 8.6 ACQUISITION": as defined in subsection 8.6(h).
"SECURITY AGREEMENTS": the collective reference to the Company
Security Agreement and any security agreement which may from time to time
be executed and delivered by a Subsidiary of the Company pursuant to
subsection 8.6(b).
"SECURITY DOCUMENTS": the collective reference to the Pledge
Agreements, the Security Agreements, the Mortgages and any assignment of
leases delivered pursuant to the terms of any Mortgage.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of
ERISA and which is not a Multiemployer Plan.
"STANDBY L/C": an irrevocable letter of credit under which the
Issuing Lender agrees to make payments in Dollars for the account of the
Company, on behalf of the Company or any Subsidiary thereof in respect of
obligations of the Company or such Subsidiary incurred pursuant to
contracts made or performances undertaken or to be undertaken or like
matters relating to contracts to which the Company or such Subsidiary is or
proposes to become a party in the ordinary course of the Company's or such
Subsidiary's business, including, without limiting the foregoing, for
insurance purposes
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24
or in respect of advance payments or as bid or performance bonds or for any
other purpose for which a standby letter of credit might customarily be
issued.
"SUBORDINATED DEBT": the $100,000,000 aggregate principal amount of
12.75% senior subordinated notes due March 1, 2005, as contemplated to be
reduced by $33,300,000 (plus a redemption premium of $4,200,000), issued by
the Company pursuant to an indenture, dated as of March 6, 1995, between
the Company and Texas Commerce Bank National Association, as trustee.
"SUBSECTION 4.11(D)(2) CERTIFICATE": as defined in subsection
4.11(d).
"SUBSIDIARY": as to any Person, any corporation of which shares of
stock of each class having ordinary voting power (other than stock having
such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation
are at the time owned by such Person or by one or more Subsidiaries of such
Person or by such Person and one or more Subsidiaries of such Person. (A
Subsidiary shall be deemed wholly-owned by a Person who owns all of the
voting shares of stock of such Subsidiary having voting power under
ordinary circumstances to vote for directors, except for directors'
qualifying shares.) Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Company.
"SUPERMAJORITY LENDERS": at a particular time, the holders of at
least 66-2/3% of the sum of (i) the aggregate unpaid principal amount of
the Term Loans, if any, and (ii) the Revolving Credit Commitments or, if
the Revolving Credit Commitments are terminated, the aggregate unpaid
principal amount of the Revolving Credit Loans. The Term Loans and the
Revolving Credit Commitments of any Non-Funding Lender shall be disregarded
in determining Supermajority Lenders at any time.
"SWING LINE COMMITMENT": the Swing Line Lender's obligation to make
Swing Line Loans pursuant to subsection 3.4.
"SWING LINE LENDER": Chase in its capacity as lender of the Swing
Line Loans.
"SWING LINE LOAN PARTICIPATION CERTIFICATE": a certificate in
substantially the form of Exhibit J.
"SWING LINE LOANS": as defined in subsection 3.4(a).
"SWING LINE NOTE": as defined in subsection 4.13(e).
"TERM LOAN COMMITMENT": as to any Lender, its obligation to continue
and to make Term Loans to the Company pursuant to subsection 2.1 in an
aggregate amount not to exceed the amount set forth under such Lender's
name in Schedule I opposite the caption "Term Loan Commitment" or in
Schedule 1 to the Assignment and Acceptance pursuant to which a Lender
acquires its Term Loan Commitment, as the same may be adjusted pursuant to
subsection 11.6(c); collectively, as to all the Lenders, the "TERM LOAN
COMMITMENTS".
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25
"TERM LOAN COMMITMENT PERCENTAGE": as to any Lender at any time, the
percentage of the aggregate Term Loan Commitments then constituted by such
Lender's Term Loan Commitment.
"TERM LOAN NOTE: as defined in subsection 4.13(e).
"TERM LOANS": as defined in subsection 2.1.
"TRANSFEREE": as defined in subsection 11.6(f).
"TYPE": as to any Loan, its nature as an Alternate Base Rate Loan or
Eurodollar Loan.
"TYPE I": at any date of determination, as to any Eligible Rental
Fleet Equipment, its nature as Eligible Rental Fleet Equipment that is aged
one year or less from the date such Eligible Rental Fleet Equipment is
acquired by the Company; PROVIDED that any Eligible Rental Fleet Equipment
acquired by the Company which is used or acquired in connection with a
Section 8.6 Acquisition shall, for purposes of this definition, be aged
from the date such Equipment was delivered new to its original purchaser.
"TYPE II": at any date of determination, as to any Eligible Rental
Fleet Equipment, its nature as Eligible Rental Fleet Equipment that is aged
more than one year but less than or equal to two years from the date such
Eligible Rental Fleet Equipment is acquired by the Company; PROVIDED that
any Eligible Rental Fleet Equipment acquired by the Company which is used
or acquired in connection with a Section 8.6 Acquisition shall, for
purposes of this definition, be aged from date such Equipment was delivered
new to its original purchaser.
"TYPE III": at any date of determination, as to any Eligible Rental
Fleet Equipment, its nature as Eligible Rental Fleet Equipment that is aged
more than two years but less than or equal to three years from the date
such Eligible Rental Fleet Equipment is acquired by the Company; PROVIDED
that any Eligible Rental Fleet Equipment acquired by the Company which is
used or acquired in connection with a Section 8.6 Acquisition shall, for
purposes of this definition, be aged from the date such Equipment was
delivered new to its original purchaser.
"TYPE IV": at any date of determination, as to any Eligible Rental
Fleet Equipment, its nature as Eligible Rental Fleet Equipment that is aged
more than three years from the date such Eligible Rental Fleet Equipment is
acquired by the Company; PROVIDED that any Eligible Rental Fleet Equipment
acquired by the Company which is used or acquired in connection with a
Section 8.6 Acquisition shall, for purposes of this definition, be aged
from the date such Equipment was delivered new to its original purchaser.
"UNIFORM CUSTOMS": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No.
500, and any amendments thereof.
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26
"VIBROPLANT ACQUISITION": the acquisition by the Company or any of
its Subsidiaries of all of the issued and outstanding Capital Stock, or
substantially all of the assets, of Vibroplant U.S., Inc., a Florida
corporation d/b/a American Hi-Lift, for aggregate consideration not to
exceed $70,000,000.
"VIBROPLANT U.S., INC.": a Florida corporation d/b/a American
Hi-Lift.
"WAREHOUSEMEN NOTICE": a warehousemen notice substantially in the
form of Exhibit O.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes, any other Credit Document or any certificate or other
document made or delivered pursuant hereto.
(b) As used herein and in the Notes, any other Credit Document and any
certificate or other document made or delivered pursuant hereto, accounting
terms relating to the Company and its Subsidiaries not defined in subsection 1.1
and accounting terms partly defined in subsection 1.1 to the extent not defined,
shall have the respective meanings given to them under GAAP. All computations
determining compliance with financial covenants or terms, including definitions
used therein, shall be prepared in accordance with generally accepted accounting
principles in effect at the time of the preparation of, and in conformity with
those used to prepare, the historical financial statements delivered to the
Administrative Agent pursuant to subsection 7.1. If at any time the
computations for determining compliance with financial covenants or provisions
relating thereto utilize generally accepted accounting principles different than
those then being utilized in the financial statements then being delivered to
the Administrative Agent, such financial statements shall be accompanied by a
reconciliation statement with respect to such computations.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to the singular and plural forms of such terms.
SECTION 2. TERM LOANS
2.1 TERM LOANS. Subject to the terms and conditions hereof, each
Lender severally agrees on the Effective Date (a) to continue its Term Loan
under the Existing Credit Agreement and (b) to acquire a term loan hereunder for
the purpose of refinancing the Term Loans under the Existing Credit Agreement
that are not being continued pursuant to clause (a) above (the term loans
continued or acquired hereunder, individually, a "TERM LOAN"; and collectively,
the "TERM LOANS"), in an aggregate amount equal to that set forth on Schedule I.
The parties agree that all the Term Loans continued or acquired hereunder shall
be deemed to be a continuation of the Term Loans extended to the Company under
the Existing Credit Agreement,
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27
which Term Loans shall after the Effective Date be governed by the terms and
conditions stated herein.
2.2 REPAYMENT OF TERM LOANS. The Company shall repay the Term Loans
as provided in subsection 4.4(c).
2.3 USE OF PROCEEDS. The proceeds of the Term Loans shall be used for
the purposes of continuing or refinancing the Term Loans under the Existing
Credit Agreement on and as of the Effective Date and thereafter for general
corporate purposes.
2.4 PROCEDURE FOR EFFECTIVE DATE. (a) The Company shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 12:00 noon, New York City time), (i) three
Business Days prior to the requested Effective Date if all or any part of the
Term Loans as of the Effective Date are to be Eurodollar Loans and (ii) one
Business Day prior to the requested Effective Date (or, if the Effective Date
occurs on the date this Agreement is executed and delivered, on the requested
Borrowing Date) if the Term Loans as of the Effective Date are to be solely of
Alternate Base Rate Loans and specifying (A) whether the Term Loans are
initially to be Eurodollar Loans or Alternate Base Rate Loans or a combination
thereof and (B) whether the Term Loans are initially to be entirely or partly
Eurodollar Loans, the length of the Interest Period for such Eurodollar Loans.
Upon receipt of such notice the Administrative Agent shall promptly notify each
Lender. Not later than 12:00 noon, New York City time, on the Effective Date
specified in such notice, each Lender shall make available to the Administrative
Agent at the office of the Administrative Agent specified in subsection 11.2 (or
at such other location as the Administrative Agent may direct) an amount in
immediately available funds equal to the amount of the Term Loan to be made by
such Lender pursuant to subsection 2.1(b). Loan proceeds received by the
Administrative Agent hereunder shall promptly be applied by the Administrative
Agent to the Term Loan under the Existing Credit Agreement not being continued
pursuant to subsection 2.1(a) by payment directly to the holders thereof under
the Existing Credit Agreement.
SECTION 3. AMOUNT AND TERMS OF REVOLVING
CREDIT COMMITMENTS
3.1 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and
conditions hereof, each Lender severally agrees on the Effective Date (i) to
continue its Revolving Credit Commitment under the Existing Credit Agreement and
(ii) to provide an additional Revolving Credit Commitment hereunder for the
purpose of refinancing the Revolving Credit Commitments under the Existing
Credit Agreements that are not being continued pursuant to clause (i) above (the
loans in Dollars continued or provided hereunder, individually, such a Loan is a
"REVOLVING CREDIT LOAN", and collectively such Loans are the "REVOLVING CREDIT
LOANS"), in an aggregate amount equal to that set forth on Schedule I. The
parties agree that all the Revolving Credit Loans continued or provided
hereunder shall be deemed to be a continuation of the Revolving Credit Loans
provided to the Company under the Existing Credit Agreement, which Revolving
Credit Loans shall after the Effective Date be governed by the terms and
conditions stated herein. Notwithstanding the above, (x) in no event shall any
Letter of Credit be issued if after giving effect thereto the sum of the undrawn
amount of all outstanding Letters of Credit and the amount of all L/C
Obligations would exceed $15,000,000 and (y) in no event shall any Revolving
Credit
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28
Loans be made, or Letters of Credit be issued, (A) if the aggregate amount of
the Revolving Credit Loans to be made or Letters of Credit to be issued would,
after giving effect to the use of proceeds, if any, thereof, exceed the
aggregate Available Revolving Credit Commitments or (B) if, after giving effect
to such Revolving Credit Loan or Letter of Credit, a Borrowing Base Deficiency
would exist. During the Revolving Credit Commitment Period, the Company may use
the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit
Loans in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof, and/or by having the Issuing Lender issue Letters of Credit,
having such Letters of Credit expire undrawn upon or if drawn upon, reimbursing
the Issuing Lender for such drawing, and having the Issuing Lender issue new
Letters of Credit.
(b) Each borrowing of Revolving Credit Loans pursuant to the Revolving
Credit Commitments shall be in an aggregate principal amount of the lesser of
(i) $1,000,000 or a whole multiple of $100,000 in excess thereof, in the case of
Alternate Base Rate Loans, and $2,000,000 or a whole multiple of $1,000,000 in
excess thereof, in the case of Eurodollar Loans and (ii) the Available Revolving
Credit Commitments, except that any borrowing of Revolving Credit Loans to be
used solely to pay a like amount of Swing Line Loans may be in the aggregate
principal amount of such Swing Line Loans.
3.2 COMMITMENT FEE. The Company agrees to pay to the Administrative
Agent for the account of each Lender (other than any Non-Funding Lender) a
commitment fee from and including the Effective Date to and including the
Revolving Credit Termination Date, computed at the rate per annum set forth
below on the average daily amount of the Available Revolving Credit Commitment
of such Lender during the period for which payment is made (whether or not the
Company shall have satisfied the applicable conditions to borrowing or issuance
of a Letter of Credit set forth in Section 6). If the applicable Debt Coverage
Ratio is:
(i) greater than 3.75, a rate per annum equal to 0.50%;
(ii) less than or equal to 3.75 but greater than 2.25, a rate
per annum equal to 0.375%;
(iii) less than or equal to 2.25 but greater than 1.75, a rate
per annum equal to 0.350%; and
(iv) less than or equal to 1.75, a rate per annum equal to
0.300%.
Such commitment fee shall be payable quarterly in arrears on the last day of
each March, June, September and December and on the Revolving Credit Termination
Date, commencing on the first such date to occur on or following the Effective
Date (or, if earlier, the Revolving Credit Termination Date). The commitment
fee for the period commencing with each Adjustment Date and ending on the next
succeeding Adjustment Date shall be determined by reference to the Debt Coverage
Ratio of the Company set forth on the certificate most recently required to be
delivered to the Lenders pursuant to subsection 7.2(b); PROVIDED, that, (a)
until the first Adjustment Date, the commitment fee shall be as set forth in
clause (iii) of this Section 3.2 and (b) if for any reason the certificate
required by subsection 7.2(b) is not timely delivered to the Lenders, then (i)
during the period from the date upon which such certificate was required to be
delivered until the date upon which it actually is delivered, the commitment fee
shall be the commitment fee in
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29
effect immediately prior to the date such financial statements were due, and
(ii) if such certificate, when actually delivered, would have required an
increase in the commitment fee over the commitment fee in effect immediately
prior to the date such certificate was due, the Company shall promptly following
the delivery of such certificate pay to the Lenders and the Administrative Agent
any additional amounts of fees which would have been payable on any previous
commitment fee payment date had such higher commitment fee been in effect from
the date such certificate was required to be delivered; and PROVIDED, FURTHER,
that any change in the commitment fee as a result of a change in the Debt
Coverage Ratio shall apply for each day during the period commencing on the
effective date of such change and ending on the date immediately preceding the
effective date of the next such change in the commitment fee.
3.3 PROCEEDS OF REVOLVING CREDIT LOANS. The Company shall use the
proceeds of Revolving Credit Loans for general corporate purposes.
3.4 SWING LINE COMMITMENT. (a) Subject to the terms and conditions
hereof, the Swing Line Lender agrees, so long as the Administrative Agent has
not received notice that an Event of Default has occurred and is continuing, to
make swing line loans (individually, a "SWING LINE LOAN"; collectively, the
"SWING LINE LOANS") to the Company from time to time during the Revolving Credit
Commitment Period in an aggregate principal amount at any one time outstanding
not to exceed $10,000,000, PROVIDED that no Swing Line Loan may be made if the
aggregate principal amount of the Swing Line Loans to be made would exceed the
aggregate Available Revolving Credit Commitments at such time, and PROVIDED,
FURTHER, that no Swing Line Loan may be made if, after giving effect thereto, a
Borrowing Base Deficiency would exist. Amounts borrowed by the Company under
this subsection 3.4 may be repaid and, through but excluding the Revolving
Credit Termination Date, reborrowed. All Swing Line Loans shall be made as
Alternate Base Rate Loans and shall not be entitled to be converted into
Eurodollar Loans. The Company shall give the Swing Line Lender irrevocable
notice (which notice must be received by the Swing Line Lender prior to
3:00 p.m., New York City time) on the requested Borrowing Date specifying the
amount of each requested Swing Line Loan, which shall be in an aggregate minimum
amount of $250,000 or a whole multiple of $100,000 in excess thereof. The
proceeds of each Swing Line Loan will be made available by the Swing Line Lender
to the Company by crediting the account of the Company at the office of the
Swing Line Lender with such proceeds. The proceeds of Swing Line Loans may be
used solely for the purposes referred to in subsection 3.3.
(b) The Swing Line Lender at any time in its sole and absolute
discretion may, and on the fifteenth day (or if such day is not a Business Day,
the next Business Day) and last Business Day of each month shall, on behalf of
the Company (which hereby irrevocably directs the Swing Line Lender to act on
its behalf) request each Lender, including the Swing Line Lender, to make a
Revolving Credit Loan in an amount equal to such Lender's Revolving Credit
Commitment Percentage of the amount of the Swing Line Loans (the "REFUNDED SWING
LINE LOANS") outstanding on the date such notice is given. Unless any of the
events described in paragraph (f) of Section 9 shall have occurred (in which
event the procedures of paragraph (c) of this subsection 3.4 shall apply) each
Lender shall make the proceeds of its Revolving Credit Loan available to the
Swing Line Lender for the account of the Swing Line Lender at the Alternate Base
Rate Lending Office of the Swing Line Lender prior to 12:00 noon (New York City
time) in funds immediately available on the Business Day next succeeding the
date such
<PAGE>
30
notice is given. The proceeds of such Revolving Credit Loans shall be
immediately applied to repay the Refunded Swing Line Loans.
(c) If prior to the making of a Revolving Credit Loan pursuant to
paragraph (b) of this subsection 3.4 one of the events described in paragraph
(f) of Section 9 shall have occurred, each Lender will, on the date such Loan
was to have been made, purchase an undivided participating interest in the
Refunded Swing Line Loan in an amount equal to its Revolving Credit Commitment
Percentage of such Refunded Swing Line Loan. Each Lender will immediately
transfer to the Swing Line Lender in immediately available funds, the amount of
its participation and upon receipt thereof the Swing Line Lender will deliver to
such Lender a Swing Line Loan Participation Certificate dated the date of
receipt of such funds and in such amount.
(d) Whenever, at any time after the Swing Line Lender has received
from any Lender such Lender's participating interest in a Refunded Swing Line
Loan, the Swing Line Lender receives any payment on account thereof, the Swing
Line Lender will distribute to such Lender its participating interest in such
amount (appropriately adjusted, in the case of interest payments, to reflect the
period of time during which such Lender's participating interest was outstanding
and funded) in like funds as received; PROVIDED, HOWEVER, that in the event that
such payment received by the Swing Line Lender is required to be returned, such
Lender will return to the Swing Line Lender any portion thereof previously
distributed by the Swing Line Lender to it in like funds as such payment is
required to be returned by the Swing Line Lender.
(e) Each Lender's obligation to purchase participating interests
pursuant to subsection 3.4(c) shall be absolute and unconditional and shall not
be affected by any circumstance, including, without limitation, (i) any set-off,
counterclaim, recoupment, defense or other right which such Lender may have
against the Swing Line Lender, the Company or any other Person for any reason
whatsoever; (ii) the occurrence or continuance of an Event of Default; (iii) any
adverse change in the condition (financial or otherwise) of the Company; (iv)
any breach of this Agreement by the Company or any other Lender; or (v) any
other circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing.
3.5 ISSUANCE OF LETTERS OF CREDIT. (a) The Company may from time to
time request the Issuing Lender to issue a Standby L/C or a Commercial L/C by
delivering to the Administrative Agent at its address specified in subsection
11.2 a letter of credit application in the Issuing Lender's then customary form
(the "L/C APPLICATION") completed to the satisfaction of the Issuing Lender,
together with the proposed form of such Letter of Credit (which shall comply
with the applicable requirements of paragraph (b) below) and such other
certificates, documents and other papers and information as the Issuing Lender
may reasonably request; PROVIDED that if the Issuing Lender informs the Company
that it is for any reason unable to open such Letter of Credit, the Company may
request any Lender to open such Letter of Credit upon the same terms offered to
the Issuing Lender and each reference to the Issuing Lender for purposes of
subsections 3.5 through 3.14, 6.1 and 6.2 shall be deemed to be a reference to
such issuing Lender. As of the Effective Date the letters of credit listed on
Schedule 3.5(a) shall be deemed to be Letters of Credit hereunder for all
purposes issued on the Effective Date.
(b) Each Standby L/C and Commercial L/C issued hereunder shall, among
other things, (i) be in such form requested by the Company as shall be
acceptable to the Issuing Lender in its sole discretion and (ii) in the case of
each Standby L/C, have an expiry date occurring not
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31
later than 365 days after the date of issuance of such Standby L/C and, in the
case of each Commercial L/C, have an expiry date occurring not later than 120
days after the date of issuance of such Commercial L/C and, in all cases, have
an expiry date occurring not later than the Revolving Credit Termination Date.
Each L/C Application and each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
3.6 PARTICIPATING INTERESTS. (a) Effective as of the Effective Date,
the Issuing Lender hereby repurchases from each Existing Lender, and each
Existing Lender sells to the Issuing Lender, its L/C Participating Interest in
each existing Letter of Credit listed on Schedule 3.5(a).
(b) Effective in the case of each Standby L/C and Commercial L/C as of
the date of the opening thereof (or, in the case of each existing Letter of
Credit listed on Schedule 3.5(a), the Effective Date), the Issuing Lender agrees
to allot and does allot, to itself and each other Lender, and each Lender
severally and irrevocably agrees to take and does take in such Letter of Credit
and the related L/C Application, an L/C Participating Interest in a percentage
equal to such Lender's Revolving Credit Commitment Percentage.
3.7 PROCEDURE FOR OPENING LETTERS OF CREDIT. The Issuing Lender will
notify each Lender after the end of each calendar month of any L/C Applications
received by the Issuing Lender from the Company during such month. Upon receipt
of any L/C Application from the Company, the Issuing Lender will process such
L/C Application, and the other certificates, documents and other papers
delivered to the Issuing Lender in connection therewith, in accordance with its
customary procedures and, subject to the terms and conditions hereof, shall
promptly open such Letter of Credit by issuing the original of such Letter of
Credit to the beneficiary thereof and by furnishing a copy thereof to the
Company and, after the end of the calendar month in which such Letter of Credit
was opened, to the other Lenders, PROVIDED that no such Letter of Credit shall
be issued if subsection 3.1 would be violated thereby.
3.8 PAYMENTS IN RESPECT OF LETTERS OF CREDIT. (a) The Company agrees
forthwith upon demand by the Issuing Lender and otherwise in accordance with the
terms of the L/C Application relating thereto (i) to reimburse the Issuing
Lender for any payment made by the Issuing Lender under any Letter of Credit
issued for the account of the Company and (ii) to pay interest on any
unreimbursed portion of any such payment from the date of such payment until
reimbursement in full thereof at a rate per annum equal to (A) on or prior to
the date which is one Business Day after the day on which the Issuing Lender
demands reimbursement from the Company for such payment, 1-1/4% above the
Alternate Base Rate and (B) thereafter, 3-1/4% above the Alternate Base Rate.
(b) In the event that the Issuing Lender makes a payment under any
Letter of Credit and is not reimbursed in full therefor forthwith upon demand of
the Issuing Lender, and otherwise in accordance with the terms of the L/C
Application relating to such Letter of Credit, the Issuing Lender will promptly
notify each other Lender. Forthwith upon its receipt of any such notice, each
other Lender will transfer to the Issuing Lender, in immediately available
funds, an amount equal to such other Lender's PRO RATA share of the L/C
Obligation arising from such unreimbursed payment. Promptly, upon its receipt
from such other Lender of such amount, the
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Issuing Lender will complete, execute and deliver to such other Lender an L/C
Participation Certificate dated the date of such receipt and in such amount.
(c) Whenever, at any time after the Issuing Lender has made a payment
under any Letter of Credit and has received from any other Lender such other
Lender's PRO RATA share of the L/C Obligation arising therefrom, the Issuing
Lender receives any reimbursement on account of such L/C Obligation or any
payment of interest on account thereof, the Issuing Lender will promptly
distribute to such other Lender its PRO RATA share thereof in like funds as
received; PROVIDED, HOWEVER, that in the event that the receipt by the Issuing
Lender of such reimbursement or such payment of interest (as the case may be) is
required to be returned, such other Lender will return to the Issuing Lender any
portion thereof previously distributed by the Issuing Lender to it in like funds
as such reimbursement or payment is required to be returned by the Issuing
Lender.
3.9 LETTER OF CREDIT FEES. (a) In lieu of any letter of credit
commissions and fees provided for in any L/C Application relating to Commercial
L/Cs or Standby L/Cs (other than standard issuance, amendment and negotiation
fees), the Company agrees to pay the Administrative Agent, for the account of
the Issuing Lender and the Participating Lenders, with respect to each
Commercial L/C or each Standby L/C issued for the account of the Company, a
Commercial L/C fee or Standby L/C fee, as applicable, which is equal to the then
applicable margin for Eurodollar loans that are Revolving Credit Loans, as set
forth in the definition of "Applicable Margin", on the daily average amount
available to be drawn under each Standby L/C payable, in arrears, on the last
day of each fiscal quarter of the Company. Of such fee, the Issuing Lender
shall receive, for its own account, a fee of .25% per annum. The Administrative
Agent will disburse any L/C fees received pursuant to this subsection 3.9(a) to
the respective Lenders promptly following the receipt of any such fees.
(b) For purposes of any payment of fees required pursuant to this
subsection 3.9, the Administrative Agent agrees to provide to the Company a
statement of any such fees to be so paid; PROVIDED that the failure by the
Administrative Agent to provide the Company with any such invoice shall not
relieve the Company of its obligation to pay such fees.
3.10 LETTER OF CREDIT RESERVES. (a) If any Change in Law shall either
(i) impose, modify, deem or make applicable any reserve, special deposit,
assessment or similar requirement against letters of credit issued by the
Issuing Lender or (ii) impose on the Issuing Lender any other condition
regarding this Agreement (with respect to Letters of Credit) or any Letter of
Credit, and the result of any event referred to in clause (i) or (ii) above
shall be to increase the cost of the Issuing Lender of issuing or maintaining
any Letter of Credit (which increase in cost shall be the result of the Issuing
Lender's reasonable allocation of the aggregate of such cost increases resulting
from such events), then, upon demand by the Issuing Lender, the Company shall
immediately pay to the Issuing Lender, from time to time as specified by the
Issuing Lender, additional amounts which shall be sufficient to compensate the
Issuing Lender for such increased cost, together with interest on each such
amount from the date demanded until payment in full thereof at a rate per annum
equal to the rate applicable to Alternate Base Rate Loans pursuant to subsection
4.5(b). The Company shall not be required to make any payments to the Issuing
Lender for any additional amounts pursuant to this subsection 3.10(a) unless the
Issuing Lender has given written notice to the Company of its intent to request
such payments prior to or within 60 days after the date on which the Issuing
Lender became entitled to claim such
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33
amounts. A certificate, setting forth in reasonable detail the calculation of
the amounts involved, submitted by the Issuing Lender to the Company
concurrently with any such demand by the Issuing Lender, shall be conclusive,
absent manifest error, as to the amount thereof.
(b) In the event that any Change in Law with respect to the Issuing
Lender shall, in the opinion of the Issuing Lender, require that any obligation
under any Letter of Credit be treated as an asset or otherwise be included for
purposes of calculating the appropriate amount of capital to be maintained by
the Issuing Lender or any corporation controlling the Issuing Lender, and such
Change in Law shall have the effect of reducing the rate of return on the
Issuing Lender's or such corporation's capital, as the case may be, as a
consequence of the Issuing Lender's obligations under such Letter of Credit to a
level below that which the Issuing Lender or such corporation, as the case may
be, could have achieved but for such Change in Law (taking into account the
Issuing Lender's or such corporation's policies, as the case may be, with
respect to capital adequacy) by an amount deemed by the Issuing Lender to be
material, then from time to time following notice by the Issuing Lender to the
Company of such Change in Law, within 15 days after demand by the Issuing
Lender, the Company shall pay to the Issuing Lender such additional amount or
amounts as will compensate the Issuing Lender or such corporation, as the case
may be, for such reduction. The Issuing Lender agrees that, upon the occurrence
of any event giving rise to the operation of paragraph (a) or (b) of this
subsection 3.10 with respect to the Issuing Lender, it will, if requested by the
Company and to the extent permitted by law or by the relevant Governmental
Authority, endeavor in good faith to avoid or minimize the increase in costs or
reduction in payments resulting from such event; PROVIDED, HOWEVER, that such
avoidance or minimization can be made in such a manner that the Issuing Lender,
in its sole determination, suffers no economic, legal or regulatory
disadvantage. The Company shall not be required to make any payments to the
Issuing Lender for any additional amounts pursuant to this subsection 3.10(b)
unless the Issuing Lender has given written notice to the Company of its intent
to request such payments prior to or within 60 days after the date on which the
Issuing Lender became entitled to claim such amounts. A certificate, in
reasonable detail setting forth the calculation of the amounts involved,
submitted by the Issuing Lender to the Company concurrently with any such demand
by the Issuing Lender, shall be conclusive, absent manifest error, as to the
amount thereof.
(c) The Company and each Participating Lender agrees that the
provisions of the foregoing paragraphs (a) and (b) shall apply equally to each
Participating Lender in respect of its L/C Participating Interest in such Letter
of Credit, as if the references in such paragraphs and provisions referred to,
where applicable, such Participating Lender or, in the case of paragraph (b),
any corporation controlling such Participating Lender.
3.11 FURTHER ASSURANCES. The Company hereby agrees, from time to
time, to do and perform any and all acts and to execute any and all further
instruments reasonably requested by the Issuing Lender more fully to effect the
purposes of this Agreement and the issuance of Letters of Credit hereunder.
3.12 OBLIGATIONS ABSOLUTE. The payment obligations of the Company
under this Agreement with respect to the Letters of Credit shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances, including, without limitation,
the following circumstances:
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34
(i) the existence of any claim, set-off, defense or other right which
the Company or any of its Subsidiaries may have at any time against any
beneficiary, or any transferee, of any Letter of Credit (or any Persons for
whom any such beneficiary or any such transferee may be acting), the
Issuing Lender, the Administrative Agent, the Collateral Agent or any
Lender, or any other Person, whether in connection with this Agreement, any
Credit Document, the transactions contemplated herein, or any unrelated
transaction;
(ii) any statement or any other document presented under any Letter of
Credit proving to be forged, fraudulent or invalid or any statement therein
being untrue or inaccurate in any respect;
(iii) payment by the Issuing Lender under any Letter of Credit against
presentation of a draft or certificate or other document which does not
comply with the terms of such Letter of Credit or is insufficient in any
respect, except where such payment constitutes gross negligence or willful
misconduct on the part of the Issuing Lender; or
(iv) any other circumstances or happening whatsoever, whether or not
similar to any of the foregoing, except for any such circumstances or
happening constituting gross negligence or willful misconduct on the part
of the Issuing Lender.
3.13 ASSIGNMENTS. No Participating Lender's participation in any
Letter of Credit or any of its rights or duties hereunder shall be subdivided,
assigned or transferred (other than in connection with a transfer of part or all
of such Participating Lender's Revolving Credit Commitment in accordance with
subsection 11.6(c)) without the prior written consent of the Issuing Lender,
which consent will not be unreasonably withheld. Such consent may be given or
withheld without the consent or agreement of any other Participating Lender.
Notwithstanding the foregoing, a Participating Lender may subparticipate its L/C
Participating Interest without obtaining the prior consent or agreement of the
Issuing Lender.
3.14 PARTICIPATIONS. Each Lender's obligation to purchase
participating interests pursuant to subsection 3.6 shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any set-off, counterclaim, recoupment, defense or other right
which such Lender may have against the Issuing Lender, the Company or any other
Person for any reason whatsoever; (ii) the occurrence or continuance of an Event
of Default; (iii) any adverse change in the condition (financial or otherwise)
of the Company; (iv) any breach of this Agreement by the Company or any other
Lender; or (v) any other circumstance, happening or event whatsoever, whether or
not similar to any of the foregoing.
SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS
4.1 PROCEDURE FOR BORROWING. (a) The Company may borrow under the
Revolving Credit Commitments on any Business Day, PROVIDED that, with respect to
any borrowing, the Company shall give the Administrative Agent irrevocable
notice (which notice must be received by the Administrative Agent prior to 12:00
noon (or, with respect to Swing Line Loans, 3:00 p.m.), New York City time), (i)
three Business Days prior to the requested Borrowing Date if all or any part of
the Loans are to be Eurodollar Loans and (ii) one Business
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35
Day prior to the requested Borrowing Date (or, in the case of Swing Line
Loans and, if the Effective Date occurs on the date this Agreement is
executed and delivered, Loans made on the Effective Date, on the requested
Borrowing Date) if the borrowing is to be solely of Alternate Base Rate
Loans) and specifying (A) the amount of the borrowing, (B) whether such Loans
are initially to be Eurodollar Loans or Alternate Base Rate Loans or a
combination thereof, (C) if the borrowing is to be entirely or partly
Eurodollar Loans, the length of the Interest Period for such Eurodollar Loans
and (D) whether the Loan is a Term Loan, a Swing Line Loan or a Revolving
Credit Loan. Upon receipt of such notice the Administrative Agent shall
promptly notify each Lender. Not later than 12:00 noon, New York City time,
on the Borrowing Date specified in such notice, each Lender shall make
available to the Administrative Agent at the office of the Administrative
Agent specified in subsection 11.2 (or at such other location as the
Administrative Agent may direct) an amount in immediately available funds
equal to the amount of the Loan to be made by such Lender (except that
proceeds of Swing Line Loans will be made available to the Company in
accordance with subsection 3.4(a)). Loan proceeds received by the
Administrative Agent hereunder shall promptly be made available to the
Company by the Administrative Agent's crediting the account of the Company,
at the office of the Administrative Agent specified in subsection 11.2, with
the aggregate amount actually received by the Administrative Agent from the
Lenders and in like funds as received by the Administrative Agent.
(b) Any borrowing of Eurodollar Loans hereunder shall be in such
amounts and be made pursuant to such elections so that, after giving effect
thereto, (i) the aggregate principal amount of all Eurodollar Loans having the
same Interest Period shall not be less than $2,000,000 or a whole multiple of
$1,000,000 in excess thereof and (ii) no more than sixteen Interest Periods
shall be in effect at any one time.
4.2 CONVERSION AND CONTINUATION OPTIONS. (a) The Company may elect
from time to time to convert Eurodollar Loans into Alternate Base Rate Loans by
giving the Administrative Agent irrevocable notice of such election, to be
received by the Administrative Agent prior to 12:00 noon, New York City time, at
least three Business Days prior to the proposed conversion date, PROVIDED that
any such conversion of Eurodollar Loans shall only be made on the last day of an
Interest Period with respect thereto. The Company may elect from time to time
to convert all or a portion of the Alternate Base Rate Loans (other than Swing
Line Loans) then outstanding to Eurodollar Loans by giving the Administrative
Agent irrevocable notice of such election, to be received by the Administrative
Agent prior to 12:00 noon, New York City time, at least three Business Days
prior to the proposed conversion date, specifying the Interest Period selected
therefor, and, if no Default or Event of Default has occurred and is continuing,
such conversion shall be made on the requested conversion date or, if such
requested conversion date is not a Business Day, on the next succeeding Business
Day. Upon receipt of any notice pursuant to this subsection 4.2, the
Administrative Agent shall promptly notify each Lender thereof. All or any part
of the outstanding Loans (other than Swing Line Loans) may be converted as
provided herein, PROVIDED that partial conversions of Alternate Base Loans shall
be in the aggregate principal amount of $1,000,000 or a whole multiple of
$100,000 in excess thereof and the aggregate principal amount of the resulting
Eurodollar Loans outstanding in respect of any one Interest Period shall be at
least $2,000,000 or a whole multiple of $1,000,000 in excess thereof.
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36
(b) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Company giving
notice to the Administrative Agent, in accordance with the applicable provisions
of the term "Interest Period" set forth in subsection 1.1, of the length of the
next Interest Period to be applicable to such Loans, PROVIDED that no Eurodollar
Loan may be continued as such (i) when any Event of Default has occurred and is
continuing and the Administrative Agent or the Required Lenders have, by written
notice to the Company, determined that such a continuation is not appropriate,
(ii) if, after giving effect thereto, subsection 4.1(b) would be contravened or
(iii) after the date that is one month prior to the Revolving Credit Termination
Date (in the case of continuations of Revolving Credit Loans) or the date of the
final installment of principal of the Term Loans, as applicable.
4.3 CHANGES OF COMMITMENT AMOUNTS. (a) The Company shall have the
right, upon not less than five Business Days' notice to the Administrative
Agent, to terminate or, from time to time, permanently reduce the Revolving
Credit Commitments, subject to the provisions of this subsection 4.3. To the
extent, if any, that the sum of the amount of the Revolving Credit Loans, Swing
Line Loans and L/C Obligations then outstanding and the amounts available to be
drawn under outstanding Letters of Credit exceeds the amount of the Revolving
Credit Commitments as then reduced, the Company shall be required to make a
prepayment equal to such excess amount, the proceeds of which shall be applied
FIRST, to payment of the Swing Line Loans then outstanding, SECOND, to payment
of the Revolving Credit Loans then outstanding, THIRD, to payment of any L/C
Obligations then outstanding, and FOURTH, to cash collateralize any outstanding
Letters of Credit on terms reasonably satisfactory to the Administrative Agent.
Any such termination of the Revolving Credit Commitments shall be accompanied by
prepayment in full of the Revolving Credit Loans, Swing Line Loans and L/C
Obligations then outstanding and by cash collateralization of any outstanding
Letters of Credit on terms reasonably satisfactory to the Administrative Agent.
Upon termination of the Revolving Credit Commitments, any Letter of Credit then
outstanding which has been so cash collateralized shall no longer be considered
a "Letter of Credit" as defined in subsection 1.1 and any L/C Participating
Interests heretofore granted by the Issuing Lender to the Lenders in such Letter
of Credit shall be deemed terminated (subject to automatic reinstatement in the
event that such cash collateral is returned and the Issuing Lender is not fully
reimbursed for any such L/C Obligations) but the Letter of Credit fees payable
under subsection 3.9 shall continue to accrue to the Issuing Lender and the
Participating Lenders (or, in the event of any such automatic reinstatement, as
provided in subsection 3.9) with respect to such Letter of Credit until the
expiry thereof.
(b) In the case of termination of the Revolving Credit Commitments,
interest accrued on the amount of any prepayment relating thereto and any unpaid
commitment fee accrued hereunder shall be made on the date of such termination.
Any such partial reduction of the Revolving Credit Commitments shall be in an
amount of $2,000,000, or a whole multiple of $1,000,000 in excess thereof, and
shall, in each case, reduce permanently the amount of the Revolving Credit
Commitments then in effect.
4.4 OPTIONAL AND MANDATORY PREPAYMENTS; REPAYMENTS OF TERM LOANS. (a)
The Company may at any time and from time to time prepay Loans, in whole or in
part, without premium or penalty, upon at least two Business Days' (or, in the
case of Swing Line Loans, by 12:00 noon, New York City time, on the same
Business Day) irrevocable notice to the Administrative Agent in the case of
Alternate Base Rate Loans, and three Business Days' irrevocable notice to the
Administrative Agent in the case of Eurodollar Loans, specifying the
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37
date and amount of prepayment and whether the prepayment is of Revolving
Credit Loans or Term Loans, PROVIDED that Eurodollar Loans may not be
optionally prepaid on other than the last day of any Interest Period with
respect thereto. Upon receipt of such notice the Administrative Agent shall
promptly notify each Lender thereof. If such notice is given, the Company
shall make such prepayment, and the payment amount specified in such notice
shall be due and payable, on the date specified therein. Partial prepayments
(i) of Term Loans shall be in an aggregate principal amount equal to the
lesser of (A) $2,000,000, or a whole multiple of $1,000,000 in excess thereof
and (B) the aggregate unpaid principal amount of the Term Loans and (ii) of
Revolving Credit Loans shall be in an aggregate principal amount equal to the
lesser of (A) $2,000,000 or a whole multiple of $1,000,000 in excess thereof
and (B) the aggregate unpaid principal amount of the Revolving Credit Loans,
as the case may be. Prepayments of the Term Loans pursuant to this
subsection 4.4(a) shall be applied to the remaining installments thereof
ratably according to the amounts of such installments.
(b)(i) If, subsequent to the Effective Date, unless the Section 4.4
Lenders and the Company shall otherwise agree, the Company or any of its
Subsidiaries shall incur or permit the incurrence of any Indebtedness (other
than Indebtedness permitted pursuant to subsection 8.1), 100% of the Net
Proceeds thereof shall be promptly applied toward the prepayment of the Loans
and reduction of the Commitments as set forth in clause (iv)(A) of this
subsection 4.4(b).
(ii) If, subsequent to the Effective Date, unless the Section 4.4
Lenders shall otherwise agree, the Company or any of its Subsidiaries shall
receive Net Proceeds from any Asset Sale, such Net Proceeds shall be promptly
applied toward the prepayment of the Loans and reduction of the Commitments as
set forth in clause (iv)(A), of this subsection 4.4(b); PROVIDED that such Net
Proceeds need not be applied to the prepayment of the Loans and the reduction of
the Commitments until the earlier of the date that the aggregate amount of Net
Proceeds received by the Company or any of its Subsidiaries from any Asset Sales
exceeds $2,000,000 (and has not yet been applied to the prepayment of the Loans
and the reduction of the Commitments hereunder) and the date which is six months
after the last application of Net Proceeds pursuant to this subsection
4.4(b)(ii).
(iii) Unless the Section 4.4 Lenders and the Company shall otherwise
agree, if for any fiscal year, commencing with its fiscal year ending on
December 31, 1996, there shall be Excess Cash Flow for such fiscal year, 50% of
such Excess Cash Flow shall be applied toward prepayment of the Loans and
reduction of the Commitments as set forth in clause (iv)(A) of this subsection
4.4(b). Each such prepayment shall be made on or before the date that the
consolidated financial statements referred to in subsection 7.1(a) are
delivered, but in no event later than the date by which such statements are
required to be delivered pursuant to such subsection.
(iv)(A) Except as otherwise provided in this subsection 4.4(b)(iv),
prepayments made pursuant to this subsection 4.4(b) shall be applied by the
Company, FIRST, to the prepayment of the Term Loans (applied to the
remaining installments thereof ratably according to the amounts thereof)
and, SECOND, to reduce the Revolving Credit Commitments. Any such
reduction of the Revolving Credit Commitments shall be accompanied by
prepayment of, FIRST, the Swing Line Loans, SECOND, the Revolving Credit
Loans and, THIRD, the L/C Obligations to the extent, if any, that the sum
of the aggregate outstanding principal amount of Revolving Credit Loans,
the aggregate outstanding
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38
principal amount of all Swing Line Loans, the aggregate amount available to
be drawn under all outstanding Letters of Credit and the aggregate
outstanding amount of all L/C Obligations, in each case of all Lenders,
exceeds the amount of the aggregate Revolving Credit Commitments as so
reduced, PROVIDED that if the aggregate principal amount of Revolving
Credit Loans, Swing Line Loans and L/C Obligations then outstanding is less
than the amount of such excess (because Letters of Credit constitute a
portion thereof), the Company shall, to the extent of the balance of such
excess, replace outstanding Letters of Credit and/or deposit an amount in
cash in a cash collateral account established for the benefit of the
Lenders.
(B) Any Net Proceeds (other than Net Proceeds resulting from (x) the
incurrence of any Indebtedness by the Company or any of its Subsidiaries,
(y) the issuance by Holdings, the Company or any of its Subsidiaries of any
Capital Stock in the IPO or (z) any Asset Sale) shall be applied to the
remaining installments of the Term Loans ratably according to the amounts
thereof.
(v) If, at any time, a Borrowing Base Deficiency shall exist, the
Company shall immediately prepay the Revolving Credit Loans, Swing Line Loans
and L/C Obligations then outstanding in an aggregate principal amount sufficient
to eliminate such Borrowing Base Deficiency, PROVIDED that if the aggregate
principal amount of Revolving Credit Loans, Swing Line Loans and L/C Obligations
then outstanding is less than the amount of such Borrowing Base Deficiency
(because Letters of Credit constitute a portion thereof), the Company shall, to
the extent of the balance of such Borrowing Base Deficiency in excess of such
amount of Revolving Credit Loans, Swing Line Loans and L/C Obligations then
outstanding, immediately replace outstanding Letters of Credit and/or deposit an
amount in cash in a cash collateral account established for the benefit of the
Lenders. Prepayments of Loans made pursuant to this subsection 4.4(b)(v) shall
be applied, FIRST, to the aggregate outstanding Swing Line Loans, SECOND, to the
aggregate outstanding Revolving Credit Loans and, THIRD, to the aggregate
outstanding L/C Obligations.
(vi) If, at any time after June 30, 2000, a Borrowing Base Deficiency
shall exist, the Company shall immediately prepay the Revolving Credit Loans,
Swing Line Loans, L/C Obligations and Term Loans then outstanding in an
aggregate principal amount sufficient to eliminate such Borrowing Base
Deficiency, PROVIDED that if the aggregate principal amount of Revolving Credit
Loans, Swing Line Loans, L/C Obligations and Term Loans then outstanding is less
than the amount of such Borrowing Base Deficiency (because Letters of Credit
constitute a portion thereof), the Company shall, to the extent of the balance
of such Borrowing Base Deficiency in excess of such amount of Revolving Credit
Loans, Swing Line Loans, L/C Obligations and Term Loans then outstanding,
immediately replace outstanding Letters of Credit and/or deposit an amount in
cash in a cash collateral account established for the benefit of the Lenders.
Prepayments of Loans made pursuant to this subsection 4.4(b)(vi) shall be
applied, FIRST, to the aggregate outstanding Swing Line Loans, SECOND, to the
aggregate outstanding Revolving Credit Loans, THIRD, to the aggregate
outstanding L/C Obligations and, FOURTH, to the remaining installments of the
Term Loans ratably according to the amounts thereof.
(vii) The Company shall give the Administrative Agent (which shall
promptly notify each Lender) at least one Business Day's notice of each
prepayment or mandatory reduction pursuant to this subsection 4.4(b) setting
forth the date and amount thereof. Except as
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39
otherwise may be agreed by the Company and the Required Lenders, any prepayment
of Loans pursuant to this subsection 4.4 shall be applied, first, to any
Alternate Base Rate Loans then outstanding and the balance of such prepayment,
if any, to the Eurodollar Loans then outstanding; PROVIDED that prepayments of
Eurodollar Loans, if not on the last day of the Interest Period with respect
thereto, shall, at the Company's option, be prepaid subject to the provisions of
subsection 4.12 or the amount of such prepayment (after application to any
Alternate Base Rate Loans) shall be deposited with the Administrative Agent as
cash collateral for the Loans on terms reasonably satisfactory to the
Administrative Agent and thereafter shall be applied in the order of the
Interest Periods next ending most closely to the date such prepayment is
required to be made and on the last day of each such Interest Period. After
such application, unless an Event of Default shall have occurred and be
continuing, any remaining interest earned on such cash collateral shall be paid
to the Company.
(c) The Term Loans shall be repaid in twelve consecutive installments
each on the dates set forth below (each such day, an "INSTALLMENT PAYMENT DATE")
in an aggregate amount equal to the amount specified for each such Installment
Payment Date, as such amounts may be reduced pursuant to subsection 4.4(b):
INSTALLMENT PAYMENT DATE INSTALLMENT AMOUNT
December 31, 1996 $500,000
June 30, 1997 $500,000
December 31, 1997 $500,000
June 30, 1998 $1,000,000
December 31, 1998 $10,000,000
June 30, 1999 $10,500,000
December 31, 1999 $10,500,000
June 30, 2000 $12,500,000
December 31, 2000 $12,500,000
June 30, 2001 $15,000,000
December 31, 2001 $15,000,000
June 30, 2002 $17,500,000
December 31, 2002 $17,500,000
(d) Any and all amounts repaid on account of the Term Loans pursuant
to this subsection 4.4 or otherwise may not be reborrowed. Accrued interest on
the amount of any prepayments shall be paid on the Interest Payment Date next
succeeding the date of any partial prepayment and on the date on such prepayment
in the case of a prepayment in full of any Loans.
4.5 INTEREST RATES AND PAYMENT DATES. (a) Eurodollar Loans shall bear
interest for each day during each Interest Period applicable thereto, commencing
on (and including) the first day of such Interest Period to, but excluding, the
last day of such Interest Period, on the unpaid principal amount thereof at a
rate per annum equal to the Eurodollar Rate determined for such Interest Period
plus the Applicable Margin.
(b) Alternate Base Rate Loans shall bear interest for the period from
and including the date such Loans are made to, but excluding, the maturity date
thereof, or to, but excluding, the conversion date if such Loans are earlier
converted into Eurodollar Loans on the unpaid
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40
principal amount thereof at a rate per annum equal to the Alternate Base Rate
plus the Applicable Margin.
(c) If all or a portion of (i) the principal amount of any of the
Loans or (ii) any interest payable thereon shall not be paid when due (whether
at the stated maturity, by acceleration or otherwise) such Loan, if a Eurodollar
Loan, shall be converted into an Alternate Base Rate Loan at the end of the
then-current Interest Period for said Eurodollar Loan (which conversion shall
occur automatically and without need for compliance with the conditions for
conversion set forth in subsection 4.2), and any such overdue amount shall,
without limiting the rights of the Lenders under Section 9, bear interest (which
shall be payable on demand) at a rate per annum which is 2% above the Alternate
Base Rate plus the Applicable Margin (or, in the case of a Eurodollar Loan, the
Eurodollar Rate for the Interest Period plus the Applicable Margin plus 2%, if
higher) from the date of such non-payment until paid in full (as well after as
before judgment).
(d) Except as otherwise provided in subsection 4.5, interest shall be
payable in arrears on each Interest Payment Date.
4.6 COMPUTATION OF INTEREST AND FEES. (a) Interest in respect of
Alternate Base Rate Loans, at any time that the Alternate Base Rate is
determined by reference to the Prime Rate, and all fees hereunder shall be
calculated on the basis of a 365 (or 366 as the case may be) day year for the
actual days elapsed. Interest in respect of Eurodollar Loans and in respect of
Alternate Base Rate Loans, at any time that the Alternate Base Rate is
determined by reference to the Base CD Rate or the Federal Funds Effective Rate,
shall be calculated on the basis of a 360 day year for the actual days elapsed.
The Administrative Agent shall as soon as practicable notify the Company and the
Lenders of each determination of a Eurodollar Rate. Any change in the interest
rate on a Loan resulting from a change in the Alternate Base Rate or the
Eurocurrency Reserve Requirements shall become effective as of the opening of
business on the day on which such change in the Alternate Base Rate is announced
or such change in the Eurocurrency Reserve Requirements becomes effective, as
the case may be. The Administrative Agent shall as soon as practicable notify
the Company and the Lenders of the effective date and the amount of each such
change.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Company and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Company, deliver to the
Company a statement showing the quotations used by the Administrative Agent in
determining the Eurodollar Rate.
(c) If at any time any Reference Lender shall cease to be a Lender
hereunder, such Reference Lender shall cease to be a Reference Lender and, if as
a result of the foregoing, there shall only be one Reference Lender remaining,
then the Administrative Agent, upon agreement with the Company, shall, by notice
to the Company and the Lenders, designate another Lender as a Reference Lender
so that there shall at all times be at least two Reference Lenders.
(d) Each Reference Lender shall use its best efforts to furnish
quotations of rates to the Administrative Agent as contemplated hereby. If any
of the Reference Lenders shall be unable or otherwise fails to supply such rates
to the Administrative Agent upon its request,
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41
the rate of interest shall be determined on the basis of the quotations of the
remaining Reference Lenders or Reference Lender.
4.7 CERTAIN FEES. The Company agrees to pay to the Administrative
Agent, for its own account, a non-refundable agent's fee, in the amount per
annum as set forth in the fee letter, dated as of November 3, 1994, between
Chase and the Company payable in advance on the Closing Date and annually
thereafter.
4.8 INABILITY TO DETERMINE INTEREST RATE. In the event that the
Administrative Agent shall have determined (which determination shall be
conclusive and binding upon the Company) that (a) by reason of circumstances
affecting the interbank eurodollar market, adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate for any Interest Period with respect
to (i) proposed Loans that the Company has requested be made as Eurodollar
Loans, (ii) any Eurodollar Loans that will result from the requested conversion
of all or part of the Alternate Base Rate Loans into Eurodollar Loans or (iii)
the continuation of any Eurodollar Loan as such for an additional Interest
Period, or (b) dollar deposits in the relevant amount and for the relevant
period with respect to any such Eurodollar Loan are not generally available to
the Lenders in their respective Eurodollar Lending Offices' interbank eurodollar
markets, the Administrative Agent shall forthwith give telecopy notice of such
determination, confirmed in writing, to the Company and the Lenders at least one
day prior to, as the case may be, the requested Borrowing Date, the conversion
date or the last day of such Interest Period. If such notice is given (i) any
requested Eurodollar Loans shall be made as Alternate Base Rate Loans, (ii) any
Alternate Base Rate Loans that were to have been converted to Eurodollar Loans
shall be continued as Alternate Base Rate Loans, and (iii) any outstanding
Eurodollar Loans shall be converted, on the last day of the then current
Interest Period applicable thereto, into Alternate Base Rate Loans. Until such
notice has been withdrawn by the Administrative Agent, no further Eurodollar
Loans shall be made and no Alternate Base Rate Loans shall be converted to
Eurodollar Loans.
4.9 PRO RATA TREATMENT AND PAYMENTS. (a) Except to the extent
otherwise provided herein, each borrowing of Loans by the Company from the
Lenders and any reduction of the Commitments of the Lenders hereunder shall be
made PRO RATA according to the relevant Commitment Percentages of the Lenders
with respect to the Loans borrowed or the Commitments to be reduced.
(b) Whenever any payment received by the Administrative Agent under
this Agreement or any Note or any Credit Document is insufficient to pay in full
all amounts then due and payable to the Administrative Agent and the Lenders
under this Agreement:
(i) If the Administrative Agent has not received a Payment Sharing
Notice (or, if the Administrative Agent has received a Payment Sharing
Notice but the Event of Default specified in such Payment Sharing Notice
has been cured or waived in accordance with the provisions of this
Agreement), such payment shall be distributed by the Administrative Agent
and applied by the Administrative Agent and the Lenders in the following
order: FIRST, to the payment of fees and expenses due and payable to the
Administrative Agent and the Collateral Agent under and in connection with
this Agreement and the other Credit Documents; SECOND, to the payment of
all expenses due and payable under subsection 11.5, ratably among the
Lenders in accordance with the
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42
aggregate amount of such payments owed to each such Lender; THIRD, to the
payment of fees due and payable under subsections 3.2 and 3.9, ratably
among the Lenders in accordance with the Commitment Percentage of each
Lender of the Commitment for which such payment is owed and, in the case of
the Issuing Lender, the amount retained by the Issuing Lender for its own
account pursuant to subsection 3.9; FOURTH, to the payment of interest then
due and payable on the Loans and on the L/C Obligations, ratably in
accordance with the aggregate amount of interest owed to each such Lender;
and FIFTH, to the payment of the principal amount of the Loans and the L/C
Obligations which is then due and payable, ratably among the Lenders in
accordance with the aggregate principal amount owed to each such Lender; or
(ii) If the Administrative Agent has received a Payment Sharing Notice
which remains in effect, all payments received by the Administrative Agent
under this Agreement or any Note shall be distributed by the Administrative
Agent and applied by the Administrative Agent and the Lenders in the
following order: FIRST, to the payment of all amounts described in clauses
"FIRST" through "THIRD" of the foregoing clause (i), in the order set forth
therein; SECOND, to the payment of the interest accrued on all Loans and
L/C Obligations, regardless of whether any such amount is then due and
payable, ratably among the Lenders in accordance with the aggregate accrued
interest PLUS the aggregate principal amount owed to such Lender; and
THIRD, to the payment of the principal amount of all Loans and L/C
Obligations, regardless of whether any such amount is then due and payable,
ratably among the Lenders in accordance with the aggregate principal amount
owed to such Lender.
(c) If any Lender (a "NON-FUNDING LENDER") has (x) failed to make a
Revolving Credit Loan required to be made by it hereunder, and the
Administrative Agent has determined that such Lender is not likely to make such
Revolving Credit Loan or (y) given notice to the Company or the Administrative
Agent that it will not make, or that it has disaffirmed or repudiated any
obligation to make, any Revolving Credit Loan, in each case by reason of the
provisions of the Financial Institutions Reform, Recovery and Enforcement Act of
1989, as amended, or otherwise, (i) any payment made on account of the principal
of the Revolving Credit Loans outstanding shall be made as follows:
(A) in the case of any such payment made on any date when and to the
extent that, in the determination of the Administrative Agent, the Company
would be able, under the terms and conditions hereof, to reborrow the
amount of such payment under the Commitments and to satisfy any applicable
conditions precedent set forth in Section 6 to such reborrowing, such
payment shall be made on account of the outstanding Revolving Credit Loans
held by the Lenders other than the Non-Funding Lender PRO RATA according to
the respective outstanding principal amounts of the Revolving Credit Loans
of such Lenders; and
(B) otherwise, such payment shall be made on account of the
outstanding Revolving Credit Loans held by the Lenders PRO RATA according
to the respective outstanding principal amounts of such Revolving Credit
Loans; and
(ii) any payment made on account of interest on the Revolving Credit Loans shall
be made PRO RATA according to the respective amounts of accrued and unpaid
interest due and payable on the
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43
Revolving Credit Loans with respect to which such payment is being made. The
Company agrees to give the Administrative Agent such assistance in making any
determination pursuant to subparagraph (i)(A) of this paragraph as the
Administrative Agent may reasonably request. The Administrative Agent shall
notify the Lenders of any such determination, which shall be conclusive and
binding on the Lenders.
(d) All payments (including prepayments) to be made by the Company on
account of principal, interest and fees shall be made without set-off or
counterclaim and shall be made to the Administrative Agent, for the account of
the Lenders at the Administrative Agent's office located at 270 Park Avenue, New
York, New York 10017, in lawful money of the United States of America and in
immediately available funds. The Administrative Agent shall promptly distribute
such payments in accordance with the provisions of subsection 4.9(b) promptly
upon receipt in like funds as received. If any payment hereunder (other than
payments on Eurodollar Loans) would become due and payable on a day other than a
Business Day, such payment shall become due and payable on the next succeeding
Business Day and, with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension. If any payment on
a Eurodollar Loan becomes due and payable on a day other than a Business Day,
the maturity thereof shall be extended to the next succeeding Business Day (and
with respect to payments of principal, interest thereon shall be payable at the
then applicable rate during such extension), unless the result of such extension
would be to extend such payment into another calendar month in which event such
payment shall be made on the immediately preceding Business Day.
(e) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount which would constitute its Commitment Percentage of such borrowing
available to the Administrative Agent, the Administrative Agent may assume that
such Lender is making such amount available to the Administrative Agent in
accordance with subsection 4.1 and the Administrative Agent may, in reliance
upon such assumption, make available to the Company thereof a corresponding
amount. If such amount is not made available to the Administrative Agent by the
required time on the Borrowing Date therefor, such Lender shall pay to the
Administrative Agent, on demand, such amount with interest thereon at a rate
equal to the daily average Federal Funds Effective Rate for the period until
such Lender makes such amount immediately available to the Administrative Agent.
A certificate of the Administrative Agent submitted to any Lender with respect
to any amounts owing under this subsection 4.9(e) shall be conclusive, absent
manifest error. If such Lender's Commitment Percentage of such borrowing is not
in fact made available to the Administrative Agent by such Lender within three
Business Days of such Borrowing Date, the Administrative Agent shall also be
entitled to recover such amount with interest thereon at the rate per annum
applicable to Alternate Base Rate Loans hereunder, on demand, from the Company,
without prejudice to any rights which the Company or the Administrative Agent
may have against such Lender hereunder. Nothing contained in this subsection
4.9 shall relieve any Lender which has failed to make available its ratable
portion of any borrowing hereunder from its obligation to do so in accordance
with the terms hereof.
(f) The failure of any Lender to make the Loan to be made by it on any
Borrowing Date shall not relieve any other Lender of its obligation, if any,
hereunder to make its Loan on such Borrowing Date, but no Lender shall be
responsible for the failure of any other Lender to make the Loan to be made by
such other Lender on such Borrowing Date.
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44
(g) All payments and optional prepayments (other than prepayments as
set forth in subsection 4.11 with respect to increased costs) of Eurodollar
Loans hereunder shall be in such amounts and be made pursuant to such elections
so that, after giving effect thereto, the aggregate principal amount of all
Eurodollar Loans with the same Interest Period shall not be less than $2,000,000
or a whole multiple of $1,000,000 in excess thereof.
4.10 ILLEGALITY. Notwithstanding any other provision herein, if any
Change in Law occurring after the date that any lender becomes a Lender party to
this Agreement, shall make it unlawful for such Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, the commitment of such
Lender hereunder to make Eurodollar Loans or to convert all or a portion of
Alternate Base Rate Loans into Eurodollar Loans shall forthwith be suspended
until such time, if any, as such illegality shall no longer exist and such
Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to Alternate Base Rate Loans for the duration of the respective
Interest Periods (or, if permitted by applicable law, at the end of such
Interest Periods) and all payments of principal which would otherwise be applied
to such Eurodollar Loans shall be applied instead to such Lender's Alternate
Base Rate Loans. The Company hereby agrees to pay any Lender, promptly upon its
demand, any amounts payable pursuant to subsection 4.12 in connection with any
conversion in accordance with this subsection 4.10 (such Lender's notice of such
costs, as certified in reasonable detail as to such amounts to the Company
through the Administrative Agent, to be conclusive absent manifest error).
4.11 REQUIREMENTS OF LAW. (a) In the event that any Change in Law or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority
occurring after the Effective Date as to Lenders party hereto as of such date,
and otherwise after the date that any lender becomes a Lender party to this
Agreement:
(i) does or shall subject any such Lender or its Eurodollar Lending
Office to any tax of any kind whatsoever with respect to this Agreement,
any Note or any Eurodollar Loans made by it, or change the basis of
taxation of payments to such Lender or its Eurodollar Lending Office of
principal, the commitment fee, interest or any other amount payable
hereunder (except for (x) net income and franchise taxes imposed on the net
income of such Lender or its Eurodollar Lending Office by the jurisdiction
under the laws of which such Lender is organized or any political
subdivision or taxing authority thereof or therein, or by any jurisdiction
in which such Lender's Eurodollar Lending Office is located or any
political subdivision or taxing authority thereof or therein, including
changes in the rate of tax on the overall net income of such Lender or such
Eurodollar Lending Office, and (y) taxes resulting from the substitution of
any such system by another system of taxation, PROVIDED that the taxes
payable by Lenders subject to such other system of taxation are not
generally charged to borrowers from such Lenders having loans or advances
bearing interest at a rate similar to the Eurodollar Rate);
(ii) does or shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, or deposits or other liabilities in or for the account of, advances or
loans by, or other credit extended by, or any other acquisition of funds
by, any office of such Lender which are not otherwise included in the
determination of the Eurodollar Rate; or
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45
(iii) does or shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender or
its Eurodollar Lending Office of making, converting, renewing or maintaining
advances or extensions of credit or to reduce any amount receivable hereunder,
in each case, in respect of its Eurodollar Loans, then, in any such case, the
Company shall promptly pay such Lender, upon its demand, any additional amounts
necessary to compensate such Lender for such additional cost or reduced amount
receivable which such Lender deems to be material as determined by such Lender
with respect to such Eurodollar Loans, together with interest on each such
amount from the date demanded until payment in full thereof at a rate per annum
equal to the Alternate Base Rate plus 1%.
(b) In the event that any Change in Law occurring after the Effective
Date as to Lenders party hereto as of such date, and otherwise after the date
that any lender becomes a Lender party to this Agreement shall, with respect to
and in the opinion of such Lender, require that any Commitment of such Lender be
treated as an asset or otherwise be included for purposes of calculating the
appropriate amount of capital to be maintained by such Lender or any corporation
controlling such Lender, and such Change in Law shall have the effect of
reducing the rate of return on such Lender's or such corporation's capital, as
the case may be, as a consequence of such Lender's obligations hereunder to a
level below that which such Lender or such corporation, as the case may be,
could have achieved but for such Change in Law (taking into account such
Lender's or such corporation's policies, as the case may be, with respect to
capital adequacy) by an amount deemed by such Lender to be material, then from
time to time following notice by such Lender to the Company of such Change in
Law as provided in paragraph (c) of this subsection 4.11, within 15 days after
demand by such Lender, the Company shall pay to such Lender such additional
amount or amounts as will compensate such Lender or such corporation, as the
case may be, for such reduction.
(c) The Company shall not be required to make any payments to any
Lender for any additional amounts pursuant to this subsection 4.11 unless such
Lender has given written notice to the Company, through the Administrative
Agent, of its intent to request such payments prior to or within 60 days after
the date on which such Lender became entitled to claim such amounts. If any
Lender has notified the Company through the Administrative Agent of any
increased costs pursuant to paragraph (a) of this subsection 4.11, the Company
at any time thereafter may, upon at least three Business Days' notice to the
Administrative Agent (which shall promptly notify the Lenders thereof), and
subject to subsection 4.12, prepay (or convert into Alternate Base Rate Loans)
all (but not a part) of the Eurodollar Loans then outstanding. Each Lender
agrees that, upon the occurrence of any event giving rise to the operation of
paragraph (a) of this subsection 4.11 with respect to such Lender, it will, if
requested by the Company and to the extent permitted by law or by the relevant
Governmental Authority, endeavor in good faith to avoid or minimize the increase
in costs or reduction in payments resulting from such event (including, without
limitation, endeavoring to change its Eurodollar Lending Office); PROVIDED,
HOWEVER, that such avoidance or minimization can be made in such a manner that
such Lender, in its sole determination, suffers no economic, legal or regulatory
disadvantage. If any Lender requests compensation from the Company under this
subsection 4.11, the Company may, by notice to such Lender (with a copy to the
Administrative Agent), suspend the obligation of such Lender thereafter to make
or continue Loans of the Type with respect to which such compensation is
requested, or to convert Loans of any other Type into Loans of such Type, until
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46
the Requirement of Law giving rise to such request ceases to be in effect,
PROVIDED that such suspension shall not affect the right of such Lender to
receive the compensation so requested.
(d) Each Lender that is not a United States Person (as defined in
Section 7701(a)(30) of the Code) for federal income tax purposes either (1) in
the case of a Lender that is a "bank" within the meaning of Section 881(c)(3)(A)
of the Code, (i) represents to the Company (for the benefit of the Company and
the Administrative Agent) that under applicable law and treaties no taxes are
required to be withheld by the Company or the Administrative Agent with respect
to any payments to be made to such Lender in respect of the Loans or the L/C
Participating Interests, (ii) agrees to furnish to the Company, with a copy to
the Administrative Agent, either U.S. Internal Revenue Service Form 4224 or U.S.
Internal Revenue Service Form 1001 (wherein such Lender claims entitlement to
complete exemption from U.S. federal withholding tax on all interest payments
hereunder) and (iii) agrees (for the benefit of the Company and the
Administrative Agent), to the extent it may lawfully do so at such times, to
provide the Company, with a copy to the Administrative Agent, a new Form 4224 or
Form 1001 upon the expiration or obsolescence of any previously delivered form
and comparable statements in accordance with applicable U.S. laws and
regulations and amendments duly executed and completed by such Lender, and to
comply from time to time with all applicable U.S. laws and regulations with
regard to such withholding tax exemption or (2) in the case of a Lender that is
not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i)
represents to the Company (for the benefit of the Company and the Administrative
Agent) that it is not a bank within the meaning of Section 881(c)(3)(A) of the
Code, (ii) agrees to furnish to the Company, with a copy to the Administrative
Agent, (A) a certificate substantially in the form of Exhibit L hereto (any such
certificate, a "SUBSECTION 4.11(d)(2) CERTIFICATE") and (B) two accurate and
complete original signed copies of Internal Revenue Service Form W-8, certifying
to such Lender's legal entitlement at the Effective Date to an exemption from
U.S. withholding tax under the provisions of Section 881(c) of the Code with
respect to all payments to be made under this Agreement, and (iii) agrees, to
the extent legally entitled to do so, upon reasonable request by the Company, to
provide to the Company (for the benefit of the Company and the Administrative
Agent) such other forms as may be required in order to establish the legal
entitlement of such Lender to an exemption from withholding with respect to
payments under this Agreement. Notwithstanding any provision of this subsection
4.11 to the contrary, the Company shall have no obligation to pay any amount to
or for the account of any Lender (or the Eurodollar Lending Office of any
Lender) on account of any taxes pursuant to this subsection 4.11, to the extent
that such amount results from (i) the failure of any Lender to comply with its
obligations pursuant to this subsection 4.11, (ii) any representation or
warranty made or deemed to be made by any Lender pursuant to this subsection
4.11(d) proving to have been incorrect, false or misleading in any material
respect when so made or deemed to be made or (iii) any Change in Law or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority, the
effect of which would be to subject to any taxes any payment made pursuant to
this Agreement to any Lender making the representation and covenants set forth
in subsection 4.11(d)(2), which payment would not be subject to such taxes were
such Lender eligible to make and comply with, and actually made and complied
with, the representation and covenants set forth in subsection 4.11(d)(1)
hereinabove.
(e) A certificate in reasonable detail as to any amounts submitted by
such Lender, through the Administrative Agent, to the Company, shall be
conclusive in the absence of manifest
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47
error. The covenants contained in this subsection 4.11 shall survive the
termination of this Agreement and repayment of the Loans.
4.12 INDEMNITY. The Company agrees to indemnify each Lender and to
hold such Lender harmless from any loss or expense (but without duplication of
any amounts payable as default interest) which such Lender may sustain or incur
as a consequence of (a) default by the Company in payment of the principal
amount of or interest on any Eurodollar Loans of such Lender, including, but not
limited to, any such loss or expense arising from interest or fees payable by
such Lender to lenders of funds obtained by it in order to make or maintain its
Eurodollar Loans hereunder, (b) default by the Company in making a borrowing
after the Company has given a notice in accordance with subsection 4.1 or in
making a conversion of Alternate Base Rate Loans to Eurodollar Loans or in
continuing Eurodollar Loans as such, in either case, after the Company has given
notice in accordance with subsection 4.2, (c) default by the Company in making
any prepayment after the Company has given a notice in accordance with
subsection 4.4 or (d) a payment or prepayment of a Eurodollar Loan or conversion
(including without limitation, a conversion pursuant to subsection 4.10) of any
Eurodollar Loan into an Alternate Base Rate Loan, in either case on a day which
is not the last day of an Interest Period with respect thereto, including, but
not limited to, any such loss or expense arising from interest or fees payable
by such Lender to lenders of funds obtained by it in order to maintain its
Eurodollar Loans hereunder (but excluding loss of profit). This covenant shall
survive termination of this Agreement and repayment of the Loans.
4.13 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Company hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender (i) the then unpaid principal amount of each Revolving Credit Loan
of such Lender on the Revolving Credit Termination Date, (ii) the principal
amount of the Term Loan of such Lender, in twelve consecutive installments,
payable on each Installment Payment Date (or the then unpaid principal amount of
such Term Loan, or the date that the Term Loans become due and payable pursuant
to Section 9 and on the Maturity Date and (iii) the then unpaid principal amount
of the Swing Line Loans of the Swing Line Lender on the Revolving Credit
Termination Date. The Company hereby further agrees to pay interest on the
unpaid principal amount of the Loans from time to time outstanding from the date
hereof until payment in full thereof at the rates per annum, and on the dates,
set forth in subsection 4.5.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Company to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
subsection 11.6(d), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Revolving Credit Loan and Term Loan made
hereunder, the Type thereof and each Interest Period applicable thereto, (ii)
the amount of any principal or interest due and payable or to become due and
payable from the Company to each Lender hereunder and (iii) both the amount of
any sum received by the Administrative Agent hereunder from the Company and each
Lender's share thereof.
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48
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to subsection 4.13(b) shall, to the extent permitted by
applicable law, be PRIMA FACIE evidence of the existence and amounts of the
obligations of the Company therein recorded; PROVIDED, HOWEVER, that the failure
of any Lender or the Administrative Agent to maintain the Register or any such
account, or any error therein, shall not in any manner affect the obligation of
the Company to repay (with applicable interest) the Loans made to such Company
by such Lender in accordance with the terms of this Agreement.
(e) The Company agrees that, upon the request to the Administrative
Agent by any Lender, the Company will execute and deliver to such Lender (i) a
promissory note of the Company evidencing the Revolving Credit Loans of such
Lender, substantially in the form of Exhibit A with appropriate insertions as to
date and principal amount (a "REVOLVING CREDIT NOTE"), and/or (ii) a promissory
note of the Company evidencing the Term Loan of such Lender, substantially in
the form of Exhibit B with appropriate insertions as to date and principal
amount (a "TERM LOAN NOTE"), and/or (iii) in the case of the Swing Line Lender,
a promissory note of the Company evidencing the Swing Line Loans of the Swing
Line Lender, substantially in the form of Exhibit C with appropriate insertions
as to date and principal amount (the "SWING LINE NOTE ").
4.14 INTEREST RATE PROTECTION. Within 60 days of the Closing Date,
the Company shall have purchased or shall have entered into Interest Rate
Agreements or a series thereof in each case having an effective specified
maximum rate of interest and other terms and with parties satisfactory to the
Administrative Agent and the Managing Agents, jointly, providing to the Company
such effective specified maximum rate of interest on no less than $80,000,000 of
the aggregate principal amount of the Loans that will be outstanding from time
to time during the 24 month period following the date of acquisition of such
hedging agreements, and the Company agrees and confirms that the Company
Security Agreement grants to the Collateral Agent, for benefit of the Lenders, a
first priority perfected security interest (subject to Permitted Liens) in its
rights under such interest rate hedging arrangements. If any such Interest Rate
Agreement shall be entered into with a Hedge Lender, intercreditor arrangements
shall have been entered into between such Hedge Lender and the Administrative
Agent and Collateral Agent, satisfactory to the Administrative Agent and the
Collateral Agent, prior to such Hedge Lender obtaining any Lien on or rights in
any of the Collateral under the Security Agreements.
4.15 REPLACEMENT OF LENDERS. In the event any Lender or the Issuing
Lender exercises its rights pursuant to subsection 4.10 or requests payments
pursuant to subsections 3.10 or 4.11, the Company may require, at the Company's
expense and subject to subsection 4.12, such Lender or the Issuing Lender to
assign, at par plus accrued interest and fees, without recourse (in accordance
with subsection 11.6) all of its interests, rights and obligations hereunder
(including all of its Commitments and the Loans and other amounts at the time
owing to it hereunder and its Notes and its interest in the Letters of Credit)
to a bank, financial institution or other entity specified by the Company,
PROVIDED that (i) such assignment shall not conflict with or violate any law,
rule or regulation or order of any court or other Governmental Authority, (ii)
the Company shall have received the written consent of the Administrative Agent,
which consent shall not unreasonably be withheld, to such assignment, (iii) the
Company shall have paid to the assigning Lender or the Issuing Lender all monies
other than principal, interest and fees accrued and owing hereunder to it
(including pursuant to subsections 3.10, 4.10 and 4.11) and (iv) in the
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case of a required assignment by the Issuing Lender, the Letters of Credit shall
be canceled and returned to the Issuing Lender.
SECTION 5. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement and to
make the Loans and to induce the Issuing Lender to issue, and the Participating
Lenders to participate in, the Letters of Credit, the Company hereby represents
and warrants to each Lender and the Administrative Agent, as of the Effective
Date and as of the making of any extension of credit hereunder:
5.1 FINANCIAL CONDITION. (a) The consolidated balance sheet of the
Company and its consolidated Subsidiaries as at December 31, 1995 and the
related consolidated statement of operations for the fiscal year ended on such
date, audited by Coopers & Lybrand LLP, a copy of which has heretofore been
furnished to each Lender, present fairly in accordance with GAAP the
consolidated financial condition of the Company and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the fiscal year then ended. All such
financial statements have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by such
accountants and as disclosed therein). Neither the Company nor any of its
consolidated Subsidiaries had, at the date of the most recent balance sheet
referred to above, any material Contingent Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any material interest rate or foreign
currency swap or exchange transaction, which is not reflected in the foregoing
statements or in the notes thereto or expressly permitted to be incurred
hereunder.
(b) The unaudited consolidated balance sheets of the Company as at
June 30, 1996, certified by a Responsible Officer of the Company, copies of
which have heretofore been furnished to each Lender, present fairly in
accordance with GAAP the financial position of the Company and its consolidated
Subsidiaries as at such dates. Such balance sheets, including the related
schedules and notes thereto, have been prepared in accordance with GAAP (except
as approved by such Responsible Officer and disclosed therein). The Company and
its consolidated Subsidiaries did not have at the date of such balance sheets,
any material Contingent Obligation, contingent liability or liability for taxes,
or any long-term lease or unusual forward or long-term commitment, including,
without limitation, any interest rate or foreign currency exchange transaction,
which is not reflected in such balance sheets or in the notes thereto. During
the period from December 31, 1995 to the Effective Date, no dividends or other
distributions have been declared, paid or made upon the Capital Stock of the
Company or any of its consolidated Subsidiaries except as permitted under the
Existing Credit Agreement, nor has any of the Capital Stock of the Company or
any of its consolidated Subsidiaries been redeemed, retired, purchased or
otherwise acquired for value by the Company or any of its consolidated
Subsidiaries, respectively.
(c) The unaudited consolidated PRO FORMA balance sheet of the Company
and its consolidated Subsidiaries as at June 30, 1996, certified by a
Responsible Officer of the Company (the "PRO FORMA BALANCE SHEET"), a copy of
which has heretofore been furnished to each Lender, is the unaudited balance
sheet of the Company and its consolidated Subsidiaries, adjusted to give
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50
effect (as if such events had occurred on such date) to (i) the IPO, (ii) the
extension of the Loans and the issuance of the Letters of Credit to be incurred
or issued, as the case may be, on the Effective Date, (iii) the prepayment by
Holdings of indebtedness in the principal amount of $10,000,000 (plus a $350,000
redemption premium), (iv) the contribution by Holdings to the Company of
preferred stock, (v) the sale by the Company of one or more shares of the
Company's Capital Stock to Holdings, (vi) the redemption by the Company, from
the proceeds of the sale of its Capital Stock to Holdings, of approximately
$33,300,000 of the Company's outstanding 12.75% Subordinated Notes, due March 1,
2005, for $37,500,000 (including the redemption premium), and (vii) the
prepayment by the Company of a portion of the Revolving Credit Loans without
reducing the Commitments. The Pro Forma Balance Sheet, together with the notes
thereto, was prepared based on good faith assumptions in accordance with GAAP
and is based on the best information available to the Company and its
consolidated Subsidiaries as of the date of delivery thereof, and reflects on a
PRO FORMA basis the financial position of the Company and its consolidated
Subsidiaries as of September 30, 1996, as adjusted, as described above, assuming
that the events specified in the preceding sentence had actually occurred at
September 30, 1996.
5.2 NO CHANGE. Since June 30, 1996 (before and after giving effect to
the transactions described in subsection 5.1(c)) (a) there has been no change
and, (as of the Effective Date only) no development or event involving a
prospective change, which has had or could reasonably be expected to have a
material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries taken as
a whole and (b) no dividends or other distributions have been declared, paid or
made upon the Capital Stock of the Company nor has any of the Capital Stock of
the Company been redeemed, retired, repurchased or otherwise acquired for value
by the Company or any of its Subsidiaries, except as permitted by subsection
8.11.
5.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Company and
its Subsidiaries (a) is a corporation duly organized and validly existing under
the laws of the jurisdiction of its incorporation, (b) has full corporate power
and authority and possesses all governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to use its corporate name
and to own, lease or otherwise hold its properties and assets and to carry on
its business as presently conducted other than such franchises, licenses,
permits, authorizations and approvals the lack of which, individually or in the
aggregate, would not have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries, taken as a whole, (c) is duly qualified and in good standing
to do business in each jurisdiction in which the nature of its business or the
ownership, leasing or holding of its properties makes such qualification
necessary, except such jurisdictions where the failure so to qualify would not
have a material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole, and (d) except as disclosed in the Environmental Audit, is in
compliance with all applicable statutes, laws, ordinances, rules, orders,
permits and regulations of any governmental authority or instrumentality,
domestic or foreign (including, without limitation, those related to Hazardous
Materials and substances), except where noncompliance would not have a material
adverse effect on the business, assets, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, taken as a whole.
Except as disclosed in the Environmental Audit, none of the Company or any of
its Subsidiaries has received any written communication from a Governmental
Authority that alleges that the Company or any of its
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51
Subsidiaries is not in compliance, in all material respects, with all material
federal, state, local or foreign laws, ordinances, rules and regulations.
5.4 CORPORATE POWER; AUTHORIZATION. Each of the Company and its
Subsidiaries has the corporate power and authority to make, deliver and perform
each of the Credit Documents to which it is a party, and the Company has the
corporate power and authority and legal right to borrow hereunder and to have
Letters of Credit issued for its account hereunder. Each of the Company and its
Subsidiaries has taken all necessary corporate action to authorize the
execution, delivery and performance of each of the Credit Documents to which it
is or will be a party and the Company has taken all necessary corporate action
to authorize the borrowings hereunder and the issuance of Letters of Credit for
its account hereunder. No consent or authorization of, or filing with, any
Person (including, without limitation, any Governmental Authority) is required
in connection with the execution, delivery or performance by the Company or any
of its Subsidiaries, or for the validity or enforceability against the Company
or any of its Subsidiaries, of any Credit Document except for consents,
authorizations and filings which have been obtained or made and are in full
force and effect and except (i) such consents, authorizations and filings, the
failure to obtain or perform (x) which would not have a material adverse effect
on the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries taken as a whole and (y) which
would not adversely affect the validity or enforceability of any of the Credit
Documents or the rights or remedies of the Administrative Agent, the Collateral
Agent or the Lenders thereunder and (ii) such filings as are necessary to
perfect the Liens of the Lenders created pursuant to this Agreement and the
Security Documents.
5.5 ENFORCEABLE OBLIGATIONS. This Agreement and each of the other
Credit Documents have been duly executed and delivered on behalf of any Credit
Party that is party thereto. This Agreement and each of the other Credit
Documents constitute the legal, valid and binding obligation of such Credit
Party, and is enforceable against such Credit Party in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law).
5.6 NO LEGAL BAR. The execution, delivery and performance of each
Credit Document, the incurrence or issuance of and use of the proceeds of the
Loans and of drawings under the Letters of Credit and the Credit Documents (a)
will not violate any Requirement of Law or any Contractual Obligation applicable
to or binding upon the Company or any Subsidiary of the Company or any of their
respective properties or assets, in any manner which, individually or in the
aggregate, (i) would have a material adverse effect on the ability of the
Company or any such Subsidiary to perform its obligations under the Credit
Documents (ii) would give rise to any liability on the part of the
Administrative Agent, the Collateral Agent or any Lender or (iii) would have a
material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries taken as
a whole, and (b) will not result in the creation or imposition of any Lien on
any of its properties or assets pursuant to any Requirement of Law applicable to
it, as the case may be, or any of its Contractual Obligations, except for the
Liens arising under the Security Documents.
5.7 NO MATERIAL LITIGATION. No litigation by, investigation known to
the Company by, or proceeding of, any Governmental Authority is pending against
the Company or any of its
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52
Subsidiaries with respect to the validity, binding effect or enforceability of
any Credit Document, the Loans made hereunder, the use of proceeds thereof or of
any drawings under a Letter of Credit. No lawsuits, claims, proceedings or
investigations pending or, to the best knowledge of the Company, threatened as
of the Effective Date against or affecting the Company or any Subsidiary of the
Company or any of their respective properties, assets, operations or businesses,
in which there is a probability of an adverse determination, is reasonably
likely, if adversely decided, to have a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries taken as a whole.
5.8 INVESTMENT COMPANY ACT. Neither the Company nor any Subsidiary of
the Company is an "investment company" or a company "controlled" by an
"investment company" (as each of the quoted terms is defined or used in the
Investment Company Act of 1940, as amended).
5.9 FEDERAL REGULATION. No part of the proceeds of any of the Loans
or any drawing under a Letter of Credit will be used for any purpose which
violates the provisions of Regulation G, T, U or X of the Board. Neither the
Company nor any of its Subsidiaries is engaged or will engage, principally or as
one of its important activities, in the business of extending credit for the
purpose of "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under said Regulation U.
5.10 NO DEFAULT. The Company and each of its Subsidiaries have
performed all material obligations required to be performed by them under their
respective Contractual Obligations and they are not (with or without the lapse
of time or the giving of notice, or both) in breach or default in any respect
thereunder, except to the extent that such breach or default would not have a
material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries taken as
a whole. Neither the Company nor any of its Subsidiaries is in default under
any material judgment, order or decree of any Governmental Authority domestic or
foreign, applicable to it or any of its respective properties, assets,
operations or business, except to the extent that any such defaults would not,
in the aggregate, have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries taken as a whole.
5.11 TAXES. Each of the Company and its Subsidiaries has filed or
caused to be filed all material tax returns which, to the best knowledge of the
Company, are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than any the amount of which is
currently being contested in good faith by appropriate proceedings and with
respect to which reserves (or other sufficient provisions) in conformity with
GAAP have been provided on the books of the Company or its Subsidiaries, as the
case may be); no tax Lien has been filed, and, to the best knowledge of the
Company, no written claim is being asserted, with respect to any such taxes,
fees or other charges.
5.12 SUBSIDIARIES. As of the Effective Date, after giving effect to
the consummation of the IPO, the only Subsidiary of the Company is Prime
Equipment. As of the Effective Date, Prime Equipment is an inactive Subsidiary
and the aggregate value of its assets does not exceed $50,000.
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53
5.13 OWNERSHIP OF PROPERTY; LIENS. As of the Effective Date and as of
the making of any extension of credit hereunder (subject to transfers and
dispositions of property permitted under subsection 8.5) each of the Company and
its Subsidiaries has good and valid title to all of its material assets (other
than real property or interests in real property) in each case free and clear of
all mortgages, liens, security interests or encumbrances of any nature
whatsoever except Permitted Liens. With respect to real property or interests
in real property, as of the Effective Date, each of the Company and its
Subsidiaries has (i) fee title to all of the real property listed on Schedule
5.13 under the heading "Fee Properties" (each, a "FEE PROPERTY"), and (ii) good
and valid title to the leasehold estates in all of the real property leased by
it and listed on Schedule 5.13 under the heading "Leased Properties" (each, a
"LEASED PROPERTY"), in each case free and clear of all mortgages, liens,
security interests, easements, covenants, rights-of-way and other similar
restrictions of any nature whatsoever, except (A) Permitted Liens, (B) any
conditions that may be shown by a current, accurate survey or physical
inspection of any Fee Property or Leased Property, (C) as to Leased Property,
the terms and provisions of the respective lease therefor and any matters
affecting the fee title and any estate superior to the leasehold estate related
thereto, and (D) title defects, or leases or subleases granted to others, which
are not material to the Fee Properties or the Leased Properties, as the case may
be, taken as a whole. The Fee Properties and the Leased Properties constitute,
as of the Effective Date, all of the real property owned in fee or leased by the
Company and its Subsidiaries.
5.14 ERISA. The "amount of unfunded benefit liabilities" (within the
meaning of Section 4001(a)(18) of ERISA) of any Plan of the Company or any
Commonly Controlled Entity would not result in a material liability to the
Company if any or all such Plans were terminated. None of the Company, any
Subsidiary of the Company or any Commonly Controlled Entity would be liable for
any amount pursuant to Sections 4063, 4064 or 4069 of ERISA, if any Single
Employer Plan were to terminate. Neither the Company nor any Commonly
Controlled Entity has been involved in any transaction that would cause the
Company to be subject to material liability with respect to a Plan to which the
Company or any Commonly Controlled Entity contributed or was obligated to
contribute during the six-year period ending on the date this representation is
made or deemed made under Sections 4062, 4069 or 4212(c) of ERISA. Neither the
Company nor any Commonly Controlled Entity has incurred any material liability
under Title IV of ERISA which could become or remain a material liability of the
Company after the Closing Date and the consummation of the Acquisition. None of
the Company, any Subsidiary of the Company, or any director, officer or employee
thereof, or any of the Plans (to the best knowledge of the Company with respect
to any Multiemployer Plan), or any trust created thereunder, or any fiduciary
thereof, has engaged in a transaction or taken any other action or omitted to
take any action involving any Plan which could constitute a prohibited
transaction within the meaning of Section 406 of ERISA which is not otherwise
exempted and which would result in a material liability to the Company, or would
cause the Company to be subject to either a material liability or material civil
penalty assessed pursuant to Sections 409 or 502(i) or (l) of ERISA or a
material tax imposed pursuant to Sections 4975 or 4976 of the Code. Each of the
Plans (to the best knowledge of the Company with respect to any Multiemployer
Plan) has been operated and administered in all material respects in accordance
with applicable laws, including but not limited to ERISA and the Code. There
are no material pending or, to the best knowledge of the Company, threatened
claims by or on behalf of any of the Plans or any fiduciary, by any employee or
beneficiary covered under any such Plan, or otherwise involving any such Plan or
fiduciary for which the Company could have any material liability (other than
routine claims for benefits). No condition exists and no event has occurred
with respect to any Multiemployer Plan
<PAGE>
54
which presents a material risk of a complete or partial withdrawal under
Subtitle E of Title IV of ERISA for which the Company could have any material
liability, nor has the Company or any Commonly Controlled Entity been notified
that any such Multiemployer Plan is insolvent or in reorganization within the
meaning of Section 4241 of ERISA. Neither the Company nor any Commonly
Controlled Entity nor any Subsidiary has been a party to any transaction or
agreement to which the provisions of Section 4204 of ERISA were applicable (a
"4204 AGREEMENT"). None of the Company, or any Commonly Controlled Entity or
any of their respective Subsidiaries is obligated to contribute to a
Multiemployer Plan, on behalf of any current or former employee of the Company,
any Commonly Controlled Entity or such Subsidiary. The liability to which the
Company, any Commonly Controlled Entity or any of their respective Subsidiaries
would become subject under ERISA if all such Persons were to withdraw completely
from all Plans on the Closing Date (after giving effect to the Acquisition) is
not in excess of $2,000,000. None of the Plans or any trust established
thereunder has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of
the last day of the most recent fiscal year of each of the Plans. No
contribution failure has occurred with respect to any Plan sufficient to give
rise to a lien under Section 302(f) of ERISA.
5.15 COLLATERAL DOCUMENTS. (a) Each of the Pledge Agreements is
effective to create in favor of the Collateral Agent, for the ratable benefit of
the Lenders, a legal, valid and enforceable security interest in the pledged
stock described therein and, when stock certificates representing or
constituting the pledged stock described in each of the Pledge Agreements are
delivered to the Collateral Agent, such security interest shall, subject to the
existence of Permitted Liens, constitute a perfected first lien on, and security
interest in, all right, title and interest of the pledgor party thereto in the
pledged stock described therein.
(b) Each of the Security Agreements is effective to create in favor of
the Collateral Agent, for the ratable benefit of the Lenders, a legal, valid and
enforceable security interest in the collateral described therein and Uniform
Commercial Code financing statements have been filed in each of the
jurisdictions listed on Schedule 5.15(b), or arrangements have been made for
such filing in such jurisdictions, and upon such filing, and upon the taking of
possession by the Collateral Agent of any such collateral the security interests
in which may be perfected only by possession, such security interests will,
subject to the existence of Permitted Liens, constitute perfected first liens
on, and security interests in, all right, title and interest of the debtor party
thereto in the collateral described therein, except to the extent that a
security interest cannot be perfected therein by the filing of a financing
statement or the taking of possession under the Uniform Commercial Code of the
relevant jurisdiction.
(c) Each Mortgage is effective to create in favor of the Collateral
Agent, for the ratable benefit of the Lenders, a legal, valid and enforceable
security interest in the collateral described therein, and upon filing the
Mortgages in the jurisdictions listed on Schedule 5.13 (or, in the case of a
Mortgage delivered pursuant to subsection 7.9, the jurisdiction in which the
property covered by such Mortgage is located), such security interests will,
subject to the existence of Permitted Liens, constitute perfected first liens
on, and security interests in, all right, title and interest of the debtor party
thereto in the collateral described therein.
5.16 COPYRIGHTS, PERMITS, TRADEMARKS AND LICENSES. Schedule 5.16 sets
forth a true and complete list of all material trademarks (registered or
unregistered), trade names, service marks and copyrights and applications
therefor owned, used or filed by or licensed to the
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55
Company and its Subsidiaries and, with respect to registered trademarks (if
any), contains a list of all jurisdictions in which such trademarks are
registered or applied for and all registration and application numbers. Except
as disclosed on Schedule 5.16, the Company or a Subsidiary owns or has the right
to use, without payment to any other party, trademarks (registered or
unregistered), trade names, service marks, copyrights and applications therefor
referred to in such Schedule. To the best knowledge of the Company, no claims
are pending by any Person with respect to the ownership, validity,
enforceability or the Company's or any Subsidiary's use of any such trademarks
(registered or unregistered), trade names, service marks, copyrights, or
applications therefor, challenging or questioning the validity or effectiveness
of any of the foregoing, in any jurisdiction, domestic or foreign.
5.17 ENVIRONMENTAL MATTERS. (a) Except as set forth in the
Environmental Audit, to the best knowledge of the Company, the Mortgaged
Properties do not contain, and have not previously contained, in, on or under
including, without limitation, the soil and groundwater thereunder, any
Hazardous Materials in amounts or concentrations that constitute or constituted
a material violation of, or could reasonably give rise to material liability
under, Environmental Laws.
(b) Except as set forth in the Environmental Audit, to the best
knowledge of the Company, the Mortgaged Properties and all operations and
facilities at the Mortgaged Properties are in material compliance with all
Environmental Laws, and there is no contamination or violation of any
Environmental Law which could materially interfere with the continued operation
of, or materially impair the fair saleable value of, the Mortgaged Property.
(c) Except as set forth in the Environmental Audit, to the best
knowledge of the Company, neither the Company nor any of its Subsidiaries has
received or is aware of any complaint, notice of violation, alleged violation,
or notice of investigation or of potential liability under Environmental Laws
with regard to the Mortgaged Properties or the operations of the Company or its
Subsidiaries, nor does the Company or any of its Subsidiaries have knowledge
that any such action is being contemplated, considered or threatened.
(d) Except as set forth in the Environmental Audit, to the best
knowledge of the Company, Hazardous Materials have not been generated, treated,
stored, disposed of, at, on or under the Mortgaged Property, nor have any
Hazardous Materials been transported from the Mortgaged Property, in material
violation of or in a manner that could reasonably give rise to material
liability under any Environmental Laws.
(e) Except as set forth in the Environmental Audit, there are no
governmental administrative actions or judicial proceedings pending or, to the
best knowledge of the Company and its Subsidiaries, threatened, under any
Environmental Law to which the Company or any of its Subsidiaries is a party
with respect to the Mortgaged Property, nor are there any consent decrees or
other decrees, consent orders, administrative orders or other orders, or other
administrative or judicial requirements, other than permits authorizing
operations at facilities at the Mortgaged Property, outstanding under any
Environmental Law with respect to the Mortgaged Property.
(f) Each of the representations and warranties set forth in subsection
5.17(a) through (e) is true and correct with respect to each parcel of real
property owned or operated by
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56
the Company or any of its Subsidiaries (other than the Mortgaged Properties),
except to the extent that the facts and circumstances giving rise to any such
failure to be so true and correct would not have any reasonable likelihood of
having a material adverse effect on the business, assets, condition (financial
or otherwise) or results of operations of the Company and its Subsidiaries taken
as a whole.
5.18 ACCURACY AND COMPLETENESS OF INFORMATION. The factual statements
contained in the financial statements referred to in subsection 5.1(a), the
Credit Documents and any other certificates or documents furnished or to be
furnished to the Administrative Agent, the Collateral Agent or the Lenders from
time to time in connection with this Agreement, taken as a whole, do not and
will not, to the best knowledge of the Company, as of the date when made,
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading in
light of the circumstances in which the same were made, all except as otherwise
qualified herein or therein, such knowledge qualification being given only with
respect to factual statements made by Persons other than the Company or any of
its Subsidiaries.
SECTION 6. CONDITIONS PRECEDENT
6.1 CONDITIONS TO INITIAL LOANS AND LETTERS OF CREDIT. The obligation
of each Lender to make its Loans and the obligation of the Issuing Lender to
issue any Letter of Credit on the Effective Date are subject to the
satisfaction, or waiver by such Lender, of the following conditions on or prior
to November 29, 1996 (the date on which such conditions are so satisfied or
waived, the "EFFECTIVE DATE"):
(a) AGREEMENT; NOTES. The Administrative Agent shall have received
(w) a counterpart of this Agreement for each Lender duly executed and
delivered by a duly authorized officer of the Company, (x) for the account
of each Revolving Credit Lender requesting the same pursuant to subsection
4.13, a Revolving Credit Note of the Company conforming to the requirements
hereof and executed by a duly authorized officer of the Company, (y) for
the account of each Lender holding a Term Loan and requesting the same
pursuant to subsection 4.13, a Term Loan Note of the Company conforming to
the requirements hereof and executed by a duly authorized officer of the
Company, and (z) for the account of Chase, a Swing Line Note, conforming to
the requirements hereof and executed by a duly authorized officer of the
Company.
(b) IPO. The IPO shall have been consummated for aggregate gross
proceeds to Holdings of at least $150,000,000, of which at least
$80,000,000 shall be applied to prepay the Revolving Credit Loans in
accordance with subsection 4.4(b)(iv)(A) without permanently reducing such
Revolving Credit Commitments.
(c) FEES. The Administrative Agent, the Collateral Agent and the
Lenders shall have received all fees, expenses and other consideration
required to be paid or delivered and presented for payment on or before the
Effective Date.
(d) LEGAL OPINIONS. The Administrative Agent shall have received,
dated the Effective Date and addressed to the Administrative Agent, the
Collateral Agent and the
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57
Lenders, an opinion of Gibson, Dunn & Crutcher LLP, counsel to Holdings and
the Company, in substantially the form of Exhibit K-2 with such changes
thereto as may be approved by the Administrative Agent and its counsel.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(e) CLOSING CERTIFICATE. The Administrative Agent shall have received
a Closing Certificate of the Company and Holdings dated the Effective Date,
in substantially the form of Exhibits M-1 and M-2, respectively, with
appropriate insertions and attachments, in form and substance satisfactory
to the Administrative Agent and its counsel, executed by the President or
any Vice President and the Secretary or any Assistant Secretary of the
Company and Holdings, respectively.
(f) CONSENTS, AUTHORIZATIONS AND FILINGS, ETC. Except for the
financing statements contemplated by the Company Security Agreement and the
Mortgages, and the filing of the Mortgages, all consents, authorizations
and filings, if any, required in connection with the execution, delivery
and performance by Holdings or the Company, and the validity and
enforceability against Holdings and the Company, of the Credit Documents to
which any of them is a party, shall have been obtained or made, and such
consents, authorizations and filings shall be in full force and effect,
except such consents, authorizations and filings, the failure to obtain
which would not have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company
and its Subsidiaries, taken as a whole.
6.2 CONDITIONS TO ALL LOANS AND LETTERS OF CREDIT. The obligation of
each Lender to make any Loan (other than any Revolving Credit Loan the proceeds
of which are to be used to repay Refunded Swing Line Loans) and the obligation
of the Issuing Lender to issue any Letter of Credit is subject to the
satisfaction of the following conditions precedent on the relevant Borrowing
Date including the Effective Date:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made in or pursuant to Section 5 or which are contained in any
other Credit Document shall be true and correct in all material respects on
and as of the date of such Loan or of the issuance of such Letter of Credit
as if made on and as of such date (unless stated to relate to a specific
earlier date, in which case, such representations and warranties shall be
true and correct in all material respects as of such earlier date).
(b) NO DEFAULT OR EVENT OF DEFAULT. No Default or Event of Default
shall have occurred and be continuing on such Borrowing Date or after
giving effect to such Loan to be made or such Letter of Credit to be issued
on such Borrowing Date.
(c) CERTIFICATE. The Administrative Agent shall have received, with a
copy for each Lender, a certificate of a Responsible Officer of the Company
to the effect that the applicable statements contained in paragraphs (a)
and (b) above are true and correct as at the Borrowing Date.
Each borrowing by the Company hereunder and the issuance of each Letter of
Credit by the Issuing Lender hereunder shall constitute a representation and
warranty by the Company as of
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58
the date of such borrowing or issuance that the conditions in clauses (a) and
(b) and of this subsection 6.2 have been satisfied.
SECTION 7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, so long as the Commitments remain in
effect, any Loan, Note or L/C Obligation remains outstanding and unpaid, any
amount (unless cash in an amount equal to such amount has been deposited to a
cash collateral account established by the Collateral Agent) remains available
to be drawn under any Letter of Credit or any other amount is owing to any
Lender, the Administrative Agent or the Collateral Agent hereunder or under any
of the other Credit Documents, it shall, and, in the case of the agreements
contained in subsections 7.3 through 7.6, and 7.8 through 7.9, the Company shall
cause each of its Subsidiaries to:
7.1 FINANCIAL STATEMENTS. Furnish to the Administrative Agent (with
sufficient copies for each Lender which the Administrative Agent shall promptly
furnish to each Lender):
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Company, a copy of the consolidated balance
sheet of the Company and its consolidated Subsidiaries as at the end of
such fiscal year and the related consolidated statements of stockholders'
equity and cash flows and the consolidated statements of income of the
Company and its Subsidiaries for such fiscal year, setting forth in each
case (other than for the financial statements delivered with respect to the
first fiscal year of the Company ended following the Closing Date) in
comparative form the figures for the previous year and, in the case of the
consolidated balance sheet referred to above, reported on, without a "going
concern" or like qualification or exception, or qualification arising out
of the scope of the audit, or qualification which would affect the
computation of financial covenants, by independent certified public
accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Company, the unaudited consolidated balance sheet of the
Company and its Subsidiaries as at the end of each such quarter and the
related unaudited consolidated statements of income and cash flows of the
Company and its Subsidiaries for such quarterly period and the portion of
the fiscal year of the Company through such date, setting forth in each
case (other than for the financial statements delivered with respect to
fiscal quarters occurring during the first fiscal year of the Company ended
following the Closing Date) in comparative form the figures for the
corresponding quarter in, and year to date portion of, the previous year,
and the figures for such periods in the budget prepared by the Company and
furnished to the Administrative Agent, certified by the chief financial
officer, controller or treasurer of the Company as being fairly stated in
all material respects;
(c) concurrently with the delivery of financial statements pursuant to
subsection 7.1(a) or (b), a certificate of the chief financial officer of
the Company setting forth, in reasonable detail, the computations of
Consolidated EBITDA as of the last day of the fiscal period covered by such
financial statements, Capital Expenditures as of such last
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59
day, the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA
as of such last day and the Interest Coverage Ratio as of such last day;
all such financial statements to be complete and correct in all material
respects (subject, in the case of interim statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and in accordance with
GAAP.
7.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Administrative
Agent (with sufficient copies for each Lender which the Administrative Agent
shall promptly deliver to each Lender):
(a) concurrently with the delivery of the consolidated financial
statements referred to in subsection 7.1(a), a letter from the independent
certified public accountants reporting on such financial statements stating
that in making the examination necessary to express their opinion on such
financial statements no knowledge was obtained of any Default or Event of
Default under subsections 4.4(b), 8.1, 8.3, and 8.6 through 8.11, except as
specified in such letter;
(b) within 15 days of the delivery of the financial statements
referred to in subsections 7.1(a) and (b) (except that the certificate
referred to in clause (i) below shall be delivered concurrently with such
financial statements), a certificate of the chief financial officer of the
Company (i) stating that, to the best of such officer's knowledge, each of
the Company and its Subsidiaries has observed or performed all of its
respective covenants and other agreements, and satisfied every material
condition, contained in this Agreement, the Notes and the other Credit
Documents to be observed, performed or satisfied by it, and that such
officer has obtained no knowledge of any Default or Event of Default except
as specified in such certificate, (ii) showing in detail as of the end of
the related fiscal period the figures and calculations supporting such
statement in respect of clause (e) of subsection 8.1, clauses (b) and (e)
of subsection 8.3, and subsections 8.7 through 8.12 and (iii) if not
specified in the financial statements delivered pursuant to subsection 7.1,
specifying the aggregate amount of interest paid or accrued by the Company
and its Subsidiaries, and the aggregate amount of depreciation, depletion
and amortization charged on the books of the Company and its Subsidiaries,
during such accounting period;
(c) promptly upon receipt thereof, copies of all final reports
submitted to the Company or to any of its Subsidiaries by independent
certified public accountants in connection with each annual, interim or
special audit of the books of the Company or any of its Subsidiaries made
by such accountants, including, without limitation, any final comment
letter submitted by such accountants to management in connection with their
annual audit;
(d) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available to
the public generally by the Company or any of its Subsidiaries, if any, and
all regular and periodic reports and all final registration statements and
final prospectuses, if any, filed by the Company or any of its Subsidiaries
with any securities exchange or with the Securities and Exchange Commission
or any Governmental Authority succeeding to any of its functions;
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(e) concurrently with the delivery of the financial statements
referred to in subsections 7.1(a) and (b), a management summary describing
and analyzing the performance of the Company and its Subsidiaries during
the periods covered by such financial statements;
(f) within 45 days after the end of each fiscal quarter, a summary of
all Asset Sales during such fiscal quarter including the amount of all Net
Proceeds from such Asset Sales not previously applied to prepayments of the
Loans and reductions of the Commitments pursuant to the proviso to
subsection 4.4(b)(ii);
(g) within 30 days after the end of each calendar month, a borrowing
base certificate calculating the Borrowing Base as of the last day in such
calendar month, substantially in the form of Exhibit N hereto (a "BORROWING
BASE CERTIFICATE"), executed by a Responsible Officer of the Borrower; and
(h) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
7.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations and liabilities of whatever nature, except (a) when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Company or any of its Subsidiaries, as the case may
be, (b) for delinquent obligations which do not have a material adverse affect
on the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries taken as a whole and (c) for
trade and other accounts payable in the ordinary course of business which are
not overdue for a period of more than 90 days or, if overdue for more than 90
days, as to which (i) a dispute exists and adequate reserves in conformity with
GAAP have been established on the books of the Company or any of its
Subsidiaries, as the case may be, or (ii) do not, in the aggregate, equal or
exceed $250,000.
7.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to
engage in business of the same general type as now conducted by it, and
preserve, renew and keep in full force and effect its corporate existence and
take all reasonable action to maintain all material rights, material privileges,
franchises, copyrights, trademarks and trade names necessary or desirable in the
normal conduct of its business except for rights, privileges, franchises,
copyrights, trademarks and tradenames the loss of which would not in the
aggregate have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole, and except as otherwise permitted by subsections
8.4 and 8.5; and comply with all applicable Requirements of Law except to the
extent that the failure to comply therewith would not, in the aggregate, have a
material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries taken as
a whole.
7.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) Keep all property useful
and necessary in its business in good working order and condition (ordinary wear
and tear excepted); and
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61
(b) Maintain with financially sound and reputable insurance companies
(x) insurance on all its property in at least such amounts and with only such
deductibles as are usually maintained by, and against at least such risks (but
including, in any event, public liability insurance) as are usually insured
against in the same general area, by companies engaged in the same or a similar
business and (y) the flood insurance, if any, required pursuant to subsection
7.9(b)(ii); and furnish to each Lender, (i) annually, a schedule disclosing (in
a manner substantially similar to that used in the schedule provided pursuant to
subsection 6.1(o) of the Existing Credit Agreement) all insurance against
products liability risk maintained by the Company and its Subsidiaries pursuant
to this subsection 7.5(b) or otherwise and (ii) upon written request of any
Lender, full information as to the insurance carried; PROVIDED that the Company
may implement programs of self insurance in the ordinary course of business and
in accordance with industry standards for a company of similar size so long as
reserves are maintained in accordance with GAAP for the liabilities associated
therewith.
7.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and activities
which permit financial statements to be prepared in conformity with GAAP and all
Requirements of Law; permit representatives of any Lender upon reasonable notice
(but no more frequently than monthly unless a Default or Event of Default shall
have occurred and be continuing), to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be requested upon reasonable notice, and to
discuss the business, operations, assets and financial and other condition of
the Company and its Subsidiaries with officers and employees thereof and with
their independent certified public accountants; and permit representatives of
the Collateral Agent upon reasonable notice to perform a collateral examination
in accordance with its customary practices at least once each fiscal year (which
collateral examination the Collateral Agent hereby agrees to perform).
7.7 NOTICES. Promptly give notice to the Administrative Agent, the
Collateral Agent and each Lender:
(a) of the occurrence of any Default or Event of Default;
(b) of any (i) default or event of default under any instrument or
other agreement, guarantee or collateral document of the Company or any of
its Subsidiaries which default or event of default has not been waived and
would have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole, or any other default or event of default
under any such instrument, agreement, guarantee or other collateral
document which, but for the proviso to clause (e) of Section 9, would have
constituted a Default or Event of Default under this Agreement, or (ii)
litigation, investigation or proceeding which may exist at any time between
the Company or any of its Subsidiaries and any Governmental Authority, or
receipt of any notice of any environmental claim or assessment against the
Company or any of its Subsidiaries by any Governmental Authority, which in
any such case would have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company
and its Subsidiaries taken as a whole;
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62
(c) of any litigation or proceeding against the Company or any of its
Subsidiaries (i) in which more than $2,000,000 of the amount claimed is not
covered by insurance or (ii) in which injunctive or similar relief is
sought which if obtained would have a material adverse effect on the
business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries taken as a whole;
(d) of the following events, as soon as practicable after, and in any
event within 30 days after, the Company knows or has reason to know
thereof: (i) the occurrence of any Reportable Event with respect to any
Plan which Reportable Event could reasonably result in material liability
to the Company and its Subsidiaries taken as a whole or (ii) the
institution of proceedings or the taking of any other action by PBGC, the
Company or any Commonly Controlled Entity to terminate, withdraw or
partially withdraw from any Plan and, with respect to a Multiemployer Plan,
the Reorganization or Insolvency of the Plan, in each of the foregoing
cases which could reasonably result in material liability to the Company
and its Subsidiaries taken as a whole, and in addition to such notice,
deliver to the Administrative Agent, the Collateral Agent and each Lender
whichever of the following may be applicable: (A) a certificate of a
Responsible Officer of the Company setting forth details as to such
Reportable Event and the action that the Company or such Commonly
Controlled Entity proposes to take with respect thereto, together with a
copy of any notice of such Reportable Event that may be required to be
filed with PBGC or (B) any notice delivered by PBGC evidencing its intent
to institute such proceedings or any notice to PBGC that such Plan is to be
terminated, as the case may be;
(e) concurrently with the delivery of the information delivered
pursuant to subsection 7.2(f) and each prepayment required pursuant to
subsection 4.4(b)(ii), of any Asset Sale or substantially like-kind
exchange of real property by the Company or any of its Subsidiaries; and
(f) of a material adverse change known to the Company or its
Subsidiaries in the business, assets, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries taken as a whole.
Each notice pursuant to this subsection 7.7 shall be accompanied by a statement
of a Responsible Officer of the Company setting forth details of the occurrence
referred to therein and (in the cases of clauses (a) through (d)) stating what
action the Company proposes to take with respect thereto.
7.8 ENVIRONMENTAL LAWS. (a) Comply with, and use all reasonable
efforts to insure compliance by all tenants and subtenants, if any, with, all
applicable Environmental Laws and obtain and comply with and maintain, and
require that all tenants and subtenants obtain and comply with and maintain, any
and all licenses, approvals, registrations or permits required by Environmental
Laws, except to the extent that failure to do so would not have any reasonable
likelihood of having a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries taken as a whole or on the validity or enforceability of any of
the Credit Documents or the rights and remedies of the Administrative Agent, the
Collateral Agent or the Lenders thereunder;
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63
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions, required under applicable
Environmental Laws, and promptly comply with all lawful orders and directives of
all Governmental Authorities respecting Environmental Laws, except to the extent
that the same are being contested in good faith by appropriate proceedings; and
(c) In regard to this Agreement or in any way relating to the Company
or its Subsidiaries or their current or former operations, defend, indemnify and
hold harmless the Administrative Agent, the Collateral Agent and the Lenders,
and their respective employees, agents, officers and directors, from and against
any claims, demands, penalties, fines, liabilities, settlements, damages, costs
and expenses of whatever kind or nature known or unknown, contingent or
otherwise, arising out of, or in any way relating to Hazardous Material or
Environmental Laws, including, without limitation, any orders, requirements or
demands of Governmental Authorities related thereto, including, without
limitation, reasonable attorney's and consultant's fees, investigation and
laboratory fees, remediation costs, court costs and litigation expenses, except
to the extent that any of the foregoing arise out of the gross negligence or
willful misconduct of the party seeking indemnification therefor. The
agreements in this subsection 7.8(c) shall survive repayment of the Loans and
all other amounts payable hereunder.
7.9 AFTER ACQUIRED REAL PROPERTY; FILING OF MORTGAGES. (a) Within 90
days after the date of acquisition of any fee interest in real property
(including any like kind exchanges in accordance with subsection 8.5(e)) for
consideration in excess of $1,000,000, deliver to the Collateral Agent a
Mortgage granting the Collateral Agent a lien on such acquired real property,
together with in respect of each parcel covered by each Mortgage delivered
pursuant to this subsection 7.9(a) a mortgagee's title insurance policy (or
policies) or marked up unconditional binder for such insurance. Each such
policy shall (a) be issued by a title company satisfactory to the Collateral
Agent, (b) be in an amount reasonably satisfactory to the Collateral Agent, (c)
insure that the Mortgage insured thereby creates a valid first Lien on such
parcel free and clear of all Liens, defects and encumbrances, except Permitted
Liens, (d) name the Collateral Agent, for the benefit of the Lenders, as the
insured thereunder, (e) contain such endorsements and affirmative coverage as
the Collateral Agent may reasonably request and (f) provide for the issuance of
an ALTA Loan Policy - 1990 (Amended 6/15/94) or its substantial equivalent.
Such policy or binder may contain an exception for any condition that may be
shown by a current, accurate survey or physical inspection of the property
covered thereby.
(b) If any Mortgaged Property is located in a "special flood hazard
area" designated under the Flood Disaster Protection Act of 1973, deliver to the
Collateral Agent, upon its request, (i) a policy of flood insurance which (A)
covers any parcel of improved real property which is encumbered by any Mortgage,
(B) is written in an amount not less than the outstanding principal amount of
the indebtedness secured by such Mortgage which is reasonably allocable to such
real property or the maximum limit of coverage made available with respect to
the particular type of property under the Flood Disaster Protection Act of 1973,
whichever is less, and (C) has a term ending not later than the maturity of the
indebtedness secured by such Mortgage and (ii) confirmation that the Company has
received the notice required pursuant to Section 208(e)(3) of Regulation H of
the Board of Governors of the Federal Reserve System. The Company shall take
all actions necessary to ensure that the security interest in the collateral
described in each Mortgage delivered pursuant to subsection 7.9 constitutes a
perfected lien on, and security interest in, all right, title and interest of
the debtor party thereto in such collateral (including, without
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64
limitation, recording of each mortgage in the appropriate jurisdictions and
payment of all premiums in respect of each title insurance policy and all
charges for mortgage recording tax, intangible tax and recording fees, if any,
and executing all necessary affidavits in connection with the calculation of and
payment of such mortgage recording tax, intangible tax and recording fees).
7.10 NOTICES OF REDEMPTION. (a) Give notices of redemption to the
trustee under the indenture pertaining to the Subordinated Debt and cause
Holdings to give notices of redemption to the trustee under the indenture
pertaining to the Holdings securities by November 29, 1996.
SECTION 8. NEGATIVE COVENANTS
The Company hereby agrees that it shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly so long as the
Commitments remain in effect or any Loan, Note or L/C Obligation remains
outstanding and unpaid, any amount remains available to be drawn under any
Letter of Credit or any other amount is owing to any Lender, the Administrative
Agent or the Collateral Agent hereunder or under any other Credit Document (it
being understood that each of the permitted exceptions to each of the covenants
in this Section 8 is in addition to, and not overlapping with, any other of such
permitted exceptions except to the extent expressly provided):
8.1 INDEBTEDNESS. Create, incur, assume or suffer to exist any
Indebtedness, except:
(a) the Indebtedness outstanding on the Effective Date and reflected
on Schedule 8.1(a), but excluding the refinancing of any such Indebtedness;
(b) Indebtedness consisting of the Loans and in connection with the
Letters of Credit and this Agreement;
(c) Indebtedness (i) of the Company to any Subsidiary and (ii) of any
Subsidiary to the Company or any other Subsidiary in an aggregate principal
amount at any time outstanding not to exceed $500,000;
(d) Indebtedness of the Company in respect of the Subordinated Debt;
(e)(i) Indebtedness of the Company and its Subsidiaries for (A)
industrial revenue bonds or other similar governmental and municipal bonds
and (B) the deferred purchase price of newly acquired property of the
Company and its Subsidiaries (pursuant to purchase money mortgages or
otherwise) used in the ordinary course of business of the Company and its
Subsidiaries other than Rental Fleet Equipment (PROVIDED such financing is
entered into within 180 days of the acquisition of such property) in an
amount (based on the remaining balance of the obligations therefor on the
books of the Company and its Subsidiaries) which in the case of preceding
clauses (A) and (B) shall not exceed $10,000,000 in the aggregate at any
one time outstanding and (ii) Indebtedness of the Company and its
Subsidiaries in respect of Financing Leases to the extent subsections 8.7
and 8.10 would not be contravened;
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(f) Indebtedness of Foreign Subsidiaries in an aggregate principal
amount at any time outstanding not in excess of the equivalent at the date
of each incurrence thereof of $500,000;
(g) Indebtedness of the Company and Subsidiaries in an aggregate
principal amount at any one time outstanding not in excess of $10,000,000;
(h) Indebtedness in respect of letters of credit (other than Letters
of Credit issued hereunder) not to exceed an aggregate amount equal to
$5,000,000;
(i) (i) Indebtedness assumed in connection with acquisitions permitted
by subsection 8.6(g) (so long as such Indebtedness was not incurred in
anticipation of such acquisitions), (ii) Indebtedness of newly acquired
Subsidiaries acquired in such acquisitions (so long as such Indebtedness
was not incurred in anticipation of such acquisition) and (iii)
Indebtedness owed to the seller in any acquisition permitted by subsection
8.6(g) constituting part of the purchase price thereof, all of which
Indebtedness permitted by this subsection 8.1(i) shall not exceed in the
aggregate at any time $5,000,000; and
(j) Indebtedness in connection with workmen's compensation obligations
and general liability exposure of the Company and its Subsidiaries.
8.2 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets, income or profits, whether now owned or
hereafter acquired, except:
(a) Liens for taxes, assessments or other governmental charges not yet
delinquent or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Company or such Subsidiary, as the case may be, in accordance
with GAAP;
(b) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
in respect of obligations which are not yet due or which are bonded or
which are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on the books of the
Company or such Subsidiary, as the case may be, in accordance with GAAP;
(c) pledges or deposits in connection with workmen's compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, tenders, trade or
government contracts (other than for borrowed money), leases, licenses,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(e) easements (including, without limitation, reciprocal easement
agreements), rights-of-way, building, zoning and similar restrictions,
utility agreements, covenants, reservations, restrictions, encroachments,
changes, and other similar encumbrances or title defects incurred, or
leases or subleases granted to others, in the ordinary course of
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business, which do not in the aggregate materially detract from the aggregate
(i) value of the properties of the Company and its Subsidiaries, taken as a
whole or (ii) materially interfere with or adversely affect in any material
respect the ordinary conduct of the business of the Company and its Subsidiaries
on the properties subject thereto, taken as a whole;
(f) Liens in favor of the Collateral Agent and the Lenders pursuant to
the Credit Documents delivered in connection with the Existing Credit
Agreement or hereunder and bankers' liens arising by operation of law;
(g) Liens on property of the Company or any of its Subsidiaries
created solely for the purpose of securing Indebtedness permitted by
subsection 8.1(e) or 8.1(i)(i) or (ii) (so long as such Lien was not
incurred in anticipation of the related acquisition), representing or
incurred to finance, refinance or refund the purchase price of property,
PROVIDED that no such Lien shall extend to or cover other property of the
Company or such Subsidiary other than the respective property so acquired,
and the principal amount of Indebtedness secured by any such Lien shall at
no time exceed the original purchase price of such property;
(h) Liens existing on the Effective Date and described in subsection
5.13 or Schedule 8.2;
(i) Liens on documents of title and the property covered thereby
securing Indebtedness in respect of the Commercial L/Cs;
(j) (i) mortgages, liens, security interests, restrictions,
encumbrances or any other matters of record that have been placed by any
developer, landlord or other third party on property over which the Company
or any Subsidiary of the Company has easement rights or on any Leased
Property and subordination or similar agreements relating thereto and
(ii) any condemnation or eminent domain proceedings affecting any real
property;
(k) Liens in connection with workmen's compensation obligations and
general liability exposure of the Company and its Subsidiaries; and
(l) Liens on goods (and Proceeds thereof) securing reimbursement
obligations in respect of commercial letters of credit issued in accordance
with the terms of this Agreement.
8.3 LIMITATION ON CONTINGENT OBLIGATIONS. Create, incur, assume or
suffer to exist any Contingent Obligation except:
(a) the Guarantees;
(b) other guarantees by the Company incurred in the ordinary course of
business for an aggregate amount not to exceed $2,000,000 at any one time;
(c) guarantees by the Company of obligations of its Subsidiaries;
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(d) Contingent Obligations existing on the Effective Date and
described in Schedule 8.3(d);
(e) guarantees of obligations to third parties in connection with
relocation of employees of the Company or any of its Subsidiaries, in an
amount which, together with all loans and advances made pursuant to
subsection 8.6(f), shall not exceed $2,000,000 at any time outstanding;
(f) Contingent Obligations in connection with workmen's compensation
obligations and general liability exposure of the Company and its
Subsidiaries; and
(g) subordinated guarantees of subordinated debt issued by
Subsidiaries of the Company which have also issued Guarantees, PROVIDED
such subordinated guarantees are subordinated to the Guarantees on the same
basis as the Subordinated Debt is subordinated to the Loans.
8.4 PROHIBITION OF FUNDAMENTAL CHANGES. Enter into any merger or
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or engage in any type of business other
than of the same general type now conducted by it, except (a) for the
transactions otherwise permitted pursuant to clause (b) of subsection 8.5 and
(b) any Subsidiary of the Company may be merged with and into the Company or a
Subsidiary of the Company.
8.5 PROHIBITION ON SALE OF ASSETS. Convey, sell, lease (other than a
sublease of real property), assign, transfer or otherwise dispose of (including
through a transaction of merger or consolidation of any Subsidiary of the
Company) any of its property, business or assets (including, without limitation,
tax benefits, receivables and leasehold interests), whether now owned or
hereafter acquired, except:
(a) for (i) sales or other dispositions of inventory, new equipment or
rental fleet equipment, stores (whether owned in fee or leased by the
Company or any Subsidiary), leaseholds or other tangible personal property
made in the ordinary course of business, but in no event may such sales or
dispositions of Rental Fleet Equipment exceed, in aggregate original
purchase prices, during any fiscal year of the Company, 33% of the
aggregate original purchase prices of all Rental Fleet Equipment of the
Company and its Subsidiaries at the end of the immediately preceding fiscal
year and (ii) sales of obsolete or worn-out property;
(b) that any Subsidiary of the Company may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary liquidation
or otherwise) to, or merge with and into, the Company or a wholly-owned
Subsidiary of the Company and any Subsidiary of the Company may sell or
otherwise dispose of, or part with control of any or all of, the stock of
any Subsidiary to a wholly-owned Subsidiary of the Company, PROVIDED that
no such transaction may be effected if it would result in the transfer of
any assets of, or any stock of, a Subsidiary to, or the merger with and
into, another Subsidiary all of the Capital Stock of which owned by the
Company or any Subsidiary has not been pledged to the Collateral Agent and
which has not guaranteed the obligations of the Company under the Notes and
this Agreement, and granted liens or security interests in
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favor of the Collateral Agent, for the benefit of the Lenders, on
substantially all of its assets to secure such guarantee, pursuant to a
guarantee, security agreement and other documentation reasonably
satisfactory to the Collateral Agent;
(c) leases of Fee Properties and other real property owned in fee and
subleases of Leased Properties;
(d) any condemnation or eminent domain proceedings affecting any real
property, PROVIDED, however, that the parties hereto agree that the net
proceeds received in connection with such proceeding shall be deemed not to
constitute "Net Proceeds" if such net proceeds are reinvested in new or
existing properties within eighteen months;
(e) substantially like-kind exchanges of real property PROVIDED that
any cash received by the Company or any Subsidiary of the Company in
connection with such an exchange (net of all costs and expenses incurred in
connection with such transaction or with the commencement of operation of
real property received in such exchange) shall be deemed to be Net Proceeds
and shall be applied as provided for herein;
(f) for the sale or other disposition of any personal property that,
in the reasonable judgment of the Company has become uneconomic, obsolete
or worn out, and which in each case is disposed of in the ordinary course
of business; and
(g) for the sale or other disposition of any property the aggregate
amount of the net proceeds received in respect of which shall not exceed
$1,000,000.
8.6 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of, or make any other investment in
(including, without limitation, any acquisition of all or any substantial
portion of the assets, and any acquisition of a business or a product line, of
other companies, other than the acquisition of inventory in the ordinary course
of business), any Person, except:
(a) the Company may make loans or advances to any Subsidiary, and any
Subsidiary may make loans or advances to the Company or any other
Subsidiary, to the extent in each case the Indebtedness created thereby is
permitted by paragraph (c) of subsection 8.1;
(b)(i) any Subsidiary may make investments in the Company (by way of
capital contribution or otherwise),(ii) the Company and any Subsidiary may
make investments in, or create, any wholly-owned Domestic Subsidiary (by
way of capital contribution or otherwise) or make investments permitted by
subsection 8.5(b), PROVIDED that, in any such case, (x) if stock is issued
or otherwise acquired in connection with such investment, or if the stock
of such Subsidiary was not previously pledged to the Collateral Agent, such
stock is pledged to the Collateral Agent for the benefit of the Lenders so
that 100% of the Capital Stock of such Subsidiary is pledged to the
Collateral Agent and (y) such Subsidiary guarantees the obligations of the
Company under the Notes and this Agreement, and grants liens or security
interests in favor of the Collateral Agent, for the benefit of the Lenders,
on substantially all of its assets to secure such guarantee, pursuant
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69
to a guarantee, a security agreement and other documentation reasonably
satisfactory to the Collateral Agent and (iii) the Company and any
Subsidiary may make investments in, or create, any wholly-owned Foreign
Subsidiary (by way of capital contribution or otherwise) or make
investments permitted by subsection 8.5(b), PROVIDED that (x) at least 66%
of the Capital Stock of such wholly-owned Foreign Subsidiary is pledged to
the Administrative Agent for the benefit of the Lenders and (y) the
aggregate amount of all investments in such Foreign Subsidiaries shall not
exceed $500,000;
(c) the Company and its Subsidiaries may invest in, acquire and hold
Cash Equivalents;
(d) the Company or any of its Subsidiaries may make payroll advances
in the ordinary course of business;
(e) the Company or any of its Subsidiaries may acquire and hold
receivables owing to it, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade
terms, (PROVIDED that nothing in this clause (e) shall prevent the Company
or any Subsidiary from offering such concessionary trade terms, or from
receiving such investments in connection with the bankruptcy or
reorganization of their respective suppliers or customers or the settlement
of disputes with such customers or suppliers arising in the ordinary course
of business, as management deems reasonable in the circumstances);
(f) the Company or any of its Subsidiaries may make travel and
entertainment advances and relocation and other loans to officers and
employees of the Company or any such Subsidiary, PROVIDED that the
aggregate principal amount of all such loans and advances outstanding at
any one time, together with the guarantees of such loans and advances made
pursuant to subsection 8.3(e), shall not exceed $2,000,000 at any one time
outstanding;
(g) the Company and its Subsidiaries may make expenditures to acquire
all or a portion of the Capital Stock or assets of any Person, PROVIDED
that such expenditures are not prohibited by subsection 8.7 and the
provisions of subsection 8.6(b)(ii) are satisfied; and
(h) acquisitions of companies engaged primarily in businesses similar
to the businesses in which the Company and its Subsidiaries are engaged
("SECTION 8.6 ACQUISITIONS") to the extent that the amount expended to make
such Acquisitions constitutes Capital Expenditures permitted pursuant to
subsection 8.7(b).
8.7 CAPITAL EXPENDITURES. Make or commit to make any Capital
Expenditures, except that the Company and its Subsidiaries may make or commit to
make:
(a) Capital Expenditures not exceeding the amount set forth below (the
"BASE AMOUNT") for each of the fiscal years of the Company (or other
period) set forth below:
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70
FISCAL YEAR
OR PERIOD BASE AMOUNT
1996 106,000,000
1997 130,000,000
1998 135,000,000
1999 150,000,000
2000 175,000,000
2001 200,000,000
2002 225,000,000
PROVIDED, however, that for any fiscal year commencing with the 1996 fiscal
year of the Company, the Base Amount set forth above may be increased by a
maximum of $20,000,000 for any such fiscal year by carrying over to any
such fiscal year any portion of the Base Amount (as increased) not spent in
the immediately preceding fiscal year; and
(b) additional Capital Expenditures in respect of (i) Section 8.6
Acquisitions in an aggregate amount not to exceed $60,000,000 (the
"Acquisition Base Amount") and (ii) the Vibroplant Acquisition; PROVIDED
that the aggregate amount of Capital Expenditures permitted to be made
pursuant to this subsection 8.7(b) may be increased from time to time by a
maximum of $10,000,000 in the aggregate by applying a portion of the Base
Amount for the respective fiscal year equal to such increase to such
Section 8.6 Acquisitions (such application of the Base Amount for any such
year not being considered a usage of the Acquisition Base Amount).
8.8 CONSOLIDATED EBITDA. At the last day of any fiscal quarter set
forth below, commencing with the first full fiscal quarter of the 1995 fiscal
year of the company beginning on or after the Closing Date, permit Consolidated
EBITDA for the period of four fiscal quarters ending on such day (or, if
shorter, the period commencing on the first day of the first fiscal quarter
commencing on or after the Closing Date and ending on such day) to be less than
the amount set forth opposite such fiscal quarter below:
FISCAL YEAR FISCAL QUARTER AMOUNT
1996 First 60,000,000
Second 66,000,000
Third 74,000,000
Fourth 81,000,000
1997 First 85,000,000
Second 91,000,000
Third 97,000,000
Fourth 103,000,000
1998 First 103,000,000
Second 106,000,000
Third 111,000,000
Fourth 116,000,000
1999 First 116,000,000
Second 120,000,000
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71
Third 123,000,000
Fourth 130,000,000
2000 First 130,000,000
Second 133,000,000
Third 138,000,000
Fourth 142,000,000
2001 First 142,000,000
Second 142,000,000
Third 142,000,000
Fourth 142,000,000
2002 First 142,000,000
Second 142,000,000
Third 142,000,000
8.9 DEBT COVERAGE RATIO. At the last day of any fiscal quarter set
forth below, commencing with the fourth fiscal quarter of the 1995 fiscal year
of the Company, permit the Debt Coverage Ratio for the period of four fiscal
quarters ending on such day to be greater than the ratio set forth below for
such fiscal quarter:
FISCAL YEAR FISCAL QUARTER RATIO
1996 Second 5.20 to 1
Third 5.10 to 1
Fourth 5.00 to 1
1997 First 5.00 to 1
Second 4.90 to 1
Third 4.70 to 1
Fourth 4.50 to 1
1998 First 4.50 to 1
Second 4.40 to 1
Third 4.20 to 1
Fourth 4.00 to 1
1999 First 4.00 to 1
Second 3.95 to 1
Third 3.85 to 1
Fourth 3.75 to 1
2000 First 3.75 to 1
Second 3.70 to 1
Third 3.60 to 1
Fourth 3.50 to 1
2001 First 3.50 to 1
Second 3.50 to 1
Third 3.50 to 1
Fourth 3.50 to 1
2002 First 3.50 to 1
Second 3.50 to 1
Third 3.50 to 1
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72
8.10 INTEREST COVERAGE. At the last day of any fiscal quarter set
forth below, permit the Interest Coverage Ratio to be less than the ratio set
forth below for such fiscal quarter:
INTEREST
COVERAGE
FISCAL YEAR FISCAL QUARTER RATIO
1996 Second 2.00 to 1
Third 2.00 to 1
Fourth 2.05 to 1
1997 First 2.05 to 1
Second 2.05 to 1
Third 2.10 to 1
Fourth 2.10 to 1
1998 First 2.20 to 1
Second 2.20 to 1
Third 2.25 to 1
Fourth 2.30 to 1
1999 First 2.30 to 1
Second 2.30 to 1
Third 2.40 to 1
Fourth 2.50 to 1
2000 First 2.50 to 1
Second 2.50 to 1
Third 2.60 to 1
Fourth 2.70 to 1
2001 First 2.70 to 1
Second 2.70 to 1
Third 2.70 to 1
Fourth 2.70 to 1
2002 First 2.70 to 1
Second 2.70 to 1
Third 2.70 to 1
8.11 LIMITATION ON DIVIDENDS. Declare any dividends on any shares of
any class of stock, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, retirement or
other acquisition of any shares of any class of stock, or any warrants or
options to purchase such stock, whether now or hereafter outstanding, or make
any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of the Company or any of its
Subsidiaries; except that:
(a) Subsidiaries may pay dividends to the Company or to Subsidiaries
which are directly or indirectly wholly owned by the Company;
(b) the Company may pay or make dividends or distributions to any
holder of its capital stock in the form of additional shares of Capital
Stock of the same class and type, PROVIDED such shares of Capital Stock are
pledged to the Collateral Agent for the benefit of the Lenders; and
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73
(c) the Company may pay dividends or make other distributions:
(i) to Holdings in amounts equal to amounts required for
Holdings to pay franchise taxes and other fees required to maintain
its corporate existence and provide for other operating costs in the
ordinary course of business;
(ii) to Holdings in amounts equal to amounts required for
Holdings to pay Federal, state and local income taxes to the extent
such income taxes are attributable to the income of the Company and
its Subsidiaries;
(iii) to Holdings in amounts equal to amounts expended by Holdings
to repurchase Capital Stock of Holdings owned by former employees of
the Company or its Subsidiaries or their assigns, estates and heirs,
PROVIDED that the aggregate amount paid, loaned or advanced to
Holdings pursuant to this clause (iii) shall not, in the aggregate,
exceed the sum of $4,000,000 plus any amounts contributed by Holdings
to the Company as a result of resales of such repurchased shares of
Capital Stock;
(iv) so long as, after giving effect thereto, no Default or Event
of Default has occurred and is continuing, the Company may pay cash
dividends to Holdings, PROVIDED that, after giving effect to such cash
dividends, the aggregate amount of payments by the Company of cash
dividends pursuant to this clause (iv) in respect of its common stock
made on and after the Effective Date shall not exceed 25% of
consolidated net income of the Company for the period commencing with
the fiscal quarter commencing immediately prior to the Effective Date
through the fiscal quarter ending immediately prior to the date of
proposed payment of such dividend, but in no event more than
$3,000,000 in any fiscal year pursuant to this clause (iv).
8.12 TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate except for transactions
which are otherwise permitted under this Agreement and which are in the ordinary
course of the Company's or a Subsidiary's business and which are upon fair and
reasonable terms no less favorable to the Company or such Subsidiary than it
would obtain in a hypothetical comparable arm's length transaction with a Person
not an Affiliate; PROVIDED, HOWEVER, that nothing in this subsection 8.12 shall
prohibit the Company or any of its Subsidiaries from engaging in the following
transactions: (x) the performance of the Company's or such Subsidiary's
obligations under any employment contract, collective bargaining agreement,
employee benefit plan, related trust agreement or any other similar arrangement
heretofore or hereafter entered into in the ordinary course, (y) payment of
compensation to employees, officers, directors or consultants in the ordinary
course of business and (z) maintenance of benefit programs or arrangements for
employees, officers or directors, including, without limitation, vacation plans,
health and life insurance plans, deferred compensation plans, and retirement or
savings plans and similar plans.
8.13 PREPAYMENTS AND AMENDMENTS OF SUBORDINATED DEBT AND EQUITY. (a)
Optionally prepay, retire, redeem, purchase, defease or exchange, or make any
mandatory prepayment of the Subordinated Debt or pay any interest on the
Subordinated Debt in cash if
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74
such interest may be paid by the issuance of additional Subordinated Debt or (b)
amend, supplement or otherwise modify any documentation governing any
Subordinated Debt (other than (I) amendments to such Subordinated Debt which
reduce the interest rate or extend the maturity thereof, (II) waivers of
compliance by the Company with any of the terms or conditions of such
Subordinated Debt (except those which by their terms run to the benefit of the
Lenders) and (III) any amendment, supplement or modification described in clause
(ii) of Section 9(k)).
8.14 LIMITATION ON CHANGES IN FISCAL YEAR. Permit the fiscal year of
the Company to end on a day other than December 31.
8.15 LIMITATION ON LINES OF BUSINESS. Enter into any business, either
directly or through any Subsidiary, except for those businesses in which the
Company is engaged on the date of this Agreement or which are directly related
thereto.
SECTION 9. EVENTS OF DEFAULT
Upon the occurrence and during the continuance of any of the following
events:
(a) The Company shall fail (i) to pay any principal of any Note when
due in accordance with the terms hereof or thereof or to reimburse the
Issuing Lender in accordance with subsection 3.8 or (ii) pay any interest
on any Loan or any other amount payable hereunder within five days after
any such interest or other amount becomes due in accordance with the terms
thereof or hereof; or
(b) Any representation or warranty made or deemed made by any Credit
Party in any Credit Document shall prove to have been incorrect in any
material respect on or as of the date made or deemed made; or
(c) The Company shall default in the observance or performance of any
agreement contained in subsection 7.7(a), 7.9 or Section 8 of this
Agreement or Holdings shall default in the observance or performance of any
agreement contained in Section 5 of the Holdings Pledge Agreement or the
Company shall default in the observance or performance of any agreement
contained in subsections 3(a), (h) through (k) and (o) of the Company
Security Agreement or Holdings shall default in the observance or
performance of any agreement contained in Section 10 of the Holdings
Guarantee, or, with respect to any Subsidiary which becomes a Credit Party
after the Closing Date, the Company or such Subsidiary shall default in the
observance or performance of the corresponding provisions of the pledge
agreement, guarantee and security agreement to which it is a party; or
(d) Any Credit Party shall default in the observance or performance of
any other agreement contained in any Credit Document and such default shall
continue unremedied for a period of 30 days; or
(e) The Company or any of its Subsidiaries shall (i) default in any
payment of principal of or interest on or other amounts in respect of any
Indebtedness (other than the Loans, the L/C Obligations and any
inter-company debt) or Interest Rate Agreement or
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75
in the payment of any Contingent Obligation, beyond the period of grace, if
any, provided in the instrument or agreement under which such Indebtedness,
Interest Rate Agreement or Contingent Obligation was created; or (ii)
default in the observance or performance of any other agreement or
condition relating to any such Indebtedness, Interest Rate Agreement or
Contingent Obligation or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is
to cause, or to permit the holder or holders of such Indebtedness or
beneficiary or beneficiaries of such Contingent Obligation (or a trustee or
agent on behalf of such holder or holders or beneficiary or beneficiaries)
to cause, with the giving of notice if required, such Indebtedness to
become due prior to its stated maturity, any applicable grace period having
expired, or such Contingent Obligation to become payable, any applicable
grace period having expired; in each case, PROVIDED that the aggregate
principal amount of all such Indebtedness, Interest Rate Agreements and
Contingent Obligations under which a payment default exists as in (a) above
or which would then become due or payable equals or exceeds $5,000,000; or
(f) (i) The Company or any of its Subsidiaries or Holdings shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it as bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts or (B) seeking appointment
of a receiver, trustee, custodian or other similar official for it or for
all or any substantial part of its assets, or the Company or any of its
Subsidiaries or Holdings shall make a general assignment for the benefit of
its creditors; or (ii) there shall be commenced against the Company or any
of its Subsidiaries or Holdings any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against the Company or any of its Subsidiaries or
Holdings any case, proceeding or other action seeking issuance of a warrant
of attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof; or (iv) the
Company or any of its Subsidiaries or Holdings shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v)
the Company or any of its Subsidiaries or Holdings shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan which is not otherwise exempted, (ii) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived,
shall exist with respect to any Plan, (iii) a Reportable Event shall occur
with respect to, or proceedings shall commence to have a trustee appointed,
or a trustee shall be appointed, to administer or to terminate, any Plan,
which Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Required Lenders, likely to
result in the termination of such
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Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Company or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any material liability in connection
with a withdrawal from, or the Insolvency or Reorganization of, a
Multiemployer Plan; and in each case in clauses (i) through (v) above, such
event or condition, together with all other such events or conditions
relating to a Plan, if any, would be reasonably likely to subject the
Company or any of its Subsidiaries to any tax, penalty or other liabilities
in the aggregate material in relation to the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole; or
(h) One or more judgments or decrees shall be entered against the
Company or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance) of $5,000,000 or more and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within the time required by the terms of such
judgment; or
(i) Any Credit Document shall cease, for any reason, to be in full
force and effect or any Credit Party or any of its Subsidiaries shall so
assert in writing, or any Pledge Agreement, Security Agreement or any
Mortgage recorded in accordance with subsection 7.9 shall cease to be
effective to grant a perfected Lien on the collateral described therein
with the priority purported to be created thereby (other than as a result
of any action or inaction on the part of the Collateral Agent or the
Lenders), subject to such exceptions as may be permitted therein, and in
the case of any Security Agreement or the Mortgages such condition shall
continue unremedied for 30 days after notice thereof to the Company by the
Collateral Agent or any Lender; or
(j) There shall have occurred a Change in Control; or
(k) (i) There shall have occurred any amendment, supplement or other
modification of the Subordinated Debt or the documents governing such
Subordinated Debt, which in any such case shall not have been consented to
in advance in writing by the Collateral Agent and the Required Lenders,
except (A) as otherwise expressly permitted by subsection 8.13 or (B) to
the extent such amendment, supplement or modification gives effect to any
retirement or redemption of Subordinated Debt expressly permitted by this
Agreement or (ii) the subordination provisions of any document governing
any Subordinated Debt shall cease, for any reason, to be valid or any
Credit Party or any of its Subsidiaries shall so assert in writing;
then, and in any such event, (a) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Company,
automatically (i) the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the Notes shall immediately become due and payable, and (ii) all
obligations of the Company in respect of the Letters of Credit, although
contingent and unmatured, shall become immediately due and payable and the
Issuing Lender's obligations to issue the Letters of Credit shall immediately
terminate and (b) if such event is any other Event of Default, so long as any
such Event of Default shall be continuing, either or both of the following
actions may be taken: (i) with the consent of the Required Lenders, the
Administrative
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Agent may, or upon the request of the Required Lenders, the Administrative Agent
shall, by notice to the Company, declare the Commitments and the Issuing
Lender's obligations to issue the Letters of Credit to be terminated forthwith,
whereupon the Commitments and such obligations shall immediately terminate; and
(ii) with the consent of the Required Lenders, the Administrative Agent may, or
upon the request of the Required Lenders, the Administrative Agent shall, by
notice of default to the Company, (A) declare all or a portion of the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the Notes to be due and payable forthwith, whereupon the same
shall immediately become due and payable, and (B) declare all or a portion of
the obligations of the Company in respect of the Letters of Credit, although
contingent and unmatured, to be due and payable forthwith, whereupon the same
shall immediately become due and payable and/or demand that the Company
discharge any or all of the obligations supported by the Letters of Credit by
paying or prepaying any amount due or to become due in respect of such
obligations. All payments under this Section 9 on account of undrawn Letters of
Credit shall be made by the Company directly to a cash collateral account
established by the Administrative Agent for such purpose for application to the
Company's reimbursement obligations under subsection 3.8 as drafts are presented
under the Letters of Credit, with the balance, if any, to be applied to the
Company's obligations under this Agreement and the Notes as the Administrative
Agent shall determine with the approval of the Required Lenders. Except as
expressly provided above in this Section 9, presentment, demand, protest and all
other notices of any kind are hereby expressly waived.
SECTION 10. THE ADMINISTRATIVE AGENT; THE COLLATERAL
AGENT; THE ISSUING LENDER
10.1 APPOINTMENT. Each Lender hereby irrevocably designates and
appoints Chase as the Administrative Agent and CIT as the Collateral Agent under
this Agreement and irrevocably authorizes Chase as Administrative Agent and CIT
as Collateral Agent for such Lender, to take such action on its behalf under the
provisions of the Credit Documents and to exercise such powers and perform such
duties as are expressly delegated to the Administrative Agent or the Collateral
Agent, as the case may be, by the terms of the Credit Documents, together with
such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Agreement, neither the
Administrative Agent nor the Collateral Agent shall have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into the
Credit Documents or otherwise exist against the Administrative Agent or the
Collateral Agent.
10.2 DELEGATION OF DUTIES. Each of the Administrative Agent and the
Collateral Agent may execute any of its duties under this Agreement and each of
the other Credit Documents by or through agents or attorneys-in-fact and shall
be entitled to advice of counsel concerning all matters pertaining to such
duties. Neither the Administrative Agent nor the Collateral Agent shall be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care, except as otherwise provided in subsection
10.3.
10.3 EXCULPATORY PROVISIONS. None of the Administrative Agent, the
Collateral Agent or any of their respective officers, directors, employees,
agents, attorneys-in-fact or Affiliates shall be (i) liable for any action
lawfully taken or omitted to be taken by it or such
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Person under or in connection with the Credit Documents (except for its or such
Person's own gross negligence or willful misconduct) or (ii) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by any Credit Party or any officer thereof contained in the
Credit Documents or in any certificate, report, statement or other document
referred to or provided for in, or received by the Administrative Agent or the
Collateral Agent under or in connection with the Credit Documents or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
the Credit Documents or for any failure of any Credit Party to perform its
obligations thereunder. Neither the Administrative Agent nor the Collateral
Agent shall be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, any Credit Document or to inspect the properties, books or
records of any Credit Party.
10.4 RELIANCE BY ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT. The
Administrative Agent and the Collateral Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, the writings maintained in
the Register, writing, resolution, notice, consent, certificate, affidavit,
letter, cablegram, telegram, telecopy, telex or teletype message, statement,
order or other document or conversation believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel (including, without limitation, counsel
to the Company), independent accountants and other experts selected by the
Administrative Agent or the Collateral Agent. Each of the Administrative Agent
and the Collateral Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment, negotiation or
transfer thereof shall have been filed with the Administrative Agent or the
Collateral Agent. The Administrative Agent and the Collateral Agent shall be
fully justified in failing or refusing to take any action under any Credit
Document unless it shall first receive such advice or concurrence of the
Required Lenders (or, where a higher percentage of the Lenders is expressly
required hereunder, such Lenders) as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. The Administrative Agent and the Collateral Agent shall in all
cases be fully protected in acting, or in refraining from acting, under any
Credit Document in accordance with a request of the Required Lenders (or, where
a higher percentage of the Lenders is expressly required hereunder, such
Lenders), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Notes.
10.5 NOTICE OF DEFAULT. Neither the Administrative Agent nor the
Collateral Agent shall be deemed to have knowledge or notice of the occurrence
of any Default or Event of Default hereunder unless the Administrative Agent or
the Collateral Agent, as the case may be, has received written notice from a
Lender or the Company referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent or the Collateral Agent receives such a
notice, the Administrative Agent or the Collateral Agent, as the case may be,
shall promptly give notice thereof to the Lenders. The Administrative Agent or
the Collateral Agent, as the case may be, shall take such action with respect to
such Default or Event of Default as shall be reasonably directed by the Required
Lenders; PROVIDED that unless and until the Administrative Agent or the
Collateral Agent shall have received such directions, each of the Administrative
Agent and the Collateral Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with
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respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
10.6 NON-RELIANCE ON ADMINISTRATIVE AGENT, THE COLLATERAL AGENT AND
OTHER LENDERS. Each Lender expressly acknowledges that none of the
Administrative Agent, the Collateral Agent or any of their respective officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Administrative Agent,
the Collateral Agent or any such Person hereinafter taken, including any review
of the affairs of the Credit Parties, shall be deemed to constitute any
representation or warranty by the Administrative Agent or the Collateral Agent
to any Lender. Each Lender represents to the Administrative Agent and the
Collateral Agent that it has, independently and without reliance upon the
Administrative Agent or the Collateral Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of Holdings, the Company and
its Subsidiaries and made its own decision to make its Loans hereunder and enter
into this Agreement. Each Lender also represents that it will, independently
and without reliance upon the Administrative Agent, the Collateral Agent or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under the Credit Documents, and to
make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of Holdings, the Company and its Subsidiaries. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Administrative Agent or the Collateral Agent hereunder, neither
the Administrative Agent nor the Collateral Agent shall have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, financial and other condition or
creditworthiness of the Credit Parties which may come into the possession of the
Administrative Agent or the Collateral Agent or any of their respective
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
10.7 INDEMNIFICATION. The Lenders agree to indemnify each of the
Administrative Agent and the Collateral Agent in its capacity as such (to the
extent not reimbursed by the Credit Parties and without limiting the obligation
of the Credit Parties to do so), ratably according to the respective amounts of
their respective Commitments (or, to the extent such Commitments have been
terminated, according to the respective outstanding principal amounts of the
Loans and the L/C Obligations and the respective obligations, whether as Issuing
Lender or a Participating Lender, under the Letter of Credit), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including without limitation at any time following the payment
of the Notes) be imposed on, incurred by or asserted against the Administrative
Agent or the Collateral Agent in any way relating to or arising out of the
Credit Documents or any documents contemplated by or referred to herein or the
transactions contemplated hereby or any action taken or omitted by the
Administrative Agent or the Collateral Agent under or in connection with any of
the foregoing; PROVIDED that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the
Administrative Agent or the Collateral Agent's gross negligence or willful
misconduct. The agreements in this subsection 10.7 shall survive the payment of
the Notes and all other amounts payable hereunder.
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10.8 THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT IN THEIR
INDIVIDUAL CAPACITIES. Each of the Administrative Agent and the Collateral
Agent and their respective Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with Holdings, the Company and its
Subsidiaries as though the Administrative Agent and the Collateral Agent were
not the Administrative Agent and the Collateral Agent, as the case may be,
hereunder. With respect to its Loans made or renewed by it and any Note issued
to it, each of the Administrative Agent and the Collateral Agent shall have the
same rights and powers, duties and liabilities under the Credit Documents as any
Lender and may exercise the same as though it were not the Administrative Agent
or the Collateral Agent, as the case may be, and the terms "Lender" and
"Lenders" shall include the Administrative Agent and the Collateral Agent in
their individual capacities.
10.9 SUCCESSOR AGENT. Each of the Administrative Agent and the
Collateral Agent may resign as Administrative Agent or the Collateral Agent, as
the case may be, upon 30 days' notice to the Lenders. If the Administrative
Agent or the Collateral Agent shall resign as Administrative Agent or Collateral
Agent under the Credit Documents, then the Required Lenders shall appoint from
among the Lenders a successor agent for the Lenders which successor agent shall,
so long as no Event of Default has occurred and is continuing, be approved by
the Company, which shall not unreasonably withhold its approval, whereupon such
successor agent shall succeed to the rights, powers and duties of the
Administrative Agent or the Collateral Agent, as the case may be, and the term
"Administrative Agent" or the term "Collateral Agent", as the case may be, shall
mean such successor agent effective upon its appointment, and the former
Administrative Agent's or Collateral Agent's rights, powers and duties as
Administrative Agent or Collateral Agent, as the case may be, shall be
terminated, without any other or further act or deed on the part of such former
Administrative Agent or Collateral Agent, as the case may be, or any of the
parties to this Agreement or any holders of the Notes. After any retiring
Administrative Agent's or Collateral Agent's resignation hereunder as
Administrative Agent or Collateral Agent, as the case may be, the provisions of
this Section 10 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent or Collateral Agent, as the
case may be, under the Credit Documents.
10.10 ISSUING LENDER AS ISSUER OF LETTERS OF CREDIT. Each Lender
which is a holder of a Revolving Credit Commitment (collectively "REVOLVING
CREDIT LENDERS") hereby acknowledges that the provisions of this Section 10
shall apply to the Issuing Lender, in its capacity as issuer of the Letters of
Credit, in the same manner as such provisions are expressly stated to apply to
the Administrative Agent, except that obligations to indemnify the Issuing
Lender shall be ratable among the Revolving Credit Lenders in accordance with
their respective Revolving Credit Commitments (or, if the Revolving Credit
Commitments have been terminated, the outstanding principal amount of their
respective Revolving Credit Loans and L/C Obligations and their respective
participating interests in the outstanding Letters of Credit).
SECTION 11. MISCELLANEOUS
11.1 AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth
in this Agreement, no Credit Document nor any terms thereof may be amended,
supplemented, waived or modified except in accordance with the provisions of
this subsection 11.1. With the written consent of the Required Lenders, the
Administrative Agent, the Collateral Agent and the
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81
respective Credit Parties or their Subsidiaries may, from time to time, enter
into written amendments, supplements or modifications hereto for the purpose of
adding any provisions to any Credit Document to which they are parties or
changing in any manner the rights of the Lenders or of any such Credit Party or
its Subsidiaries thereunder or waiving, on such terms and conditions as the
Administrative Agent or the Collateral Agent, as the case may be, may specify in
such instrument, any of the requirements of any such Credit Document or any
Default or Event of Default and its consequences; PROVIDED, HOWEVER, that:
(a) no such waiver and no such amendment, supplement or modification
shall release collateral not required or permitted by any Credit Document
to be released and which, in the aggregate with all other collateral
released pursuant to this clause (a) (other than collateral released
pursuant to the proviso to this clause (a)) during the calendar year in
which such proposed release would be effected and the immediately preceding
calendar year, has fair market value on the proposed date of release in
excess of 20% of the fair market value of all collateral on such date
without the written consent of the Supermajority Lenders; PROVIDED that,
notwithstanding the foregoing, this clause (a) shall not be applicable to
and no consent shall be required for (i) releases of collateral in
connection with any Asset Sales permitted by subsection 8.5 as in effect on
the Closing Date or (ii) releases of collateral in accordance with
subsection 11.11;
(b) no such waiver and no such amendment, supplement or modification
shall extend the final maturity date of any Note or the scheduled payment
date of any installment of any Loan, or reduce the rate or extend the time
of payment of interest thereon, or change the method of calculating
interest thereon, or reduce any fee payable to the Lenders hereunder, or
reduce the principal amount thereof, or change the amount of any Lender's
Commitment or Commitment Percentage, or amend, modify or waive any
provision of subsection 4.9(b) or this subsection 11.1 or reduce the
percentage specified in the definition of Required Lenders or reduce the
percentage specified in the definition of Supermajority Lenders or reduce
the percentage specified in the definition of Section 4.4 Lenders or
consent to the assignment or transfer by any Credit Party of any of its
rights and obligations under any Credit Document, in each case, without the
prior written consent of each Lender directly affected thereby;
(c) no such waiver and no such amendment, supplement or modification
affecting the then Administrative Agent, Collateral Agent or Issuing Lender
shall amend, modify or waive any provision of Section 10 without the written
consent of such Administrative Agent, Collateral Agent or Issuing Lender;
(d) without the consent of the Lenders which are holders of the
Revolving Credit Loans only, the Lenders which are holders of all the Term
Loans may amend this Agreement and the Term Loan Notes to extend the
maturities of the installments of the Term Loans; and without the consent
of the Lenders which are holders of the Term Loans, all the Revolving
Credit Lenders may amend this Agreement and the Revolving Credit Notes to
extend the Revolving Credit Termination Date; and
(e) no such waiver, and no such amendment, supplement or modification
shall amend, modify or waive (i) the Section 4.4 Lenders' ability to act
pursuant to subsection 4.4(b)(i), (ii) or (iii) without the written consent
of the Section 4.4 Lenders or (ii) the
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order of application of prepayments specified in subsection 4.4(a) or
4.4(b)(iv) without the written consent of the holders of at least 80% of
the sum of (i) the aggregate unpaid principal amount of the Term Loans, if
any, and (ii) the Revolving Credit Commitments or, if the Revolving Credit
Commitments are terminated, the aggregate unpaid principal amount of the
Revolving Credit Loans (the Term Loans and the Revolving Credit Commitments
of any Non-Funding Lender to be disregarded in determining such percentage
at any time).
Any such waiver and any such amendment, supplement or modification described in
this subsection 11.1 shall apply equally to each of the Lenders and shall be
binding upon each Credit Party and its Subsidiaries, the Lenders, the
Administrative Agent, the Collateral Agent and Issuing Lender and all future
holders of the Notes and the Loans. Any extension of a Letter of Credit by the
Issuing Lender shall be treated hereunder as a new Letter of Credit. In the
case of any waiver, the Credit Parties, the Lenders, the Administrative Agent,
the Collateral Agent and Issuing Lender shall be restored to their former
position and rights hereunder and under the outstanding Notes, and any Default
or Event of Default waived shall be deemed to be cured and not continuing; but
no such waiver shall extend to any subsequent or other Default or Event of
Default, or impair any right consequent thereon.
11.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy or telex, if one is listed), and, unless otherwise expressly provided
herein, shall be deemed to have been duly given or made when delivered by hand,
or three Business Days after being deposited in the mail, postage prepaid, or,
in the case of telecopy notice, when sent, confirmation of receipt received, or,
in the case of telex notice, when sent, answerback received, addressed as
follows in the case of the Company, the Administrative Agent, the Collateral
Agent and as set forth in Schedule I-B in the case of any Lender, or to such
other address as may be hereafter notified by the respective parties hereto and
any future holders of the Notes:
The Company: Primeco Inc.
16225 Park Ten Place, Suite 200
Houston, Texas 77084
Attention: Chief Financial Officer
Telecopy: (713) 647-5135
With a copy to: Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Attention: Charles K. Marquis, Esq.
Telex: 177920 GIBTRASK NYK
Telecopy: (212) 949-7606
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The Administrative Agent: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: William J. Caggiano
Telecopy: (212) 270-1063
With a copy to: Chase Agency Services Group
140 East 45th Street, 29th Floor
New York, New York 10017
Attention: Janet M. Belden
Telecopy: (212) 622-0002
The Collateral Agent: The CIT Group/Business Credit, Inc.
1211 Avenue of the Americas - 22nd Floor
New York, New York 10036
Attention: [Michael Egan]
Telecopy: (212) 536-1296
PROVIDED that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsections 3.4, 3.5, 4.1, 4.2, 4.3 and 4.4 shall not
be effective until received and PROVIDED that the failure to provide the copies
of notices to the Company provided for in this subsection 11.2 shall not result
in any liability to the Administrative Agent or the Collateral Agent.
11.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent, the Collateral
Agent or any Lender, any right, remedy, power or privilege hereunder, shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
11.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement, the Letters of Credit and the Notes.
11.5 PAYMENT OF EXPENSES AND TAXES. The Company agrees (a) to pay or
reimburse each of the Administrative Agent and the Collateral Agent for all its
reasonable out-of-pocket costs and expenses incurred in connection with the
development, preparation and execution of, and any amendment, supplement or
modification to, the Credit Documents and any other documents prepared in
connection herewith, and the consummation of the transactions contemplated
hereby and thereby, including, without limitation, the reasonable fees and
disbursements of one counsel to the Administrative Agent and the Collateral
Agent, (b) to pay or reimburse each Lender, the Administrative Agent and the
Collateral Agent for all their costs and expenses incurred in connection with,
and to pay, indemnify, and hold the Administrative Agent, the Collateral Agent
and each Lender harmless from and against any and all other
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84
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever arising out of
or in connection with, the enforcement or preservation of any rights under any
Credit Document and any such other documents, including, without limitation,
reasonable fees and disbursements of counsel to the Administrative Agent, the
Collateral Agent and each Lender incurred in connection with the foregoing and
in connection with advising the Administrative Agent and the Collateral Agent
with respect to its rights and responsibilities under this Agreement and the
documentation relating thereto, (c) to pay, indemnify, and to hold the
Administrative Agent, the Collateral Agent and each Lender harmless from, any
and all recording and filing fees and any and all liabilities with respect to,
or resulting from any delay in paying, stamp, excise and other similar taxes
(other than withholding taxes), if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or consummation of any
of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, any Credit
Document and any such other documents, and (d) to pay, indemnify, and hold the
Administrative Agent, the Collateral Agent and each Lender and their respective
Affiliates, officers and directors harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever (including,
without limitation, reasonable fees and disbursements of counsel) which may be
incurred by or asserted against the Administrative Agent, the Collateral Agent
or the Lenders or such Affiliates, officers or directors (x) arising out of or
in connection with any investigation, litigation or proceeding related to this
Agreement, the other Credit Documents, the proceeds of the Loans or the
Subordinated Debt and the transactions contemplated by or in respect of such use
of proceeds, or any of the other transactions contemplated hereby, whether or
not the Administrative Agent, the Collateral Agent or any of the Lenders or such
Affiliates, officers or directors is a party thereto, including, without
limitation, any of the foregoing relating to the violation of, noncompliance
with or liability under, any Environmental Law applicable to the operations of
the Company, any of its Subsidiaries or any of the facilities and properties
owned, leased or operated by the Company or any of its Subsidiaries, or (y)
without limiting the generality of the foregoing, by reason of or in connection
with the execution and delivery or transfer of, or payment or failure to make
payments under, Letters of Credit (it being agreed that nothing in this
subsection 11.5(d)(y) is intended to limit the Company's obligations pursuant to
subsection 3.8) (all the foregoing, collectively, the "INDEMNIFIED
LIABILITIES"), PROVIDED that the Company shall have no obligation hereunder with
respect to indemnified liabilities of the Administrative Agent, the Collateral
Agent or any Lender or any of their respective Affiliates, officers and
directors arising from (i) the gross negligence or willful misconduct of such
Administrative Agent, Collateral Agent or Lender or their respective directors
or officers or (ii) legal proceedings commenced against the Administrative
Agent, the Collateral Agent or a Lender by any security holder or creditor
thereof arising out of and based upon rights afforded any such security holder
or creditor solely in its capacity as such or (iii) legal proceedings commenced
against the Administrative Agent, the Collateral Agent or any such Lender by any
Transferee (as defined in subsection 11.6). The agreements in this subsection
11.5 shall survive repayment of the Loans and all other amounts payable
hereunder.
11.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a) This
Agreement shall be binding upon and inure to the benefit of the Company, the
Lenders, the Administrative Agent, the Collateral Agent, all future holders of
the Notes and the Loans, and their respective successors and assigns, except
that the Company may not assign or transfer any of its rights or obligations
under this Agreement without the prior written consent of each Lender.
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(b) Any Lender may, in the ordinary course of its commercial banking
or lending business and in accordance with applicable law, at any time sell to
one or more banks or other entities ("PARTICIPANTS") participating interests in
any Loan owing to such Lender, any participating interest in the Letters of
Credit of such Lender, any Note held by such Lender, any Commitment of such
Lender or any other interest of such Lender hereunder. In the event of any such
sale by a Lender of participating interests to a Participant, such Lender's
obligations under this Agreement to the other parties to this Agreement shall
remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such Note for
all purposes under this Agreement and Holdings, the Company, the Administrative
Agent and the Collateral Agent shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under this
Agreement. The Company agrees that if amounts outstanding under this Agreement
and the Notes are due and unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement and any Note to the
same extent as if the amount of its participating interest were owing directly
to it as a Lender under this Agreement or any Note; PROVIDED, that such right of
setoff shall be subject to the obligation of such Participant to share with the
Lenders, and the Lenders agree to share with such Participant, as provided in
subsection 11.7. The Company also agrees that each Participant shall be
entitled to the benefits of subsections 3.10, 4.11 and 4.12 with respect to its
participation in the Letters of Credit and in the Commitments and the Loans
outstanding from time to time as if it were a Lender; PROVIDED, that no
Participant shall be entitled to receive any greater amount pursuant to any such
subsection than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Lender
to such Participant had no such transfer occurred. Each Lender agrees that the
participation agreement pursuant to which any Participant acquires its
participating interest (or any other document) may afford voting rights to such
Participant, or any right to instruct such Lender with respect to voting
hereunder, only with respect to matters requiring the consent of either all of
the Lenders hereunder or all of the Lenders holding the relevant Term Loans or
Revolving Credit Commitments subject to such participation.
(c) Subject to paragraph (g) of this subsection 11.6, any Lender may,
in the ordinary course of its commercial banking or lending business and in
accordance with applicable law, (i) at any time and from time to time assign all
or any part of its rights and obligations under this Agreement and the Notes to
any Lender or any Affiliate thereof, PROVIDED that, in the event of a sale of
less than all of such rights and obligations, such assigning Lender after any
such sale to any other Lender or any Affiliate of such Lender shall retain
Commitments and/or Loans and/or L/C Participating Interests aggregating at least
$5,000,000 (or such lesser amount as the Administrative Agent may determine),
and, (ii) with the consent of the Company and the Administrative Agent (which in
each case shall not be unreasonably withheld or delayed) at any time and from
time to time assign to one or more additional banks, mutual funds or financial
institutions or entities (each, an "ASSIGNEE"), all or any part of its rights
and obligations under this Agreement and the Notes, pursuant to an Assignment
and Acceptance, executed by such Assignee, such transferor Lender (and, in the
case of an Assignee that is not then a Lender or an Affiliate thereof, by the
Company and the Administrative Agent), and delivered to the Administrative Agent
for its acceptance and recording in the Register (as defined below); PROVIDED
that (A) each such sale pursuant to clause (ii) of this subsection 11.6(c) shall
be in a principal amount of $5,000,000 or more unless the Assigning Lender is
transferring all of its
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rights and obligations and (B) in the event of a sale of less than all of such
rights and obligations, such Lender after any such sale shall retain Commitments
and/or Loans and/or L/C Participating Interests aggregating at least $5,000,000.
Upon such execution, delivery, acceptance and recording, from and after the
effective date determined pursuant to such Assignment and Acceptance, (x) the
Assignee thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
with a Commitment as set forth therein, and (y) the assigning Lender thereunder
shall, to the extent of the interest transferred, as reflected in such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of a Assignment and Acceptance covering all or the remaining
portion of a transferor Lender's rights and obligations under this Agreement,
such transferor Lender shall cease to be a party hereto).
(d) The Administrative Agent, which for purposes of this subsection
11.6(d) only shall be deemed the agent of the Company, shall maintain at the
address of the Administrative Agent referred to in subsection 11.2 a copy of
each Assignment and Acceptance delivered to it and a register (the "REGISTER")
for the recordation of the names and addresses of the Lenders and the
Commitments of, and principal amounts of the Loans owing to, each Lender from
time to time. The entries in the Register shall be conclusive, in the absence
of manifest error, and the Company, the Administrative Agent, the Collateral
Agent and the Lenders shall treat each Person whose name is recorded in the
Register as the owner of a Loan or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment of any Loan or other
obligation hereunder shall be effective only upon appropriate entries with
respect thereto being made in the Register. The Register shall be available for
inspection by the Company or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an Affiliate thereof, by the Company, the Administrative Agent
and the Collateral Agent), together with payment to the Administrative Agent of
a registration and processing fee of $4,000 if the Assignee is not a Lender
prior to the execution of such supplement and $1,000 otherwise, the
Administrative Agent shall (i) promptly accept such Assignment and Acceptance
and (ii) on the effective date determined pursuant thereto record the
information contained therein in the Register and give notice of such acceptance
and recordation to the Lenders, the Collateral Agent and the Company. On or
prior to such effective date, the Company at its own expense, shall execute and
deliver to the Administrative Agent (in exchange for any or all of the Term Loan
Note, or Revolving Credit Notes of the assigning Lender, if any ) new Term Loan
Note, or Revolving Credit Notes, as the case may be, to the order of such
Assignee (if requested by such Assignee) in an amount equal to the Revolving
Credit Commitment or the Term Loans, as the case may be, assumed by it pursuant
to such Assignment and Acceptance and, if the assigning Lender has retained a
Commitment or any Term Loans hereunder, new Term Loan Note, or Revolving Credit
Notes, as the case may be, to the order of the assigning Lender in an amount
equal to the Commitment or such Term Loans, as the case may be, retained by it
hereunder (if requested). Such new Notes shall be dated the Effective Date and
shall otherwise be in the form of the Notes replaced thereby.
(f) The Lenders agree that they will use reasonable efforts to protect
the confidentiality of any confidential information concerning Holdings, the
Company and its
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Subsidiaries and Affiliates. Notwithstanding the foregoing, the Company
authorizes each Lender to disclose to any Participant or Assignee (each, a
"TRANSFEREE") and any prospective Transferee any and all financial information
in such Lender's possession concerning Holdings, the Company and its
Subsidiaries and Affiliates which has been delivered to such Lender by or on
behalf of Holdings or the Company pursuant to this Agreement or which has been
delivered to such Lender by or on behalf of Holdings, or the Company in
connection with such Lender's credit evaluation of Holdings, the Company and its
Subsidiaries and Affiliates prior to becoming a party to this Agreement;
PROVIDED that each Lender shall cause its respective prospective Transferee to
agree in writing to protect the confidentiality of any confidential information
concerning Holdings, the Company and its Subsidiaries and Affiliates.
(g) If, pursuant to this subsection 11.6, any interest in this
Agreement or any Note is transferred to any Transferee which is organized under
the laws of any jurisdiction other than the United States or any State thereof,
the transferor Lender shall cause such Transferee, concurrently with the
effectiveness of such transfer either (1) in the case of a Transferee that is a
"bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) to represent
to the transferor Lender (for the benefit of the transferor Lender, the
Administrative Agent, the Collateral Agent and the Company) that under
applicable law and treaties no taxes will be required to be withheld by the
Administrative Agent, the Collateral Agent, the Company or the transferor Lender
with respect to any payments to be made to such Transferee in respect of the
Loans or L/C Participating Interests, (ii) to furnish to the transferor Lender
(and, in the case of any Transferee registered in the Register, the
Administrative Agent, the Collateral Agent and the Company) either U.S. Internal
Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein
such Transferee claims entitlement to complete exemption from U.S. federal
withholding tax on all interest payments hereunder) and (iii) to agree (for the
benefit of the transferor Lender, the Administrative Agent, the Collateral Agent
and the Company) to provide the transferor Lender (and, in the case of any
Transferee registered in the Register, the Administrative Agent, the Collateral
Agent and the Company) a new Form 4224 or Form 1001 upon the expiration or
obsolescence of any previously delivered form and comparable statements in
accordance with applicable U.S. laws and regulations and amendments duly
executed and completed by such Transferee, and to comply from time to time with
all applicable U.S. laws and regulations with regard to such withholding tax
exemption or (2) in the case of any Transferee that is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Code, (i) to represent to the transferor
Lender (for the benefit of the transferor Lender, the Administrative Agent, the
Collateral Agent and the Company) that it is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code, (ii) to furnish to the transferor Lender (and,
in the case of any Transferee registered in the Register, to the Company), with
a copy to the Administrative Agent, (A) a Subsection 4.11(d)(2) Certificate and
(B) two (2) accurate and complete original signed copies of Internal Revenue
Service form W-8, certifying to such Transferee's legal entitlement on the date
of the effectiveness of such transfer to an exemption from U.S. withholding tax
under the provisions of Section 881(c) of the Code with respect to all payments
to be made under this Agreement, and (iii) to agree (for the benefit of the
transferor Lender, the Administrative Agent, the Collateral Agent and the
Company), to the extent legally entitled to do so, upon reasonable request by
the transferor Lender (or, in the case of any Transferee registered in the
Register, the Administrative Agent, the Collateral Agent or the Company), to
provide to the transferor Lender, the Administrative Agent, the Collateral Agent
and the Company such other forms as may be required in order to establish the
legal entitlement of such Transferee to an exemption from withholding tax with
respect to payments under this Agreement.
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88
(h) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this subsection concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law.
11.7 ADJUSTMENTS; SET-OFF. (a) If any Lender (a "BENEFITTED LENDER")
shall at any time receive any payment of all or part of any of its Loans or L/C
Participating Interests, as the case may be, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in clause (f) of
Section 9, or otherwise) in a greater proportion than any such payment to and
collateral received by any other Lender, if any, in respect of such other
Lender's Loans or L/C Participating Interests, as the case may be, or interest
thereon, such benefitted Lender shall purchase for cash from the other Lenders
such portion of each such other Lender's Loans or L/C Participating Interests,
as the case may be, or shall provide such other Lenders with the benefits of any
such collateral, or the proceeds thereof, as shall be necessary to cause such
benefitted Lender to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Lenders; PROVIDED, HOWEVER, that if all or any
portion of such excess payment or benefits is thereafter recovered from such
benefitted Lender, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest. The
Company agrees that each Lender so purchasing a portion of another Lender's
Loans and/or L/C Participating Interests may exercise all rights of payment
(including, without limitation, rights of set-off) with respect to such portion
as fully as if such Lender were the direct holder of such portion. The
Administrative Agent shall promptly give the Company notice of any set-off,
PROVIDED that the failure to give such notice shall not affect the validity of
such set-off.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Company, any
such notice being expressly waived by the Company to the extent permitted by
applicable law, upon the filing of a petition under any of the provisions of the
federal bankruptcy code or amendments thereto, by or against; the making of an
assignment for the benefit of creditors by; the application for the appointment,
or the appointment, of any receiver of, or of any substantial portion of the
property of; the issuance of any execution against any substantial portion of
the property of; the issuance of a subpoena or order, in supplementary
proceedings, against or with respect to any substantial portion of the property
of; or the issuance of a warrant of attachment against any substantial portion
of the property of; the Company to set-off and apply against any indebtedness,
whether matured or unmatured, of the Company to such Lender, any amount owing
from such Lender to the Company, at or at any time after, the happening of any
of the above mentioned events, and as security for such indebtedness, the
Company hereby grants to each Lender a continuing security interest in any and
all deposits, accounts or moneys of the Company then or thereafter maintained
with such Lender, subject in each case to subsection 11.7(a) of this Agreement.
The aforesaid right of set-off may be exercised by such Lender against the
Company or against any trustee in bankruptcy, debtor in possession, assignee for
the benefit of creditors, receiver or execution, judgment or attachment creditor
of the Company, or against anyone else claiming through or against the Company
or such trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, receiver, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off shall not have been
exercised by such Lender prior to the making, filing or issuance, or service
upon such Lender of, or of notice of, any such petition;
<PAGE>
89
assignment for the benefit of creditors; appointment or application for the
appointment of a receiver; or issuance of execution, subpoena, order or warrant.
Each Lender agrees promptly to notify the Company and the Administrative Agent
after any such set-off and application made by such Lender, PROVIDED that the
failure to give such notice shall not affect the validity of such set-off and
application.
11.8 COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Company and the Administrative Agent. This Agreement
shall become effective with respect to the Company, the Administrative Agent,
the Collateral Agent and the Lenders when the Administrative Agent shall have
received copies of this Agreement executed by the Company, the Collateral Agent
and the Lenders, or, in the case of any Lender, shall have received telephonic
confirmation from such Lender stating that such Lender has executed counterparts
of this Agreement or the signature pages hereto and sent the same to the
Administrative Agent.
11.9 GOVERNING LAW; NO THIRD PARTY RIGHTS. This Agreement and the
Notes and the rights and obligations of the parties under this Agreement and the
Notes shall be governed by, and construed and interpreted in accordance with,
the law of the State of New York. This Agreement is solely for the benefit of
the parties hereto and their respective successors and assigns, and, except as
set forth in subsection 11.6, no other Persons shall have any right, benefit,
priority or interest under, or because of the existence of, this Agreement.
11.10 SUBMISSION TO JURISDICTION; WAIVERS. (a) Each party to this
Agreement hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Agreement or any of the other Credit Documents,
or for recognition and enforcement of any judgment in respect thereof, to
the non-exclusive general jurisdiction of the courts of the State of New
York, the courts of the United States of America for the Southern District
of New York, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be brought
in such courts, and waives any objection that it may now or hereafter have
to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees
not to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such party at its address set forth in subsection 11.2 or at
such other address of which the Administrative Agent shall have been
notified pursuant thereto; and
(iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction.
<PAGE>
90
(b) Each party hereto unconditionally waives trial by jury in any
legal action or proceeding referred to in paragraph (a) above and any
counterclaim therein.
11.11 RELEASES. The Administrative Agent, the Collateral Agent and
the Lenders agree to cooperate with the Company and its Subsidiaries with
respect to any sale or other disposition permitted by subsection 8.5 and
promptly take such action and execute and deliver such instruments and documents
necessary to release the liens and security interests created by the Security
Documents relating to any of the assets or property affected by any such sale
permitted by subsection 8.5 including, without limitation, any necessary release
or satisfaction of a Mortgage in properly recordable form and any Uniform
Commercial Code amendment, release or termination or partial release or
termination statements.
11.12 INTEREST. Each provision in this Agreement and each other
Credit Document is expressly limited so that in no event whatsoever shall the
amount paid, or otherwise agreed to be paid, by the Company for the use,
forbearance or detention of the money to be loaned under this Agreement or any
other Credit Document or otherwise (including any sums paid as required by any
covenant or obligation contained herein or in any other Credit Document which is
for the use, forbearance or detention of such money), exceed that amount of
money which would cause the effective rate of interest to exceed the highest
lawful rate permitted by applicable law (the "HIGHEST LAWFUL RATE"), and all
amounts owed under this Agreement and each other Credit Document shall be held
to be subject to reduction to the effect that such amounts so paid or agreed to
be paid which are for the use, forbearance or detention of money under this
Agreement or such Credit Document shall in no event exceed that amount of money
which would cause the effective rate of interest to exceed the Highest Lawful
Rate. Notwithstanding any provision in this Agreement or any other Credit
Document to the contrary, if the maturity of the Loans or the obligations in
respect of the other Credit Documents are accelerated for any reason, or in the
event of any prepayment of all or any portion of the Loans or the obligations in
respect of the other Credit Documents by the Company or in any other event,
earned interest on the Loans and such other obligations of the Company may never
exceed the Highest Lawful Rate, and any unearned interest otherwise payable on
the Loans or the obligations in respect of the other Credit Documents that is in
excess of the Highest Lawful Rate shall be cancelled automatically as of the
date of such acceleration or prepayment or other such event and (if theretofore
paid) shall, at the option of the holder of the Loans or such other obligations,
be either refunded to the Company or credited on the principal of the Loans. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Highest Lawful Rate, the Company and the Lenders shall,
to the maximum extent permitted by applicable law, amortize, prorate, allocate
and spread, in equal parts during the period of the actual term of this
Agreement, all interest at any time contracted for, charged, received or
reserved in connection with this Agreement.
11.13 SPECIAL INDEMNIFICATION. Notwithstanding any provision in this
Agreement to the contrary, (A) each Lender, or Transferee of any Lender pursuant
to subsection 11.6(g) of this Agreement, shall indemnify the Company, the
Administrative Agent and the Collateral Agent, and hold each of them harmless
against any and all payments, expenses or taxes which the Company, the
Administrative Agent or the Collateral Agent may become subject to or obligated
to pay if and to the extent that, (i) on the Effective Date or the effective
date of transfer, as the case may be, such Lender, or such Transferee of a
Lender pursuant to subsection 11.6(g) of this Agreement, (a) makes the
representation and covenants set forth in subsection 4.11(d)(2) of this
Agreement, or, in the case of a Transferee, pursuant to subsection 11.6(g)(2) of
this Agreement
<PAGE>
91
and the Assignment and Acceptance and (b) is not in fact also qualified to make
the representation and covenants set forth in subsection 4.11(d)(1) of this
Agreement or, in the case of a Transferee, pursuant to subsection 11.6(g)(1) of
this Agreement and the Assignment and Acceptance and (ii) as a result of any
Change in Law or compliance by such Lender, or Transferee, with any request or
directive (whether or not having the force of law) from any central bank or
other Governmental Authority the Company, the Administrative Agent or the
Collateral Agent are required to make any additional payments on account of U.S.
withholding taxes and amounts related thereto with respect to any payments under
this Agreement, any Note, or a Eurodollar Loan, made prior to such Change in Law
or request or directive, none of which payments would have been required if such
Lender, or Transferee, was qualified on the Effective Date or the date of the
transfer, as the case may be, to make the representation and covenants set forth
in subsection 4.11(d)(1) of this Agreement or pursuant to subsection 11.6(g)(1)
of this Agreement and the Assignment and Acceptance, as the case may be, and (B)
each Lender, or Transferee, agrees that to the extent any amount payable by such
Lender or Transferee pursuant to this subsection 11.13 remains unpaid on any
Interest Payment Date or the date on which any prepayment is made, the Company
shall have the right to set-off against any payment due to such Lender or
Transferee on such date any amounts owing to the Company pursuant to this
subsection 11.13.
11.14 PERMITTED PAYMENTS AND TRANSACTIONS. Notwithstanding any
provision to the contrary contained in this Agreement, the Company and its
Subsidiaries shall be permitted to pay fees and expenses pursuant to or in
respect of, the following agreements, and, in the case of clauses (c) and (d)
below, to engage in the following transactions: (a) agreements with any Person
or Persons providing for the payment of customary fees in connection with
serving as a director of the Company or any Subsidiary of the Company; (b)
agreements providing for the payment of commercially reasonable fees in
connection with any permitted financing, refinancing, sale, transfer, sale and
leaseback or other permitted disposition of any assets of the Company or its
Subsidiaries; (c) the borrowing of any Indebtedness to the extent, and upon the
terms and conditions, the same is expressly permitted under subsection 8.1; (d)
retiring all of the shares of its preferred stock which were held by Holdings
and contributed to the Company in connection with the IPO; and (e) agreements
providing for commercially reasonable fees in connection with any permitted
purchase or acquisition of stock or assets by the Company or any of its
Subsidiaries.
<PAGE>
92
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
PRIMECO INC.
By:
------------------------------------
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent,
Issuing Lender and a Lender
By:
------------------------------------
Title:
THE CIT GROUP/BUSINESS CREDIT, INC.,
as Collateral Agent and a Lender
By:
------------------------------------
Title:
BANKERS TRUST COMPANY
By:
------------------------------------
Title:
<PAGE>
93
BANQUE PARIBAS
By:
------------------------------------
Title:
By:
------------------------------------
Title:
<PAGE>
94
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By:
------------------------------------
Title:
By:
------------------------------------
Title:
<PAGE>
95
FLEET BANK
By:
------------------------------------
Title:
<PAGE>
96
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By:
------------------------------------
Title:
<PAGE>
97
BANK OF TOKYO TRUST COMPANY
By:
------------------------------------
Title:
<PAGE>
98
THE FIRST NATIONAL BANK OF BOSTON
By:
------------------------------------
Title:
<PAGE>
99
HELLER FINANCIAL, INC.
By:
------------------------------------
Title:
By:
------------------------------------
Title:
<PAGE>
100
SUMITOMO BANK LIMITED (HOUSTON)
By:
------------------------------------
Title:
By:
------------------------------------
Title:
<PAGE>
101
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
------------------------------------
Title:
<PAGE>
102
CHANCELLOR SENIOR SECURED MANAGEMENT
By:
------------------------------------
Title:
<PAGE>
103
VAN KAMPEN MERRITT PRIME RATE
INCOME TRUST
By:
------------------------------------
Title:
<PAGE>
104
CRESCENT/MACH I PARTNERS, L.P.
By its General Partner
CRESCENT MACH I G.P. CORPORATION
By its attorney-in-fact
CRESCENT CAPITAL CORPORATION
By:
------------------------------------
Title:
<PAGE>
SCHEDULE I
LIST OF ADDRESSES FOR NOTICES;
COMMITMENT AMOUNTS
THE CHASE MANHATTAN BANK
270 Park Avenue
New York, New York 10017
Attn: David Mallett
Telecopy: (212) 270-1063
COMMITMENT AMOUNTS:
Revolving Credit Commitment: $22,500,000
Term Loan Commitment: $15,000,000
COMMITMENT PERCENTAGE:
Revolving Credit 12.85714%
Term Loan 12.14575%
BANKERS TRUST COMPANY
130 Liberty Street
New York, New York
Attn: Gina Thompson
Telecopy: (212) 250-7200
COMMITMENT AMOUNT:
Revolving Credit Commitment: $20,000,000
COMMITMENT PERCENTAGE:
Revolving Credit 11.42857%
<PAGE>
2
THE CIT GROUP/BUSINESS CREDIT, INC.
1211 Avenue of the Americas
22nd Floor
New York, New York 10036
Attn: Edward Jesser
Telecopy: (212) 536-1295
COMMITMENT AMOUNT:
Revolving Credit Commitment: $20,000,000
COMMITMENT PERCENTAGE:
Revolving Credit 11.42857%
BANQUE PARIBAS
787 Seventh Avenue
32nd Floor
New York, New York 10019
Attn: Thomas Liu
Telecopy: (212) 841-2363
COMMITMENT AMOUNT:
Revolving Credit Commitment: $15,000,000
COMMITMENT PERCENTAGE:
Revolving Credit 8.57143%
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
Capital Markets Group - Corporate Finance Division
One First Union Center
301 South College Street, TW-18
Charlotte, NC 28288-0737
Attn: Ed Ross
Telecopy: (704) 374-3300
COMMITMENT AMOUNT:
Revolving Credit Commitment: $15,000,000
COMMITMENT PERCENTAGE:
Revolving Credit 8.57143%
<PAGE>
3
FLEET BANK
56 East 42nd Street
New York, New York 10017
Attn: Richard Silverman
Telecopy: (212) 907-5610
COMMITMENT AMOUNT:
Revolving Credit Commitment: $15,000,000
COMMITMENT PERCENTAGE:
Revolving Credit 8.57143%
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
165 Broadway
New York, New York 10006
Attn: Koji Sasayama
Telecopy: (212) 608-2371
COMMITMENT AMOUNT:
Revolving Credit Commitment: $15,000,000
COMMITMENT PERCENTAGE:
Revolving Credit 8.57143%
BANK OF TOKYO TRUST COMPANY
1251 Avenue of the Americas
New York, New York 10116-3139
Attn: John Strobe
Telecopy: (212) 782-6442
COMMITMENT AMOUNT:
Revolving Credit Commitment: $15,000,000
COMMITMENT PERCENTAGE:
Revolving Credit 8.57143%
<PAGE>
4
THE FIRST NATIONAL BANK OF BOSTON
100 Federal Street
Mail Stop 01-08-05
Boston, MA 02110
Attn: Timothy Barnes
Telecopy: (617) 434-4929
COMMITMENT AMOUNT:
Revolving Credit Commitment: $12,500,000
COMMITMENT PERCENTAGE:
Revolving Credit 7.14286%
HELLER FINANCIAL, INC.
101 Park Avenue
New York, New York 10178
Attn: Tara Hopkins
Telecopy: (212) 880-2060
COMMITMENT AMOUNT:
Revolving Credit Commitment: $12,500,000
COMMITMENT PERCENTAGE:
Revolving Credit 7.14286%
SUMITOMO BANK LIMITED (HOUSTON)
Two Houston Center
Houston, Texas 77010
Attn: Bruce Portillo
Telecopy: (713) 759-1419
COMMITMENT AMOUNT:
Revolving Credit Commitment: $12,500,000
COMMITMENT PERCENTAGE:
Revolving Credit 8.00000%
<PAGE>
5
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
800 Scudders Mill Road
Area 2C
Plainsboro, NJ 08536
Attn: Gil Marchand
Telecopy: (609) 282-3348
COMMITMENT AMOUNT:
Term Loan Commitment: $41,500,000
COMMITMENT PERCENTAGE:
Term Loan 33.60324%
CHANCELLOR SENIOR SECURED MANAGEMENT
1166 Avenue of the Americas
27th Floor
New York, New York 10036
Attn: Christopher Jansen
Telecopy: (212) 278-9869
COMMITMENT AMOUNT:
Term Loan Commitment: $30,000,000
COMMITMENT PERCENTAGE:
Term Loan 24.29150%
VAN KAMPEN MERRITT PRIME RATE INCOME TRUST
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attn: Jeffrey Maillet
Telecopy: (708) 684-6740
COMMITMENT AMOUNT:
Term Loan Commitment: $29,500,000
COMMITMENT PERCENTAGE:
Term Loan 23.88664%
<PAGE>
6
CRESCENT/MACH I PARTNERS
200 Park Avenue
New York, New York 10166-0228
Attn: Justin Driscoll
Telecopy: (212) 297-4159
COMMITMENT AMOUNT:
Term Loan Commitment: $7,500,000
COMMITMENT PERCENTAGE:
Term Loan 6.07287%
<PAGE>
TERMINATION OF MANAGEMENT AGREEMENT
THIS TERMINATION OF MANAGEMENT AGREEMENT is made effective as of the 25th
day of October, 1996, by and between Investcorp International, Inc., a
Delaware corporation ("III") and Prime Service, Inc., a Delaware corporation
("Prime").
WHEREAS, III and Prime are party to an Agreement for Management Advisory,
Strategic Planning and Consulting Services, dated as of December 1, 1994 (the
"Management Agreement");
WHEREAS, the Management Agreement expires according to its terms on
December 1, 1999; and
WHEREAS, III and Prime each desire to immediately terminate the Management
Agreement and all rights and obligations thereunder.
NOW THEREFORE, for good and valid consideration, the receipt of which is
hereby acknowledged, the parties do hereby agree as follows.
Termination. The Management Agreement is hereby terminated, and the
parties thereto shall have no further rights or duties thereunder. For the
avoidance of doubt, Prime shall have no further obligation to pay fees to
III and Prime shall have no right of reimbursement for any fees already
paid to III pursuant to the Management Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Termination of
Management Agreement to be executed and delivered by its duly authorized
officer or agent set forth below.
INVESTCORP INTERNATIONAL, INC.
/s/ Jon P. Hedley
------------------------------
Name:
Title:
PRIME SERVICE, INC.
/s/ Thomas Bennett
------------------------------
Name:
Title:
NA962960.088/1
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
of our report dated August 30, 1996 on our audits of the consolidated
financial statements of Prime Service, Inc. and Subsidiary, as well as our
report dated August 30, 1996 on our audits of Alpine Equipment Rentals and
Supply Company. We also consent to the reference to our firm under the
caption "Experts".
/s/ Coopers & Lybrand L.L.P
COOPERS & LYBRAND L.L.P.
Houston, Texas
October 25, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report included herein and to the reference
to our firm under the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Houston, Texas
October 25, 1996
