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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 333-15557
PRIME SERVICE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0452435
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16225 PARK TEN PLACE, SUITE 200, HOUSTON, TEXAS 77084
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 578-5600
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, Par Value $.01 Per Share New York Stock Exchange, Inc.
Securities registered pursuant of Section 12 (g) of the Act and the
outstanding number of shares of each class of capital stock as of December 31,
1996:
NAME OF EACH EXCHANGE
CLASS OF STOCK ON WHICH REGISTERED
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None N/A
Indicate by check mark whether Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filer pursuant to
Item 405 of Regulation S-K (17 CFR 229.405) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statement incorporated by reference in Part III of the Form 10-K or
any amendment to this Form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $145,825,079.00, based on the closing price of
the Company's Common Stock, par value $0.01 per share, on the New York Stock
Exchange on March 27, 1997.
As of March 31, 1997, 27,991,714 shares of Prime Service, Inc. Common
Stock are outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement for the Company's
Annual Meeting of Shareholders have been incorporated by reference.
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PART I
ITEM 1 BUSINESS
GENERAL
Prime Service, Inc. ("Prime" or the "Company") is one of the largest
rental equipment companies in the United States, based upon 1995 rental
equipment revenues, and currently operates 114 rental equipment yards in 14
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 December 31, 1996, the Company had an equipment rental fleet
with a book value of $269.0 million comprised of over 45,000 pieces of
equipment. Over the period from 1992 to 1996, Prime's total revenues increased
from $156.7 million to $326.6 million, a compound annual growth rate of 20.2%.
Prime seeks to be the market leader in the regions it serves 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 1996, with subcontractors,
homeowners and other customers generating the remaining 10%.
Prime's 114 rental equipment yards cover 53 markets from coast to coast
within the 14 states in which Prime operates. Although Prime operates in
several regions, Prime considers its principal markets to be in the southern
Unites States.
Until March 5, 1997, the Company operated through its wholly-owned
subsidiary, Primeco Inc., a Texas corporation ("Primeco"). On March 5, 1997,
Primeco merged with and into the Company, with the Company as the surviving
corporation.
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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 S.A. ("Artemis") in 1993. In December 1994,
affiliates of Investcorp S.A. and a group of international investors formed
Prime Service, Inc. to acquire Primeco from Artemis (the "1994 Acquisition").
1996 AND RECENT ACQUISITIONS
American Hi-Lift Acquisition. On February 26, 1996, Prime completed the
purchase of all of the outstanding stock of Vibroplant U.S., Inc. (doing
business as 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 Prime of 12 rental yards.
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In connection with the American Hi-Lift acquisition, certain stockholders of
Prime made a capital infusion of $10 million into Prime. Prime used these funds,
as well as borrowings under its credit facility, to fund the transaction.
Alpine Acquisition. On July 29, 1996, Prime purchased substantially all
of the assets of Alpine Equipment Rentals and Supply Company, Inc. ("Alpine").
Prime paid approximately $11.4 million for Alpine's assets, which included
repayment of the outstanding debt of Alpine and covenants not to compete.
Alpine operated six rental yards oriented toward industrial customers in
the state of Washington, resulting in an expansion of Prime's presence in the
northwest market.
Skyreach Equipment Acquisition. On December 23, 1996, Prime purchased two
of Skyreach Equipment, Inc.'s ("Skyreach") locations, one each in the states of
Washington and Oregon. Prime paid approximately $7.9 million for the two
Skyreach locations including covenants not to compete. The American Hi-Lift,
Alpine and Skyreach acquisitions are referred to in this Form 10-K as
the "1996 Acquisitions."
Shipmates, Ltd. Acquisition. On March 17, 1997 Prime purchased
substantially all of the assets of Shipmates, Ltd., d/b/a Rental Depot for
approximately $13.3 million. Shipmates, Ltd. operates eight locations in the
state of Virginia and services primarily customers in the construction industry.
OPERATIONS
Prime is headquartered in Houston, Texas. 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 seeks 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 at December 31, 1994 to
103 as of December 31, 1996, for a net increase of 29 rental facilities. As of
March 31, 1997 the Company has added 11 new yards resulting from the Shipmates,
Ltd. acquisition and 3 new startup facilities. The Company operates all of its
yards, including acquired yards, under the name PRIME EQUIPMENT(R).
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 1996,
no single customer accounted for more than 3.0% of total revenues, and the ten
largest customers accounted for less than 10.0% 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
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construction and industrial customers accounted for approximately 50% and 40%,
respectively, of Prime's total revenues in 1996, 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, management believes that
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 local subcontractors, homeowners and other customers. Equipment rentals to
subcontractors and homeowners generally are for shorter periods (often one to
two days), but require greater maintenance and management time than commercial
and industrial rentals. Revenues from Prime's homeowners accounted for
approximately 4% of Prime's total revenues in 1996, 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 1996, rental revenue together with rental-related revenue (such
as damage waiver income, delivery charges, labor charges and warranty income),
accounted for 63.7% 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 13.8% of
Prime's total revenues in 1996. The balance of Prime's 1996 revenues were
derived from the sale of parts and related merchandise such as diamond saw
blades, coolers, gloves and safety equipment (11.6%) and the sale of used
rental equipment (10.9%).
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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 45,000 pieces of equipment. Five categories of equipment
represented approximately 80.8% (based on average original cost) of Prime's
total rental equipment fleet as of December 31, 1996: (i) platforms and booms
(35.4%), (ii) forklifts (12.2%), (iii) air compressors and dryers (10.8%), (iv)
loaders and backhoes (10.0%) and (v) scissors and vertical platforms (12.4%).
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 December 31, 1996, the weighted average age of the various
categories of Prime's rental equipment was 35 months. Over the last five years,
Prime received an average of 59.0% 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 68 months for 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 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 maintenance and support services 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 equipment needs. Prime
benefits through increased revenues, as well as the reduced operating costs, as
a result of the sole-source arrangement with the customer. The existing
Integrated Rental Management(TM) contracts generally require up to several
months notice for termination. 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
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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.
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. 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 1996 was 68 months.
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 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.
These services comprised 6% of Prime's total revenues for 1996.
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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 comprised 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 528 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 45,000 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 70,000 invoices per month. In connection with its acquisitions, Prime
has generally been successful in having the POS System up and running at the
newly acquired rental yards on the closing date of such acquisitions. 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.
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SALES, MARKETING AND ADVERTISING
Prime markets its services in five principal ways, the most important of
which is marketing through its sales force. Prime also has developed a national
accounts program, a telemarketing program, certain promotional activities and
an internet web page to supplement and support the efforts of Prime's sales
force.
Sales Force. Prime markets its products and value-added services
primarily through its 215 member sales force, consisting of the Vice President
of Sales and Marketing, three Directors of Sales, and 14 sales managers who
oversee 197 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
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 98 (excludes Integrated Rental Management(TM) customers
and represents approximately 350 operating facilities to which Prime rents and
sells equipment under blanket contracts). In 1996, national account customers
represented approximately 8.6% of Prime's total revenues, and Prime's top ten
national accounts represented over 3.7% of Prime's total revenues.
Telemarketing. 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
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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.
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 and California.
Internet Web Page. In addition to its principal marketing methods, in
October 1996 the Company launched an internet web page that is used as a
marketing tool to describe the Company's locations, product lines, used rental
equipment available for sale, and job openings. The web page also contains
links to the Company's filings with the Securities and Exchange Commission and
contains recent press releases from the Company. The Company's web site is
located at http://prime-equip.com.
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
which 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 December 31, 1996, Prime had a total of 1,958 employees, of which 731
were salaried and 1,227 were hourly personnel. Of these, 164 were involved in
administration, 222 in sales and marketing, and 1,572 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
good.
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TRADE NAMES
Prime is the owner of the trademark PRIME EQUIPMENT(R) registered with
the U.S. Patent and Trademark Office for use in connection with the rental of
light to medium construction equipment. Although management believes that the
PRIME EQUIPMENT(R) 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. Prime has granted its lenders under its credit facility
a lien on its intellectual property, including the PRIME EQUIPMENT(R)
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 1996, Prime spent approximately $1.9 million on environmental
matters, including costs related to remediation, compliance and capital
requirements. At December 31, 1996, Prime had a reserve for environmental
remediation of $6.7 million and a related receivable from state trust fund
programs and a seller of certain yards of $1.9 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. See
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
ITEM 2 PROPERTIES
At December 31, 1996 Prime owned 47 of its rental locations and leased
49 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 7 Integrated
Rental Management(TM) service centers that are located on-site at customer-owned
locations. As part of its 103 yards at December 31, 1996, Prime also operates a
used rental equipment yard in each of Texas, Georgia, North Carolina and
Florida, equipment service centers at various sites, a national warranty center,
and the Turnaround Central facility. Prime's additional 11 rental locations in
1997 consist of 10 leased locations and one Integrated Rental Management(TM)
location. 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 $25.2 million at
December 31, 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 38 cars, 810 trucks and 187 trailers, of which 8
cars, 135 trucks and 117 trailers are owned by Prime as of December 31, 1996.
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ITEM 3 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 would have a material adverse effect on
the financial condition, results of operations or cash flows of the Company.
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ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Prime's common stock has traded on the New York Stock Exchange under the
symbol "PRS" since November 1, 1996. There was no public market for Prime's
common stock prior to November 1, 1996.
As of March 27, 1997, there were 27,991,714 outstanding shares of the
common stock of Prime held by approximately 74 shareholders of record and
approximately 925 beneficial owners. The shares were initially offered to the
public on November 1, 1996 at a price of $23.50 per share. The following table
sets forth the high and low bid price per share of the common stock on the New
York Stock Exchange for the period presented.
<TABLE>
<CAPTION>
1996 High Low
---- ---- ---
<S> <C> <C>
Fourth Quarter (from November 1, 1996) 30 3/8 23 1/2
</TABLE>
Prime has not paid a dividend on its common stock since inception and
the Board of Directors does not contemplate the payment of cash dividends in
the foreseeable future. Prime's current lending agreement and its indenture for
its 12.75% Senior Subordinated Notes Due 2005 restrict the payment of
dividends. It is the present policy of the Board of Directors to retain
earnings for support of its working capital, repayment of indebtedness, capital
expenditures and other general corporate purposes.
The Company has not issued or sold securities during the year December
31, 1996 pursuant to offerings that were not registered under the Securities
Act of 1933, as Amended (the "Securities Act"), except as follows, (share
numbers and exercise prices set forth herein reflect the 18.15 to 1 stock split
effective on October 9, 1996 and the conversion of all Class A, Class C and
Class D Common Stock to Common Stock on a share per share basis at the closing
of the Company's initial public offering):
(a) In February 1996, the Company sold to Arlington Limited 610,366 shares
of Common Stock for an aggregate of $2,354,030.
(b) In February 1996, the Company sold to Freeport Limited 610,366 shares of
Common Stock for an aggregate of $2,354,030.
(c) In February 1996, the Company sold to LaPorte Limited 610,366 shares of
Common Stock for an aggregate of $2,354,030.
(d) In February 1996, the Company sold to Plano Limited 610,366 shares of
Common Stock for an aggregate of $2,354,030.
(e) In February 1996, the Company sold to Equipment Rental Limited 151,407
shares of Common Stock for an aggregate of $583,940.
(f) On various dates from May 30, 1995 through April 30, 1996, pursuant to
the Company's incentive plans, the Company awarded options to key
employees of Prime, exercisable in whole or in part at $3.86 per share,
to purchase an aggregate of 261,051 shares of Common Stock. Of those
options, 257,767 are still outstanding. In connection with the Company's
initial public offering, the Company issued options to its employees
under the Company's incentive plans for 346,665 shares of Common Stock,
exercisable at $23.50 per share, the initial public offering price. The
options vest over five years, and are exercisable until 30 days after the
tenth anniversary of the grant date, unless terminated earlier pursuant
to such option's terms. Early termination events
13
<PAGE> 14
include resignation and death. The Company has filed a Form S-8 with
respect to the Common Stock issuable upon exercise of such options.
The transactions set forth above were undertaken in reliance upon the
exemptions from the registration requirements of the Securities Act afforded by
(i) Section 4(2) thereof and/or Regulation D promulgated thereunder, as sales
not involving a public offering, and/or (ii) Rule 701 promulgated thereunder,
as sales by an issuer to employees, directors, officers, consultants or advisors
pursuant to written compensatory benefit plans or written contracts relating to
the compensation of such persons. The purchasers of the securities described
above acquired them for their own account and not with a view to any
distribution thereof to the public. The certificates evidencing the securities
bear legends stating that the shares may not be offered, sold or transferred
other than pursuant to an effective registration statement under the Securities
Act of an exemption from such registration requirements.
14
<PAGE> 15
ITEM 6 SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The following table sets forth selected historical financial and other
data of the company as of and for the five years ended December 31, 1996.
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
PREDECESSOR YEAR ENDED SUCCESSOR YEAR ENDED
DECEMBER 31, DECEMBER 31,
----------------------- ------------------------------------
1992 1993 1994(1) 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues ...................................... $ 156,724 $ 174,249 $ 211,924 $ 242,787 $ 326,588
Gross profit (2) .................................... 49,631 62,393 75,790 68,837 108,505
Operating income (3)................................. 10,337 21,651 34,459 20,789 50,964
Interest expense, net ............................... 14,299 12,753 13,852 30,546 35,997
Income (loss) before extraordinary item ............. (3,797) 4,548 12,084 (7,389) 6,944
Income (loss) ....................................... (3,797) 4,548 12,084 (8,657) 2,027
Income (loss) per share before extraordinary item ... (0.41) 0.32
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental equipment .................. $ 87,358 $ 99,093 $ 153,818 $ 181,798 $ 268,992
Total assets ........................................ 278,314 280,072 369,403 391,979 528,583
Total debt .......................................... 146,000 133,000 235,000 265,000 214,700
Stockholders' equity ................................ 105,727 110,275 69,633 60,976 230,028
OTHER DATA:
Gross equipment capital expenditures ................ $ 31,061 $ 38,088 $ 52,814 $ 89,372 $ 94,755
Net equipment capital expenditures(4) ............... 18,943 30,089 39,871 66,520 66,361
Gross rental revenue (5) ............................ 93,516 102,802 120,388 141,138 190,891
Average original price of rental equipment .......... 169,954 174,210 191,241 228,406 343,259
Gross rental revenue/average equipment ("ROI")(6) ... 55.0% 59.0% 63.0% 61.8% 55.6%
Non-rental rate ..................................... 5.9% 4.1% 3.4% 3.6% 3.8%
Number of rental equipment yards (end of period) .... 64 70 74 81 103
</TABLE>
Notes to Selected Historical 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 Form 10-K.
(2) Reflects costs of $22.6 million and $12.5 million for the years ended
December 31, 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.
15
<PAGE> 16
(3) Operating income is the Gross Profit less the Selling, General,
Administrative and Other Expenses and the Depreciation and Amortization
expense.
(4) Net equipment capital expenditures represent gross rental equipment
capital expenditures reduced by the net book value of rental equipment
sold.
(5) 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.
(6) 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.
16
<PAGE> 17
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the
"Selected Historical Financial and Other Data" in Item 6 hereof, and the
Financial Statements of the Company and the notes thereto included in Item 8
hereof.
The Company 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, delivery charges and
warranty income 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 5 to "Selected Historical Financial and
Other Data" in Item 6 of this Form 10-K. Prime's ROI was 63.0% and 61.8% in
1994 and 1995, respectively. During 1996, Prime's ROI declined to 55.6%. 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. The integration of American Hi-Lift's rental fleet
into Prime's also resulted in adding more aerial work platforms, such as booms,
and lifts, in Prime's equipment mix. Aerial work platforms are generally more
expensive equipment, which tends to reduce the ROI. Such equipment, however,
also has a longer useful life which tends to offset the decrease in the ROI,
due to receipt of revenue over the longer useful life of the equipment. Prime's
ROI for 1996, calculated excluding gross rental revenue and original
equipment cost attributable to former American Hi-Lift equipment, would have
been 59.1%.
17
<PAGE> 18
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 startup 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 $41.7 million during the
year ended December 31, 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 startup
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 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 contained in Item 8 of this Form 10-K.
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.
18
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth the major components of Prime's statement
of operations expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1992 1993 1994(4) 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Total revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales (1) 68.3 64.2 64.2 71.6 66.8
Gross profit (2) 31.7 35.8 35.8 28.4 33.2
Selling, general, administrative and
other expenses 17.1 16.2 14.6 15.2 15.6
Depreciation and amortization (3) 7.9 7.2 4.9 4.6 2.1
Operating income 6.6 12.4 16.3 8.6 15.6
</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.
19
<PAGE> 20
1996 COMPARED TO 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 $11.4 million in cash including covenants not to compete. On
December 23, 1996 Prime acquired certain assets of Skyreach Equipment for
approximately $7.9 million in cash including covenants not to compete. These
acquisitions were accounted for under the purchase method of accounting;
therefore, the results of operations of Prime include American Hi- Lift
beginning February 26, 1996, Alpine beginning July 29, 1996 and Skyreach
beginning December 23, 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 1996 increased 34.5% to $326.6
million when compared to total revenues of $242.8 million for the prior year.
The increase was primarily the result of increased rental revenues and also
reflects increases in all of Prime's revenue components, as well as the 1996
Acquisitions.
Rental Revenues. Rental revenues for 1996 increased 36.2% to $189.3
million, when compared with the corresponding prior period rental revenues of
$139.0 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. Sales of new equipment for 1996 increased 30.6% to
$45.2 million when compared with the corresponding prior period sales of $34.6
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 1996 increased
53.3% to $35.5 million, when compared with the corresponding prior period sales
of $23.1 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 1996
increased 17.3% to $37.8 million, when compared with the corresponding prior
period sales of $32.2 million. This increase correlates to the higher rental
revenue and sales of equipment since parts and merchandise generally complement
the equipment Prime rents and sells.
Service and Other Income. Service and other income for 1996 increased
36.5% to $18.9 million, when compared with the corresponding prior period
service and other income of $13.8 million. This increase relates to the
increase in rental revenue.
Gross Profit. Gross profit for 1996 increased 57.6% to $108.5 million,
when compared with the corresponding prior period gross profit of $68.8
million. Gross profit as a percentage of total revenues was 33.2% for 1996 and
28.4% for 1995. The increase is the result of increased revenues as previously
discussed with the most significant component being the $50.3 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 1996
by $12.5 million, as compared to a $22.6 million decrease in 1995. Gross profit
was also impacted by direct operating expenses, which
20
<PAGE> 21
increased by 42.0% to $86.0 million, when compared to the prior period expense
level of $60.6 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 1996 increased 37.9% to $50.8 million,
when compared to the prior expenses of $36.8 million. This 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 Prime's operations. As a percentage of total revenues, selling,
general, administrative and other expenses for 1996 was 15.6%, as compared to
15.2% in 1995.
Interest Expense. Interest expense net of interest income for 1996
increased 17.8% to $36.0 million, when compared with the corresponding prior
period interest expense of $30.5 million. This increase reflects higher
borrowings outstanding. Prime's average outstanding indebtedness for 1996,
totaled $318.1 million, compared to $256.0 million for 1995. This increase is
due primarily to the 1996 Acquisitions, and borrowings to fund capital
expenditures.
Income Tax Expense (Benefit). Income tax expense for 1996 increased to
$8.0 million from an income tax benefit of $2.4 million for 1995. This increase
is due primarily to the increase in pre-tax income.
Income (Loss) Before Extraordinary Item. Income for 1996 increased to
$6.9 million from a loss of $7.4 million 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.
21
<PAGE> 22
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
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 14.0%. 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.
22
<PAGE> 23
Income (Loss) Before Extraordinary Item. 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.
RECENT DEVELOPMENTS
In 1996 the Company purchased American Hi-Lift and the assets of Alpine
and Skyreach. On March 17, 1997 Prime purchased substantially all of the assets
of Shipmates, Ltd. See Item 1, "1996 and Recent Acquisitions."
23
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
During the years ended December 31, 1994, 1995 and 1996, 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; in 1995
proceeds from the Company's credit facility and the Company's 12.75% Senior
Subordinated Notes Due 2005 (the "Senior Notes"); and in 1996 proceeds from the
Company's credit facility, a $10 million infusion in capital by the Company's
shareholders, and the proceeds from the Company's initial public offering. In
1996, the Company generated approximately $157.6 million in proceeds from the
sale of its Common Stock through its initial public offering. The components of
net cash provided by operating activities are detailed on the Statement of
Cash Flows in the Consolidated Financial Statements and include income or
loss adjusted for (i) depreciation and amortization, (ii) the gains (or 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 year ended December 31, 1996,
increased 62.7% to $51.7 million from $32.2 million for the corresponding
period in 1995. This increase was primarily attributable to 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.
For the year ended December 31, 1996, the Company's principal uses of
funds were for the 1996 Acquisitions of American Hi-Lift, Alpine and Skyreach,
the purchase of equipment for the Company's rental fleet and the payment of
principal on its outstanding indebtedness. The acquisitions were funded with a
$10.0 million infusion of capital from certain Prime stockholders with the
balance being funded through borrowings from Prime's credit facility. The gross
rental equipment capital expenditures for the year ended December 31, 1996,
increased 6.0% to $94.8 million from $89.4 million for the corresponding period
in 1995. Of those amounts, $53.1 million and $34.8 million were spent in the
years ended December 31, 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 year ended
December 31, 1996, increased 53.2% to $35.4 million from $23.1 million for the
corresponding period in 1995.
In 1996, net proceeds from the Company's initial public offering were
used to retire $33.3 million of the Senior Subordinated Notes, $10.0 million of
Subordinated Notes and proceeds of $113.7 million were used to reduce the
revolving portion of the Company's credit facility.
During the years ended December 31, 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 $52.8 million and $89.4 million in 1994 and
1995, respectively. Of those amounts, $33.0 million and $34.8 million were
spent to replace used rental equipment sold in 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 $20.5 million and
$23.1 million in 1994 and 1995, respectively.
The Company has no long-term minimum purchase commitments for rental
equipment. Management has budgeted $115.6 million for gross fleet capital
expenditures exclusive of acquisitions in 1997, of which $66.3 million is
budgeted to replace used rental equipment sold, with the remaining amounts
being a net increase in investment in rental fleet. Prime expects these
24
<PAGE> 25
expenditures to be offset by proceeds from the sale of used equipment of
approximately $43.7 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 $12.0 million in
1997 on non-equipment related capital expenditures (excluding acquisitions)
consisting of buildings, land, furniture and fixtures and environmental capital
expenditures. In addition to the budgeted capital expenditures, the Company is
presently considering or negotiating several different acquisitions, although
no definitive purchase agreements have been signed. The Company expects to
spend a significant amount of capital during 1997 on acquisitions, with the
exact amount dependent on a number of factors, including finding sufficient,
suitable acquisition candidates. Capital expenditures for acquisitions that in
the aggregate exceed $60 million would require approval of the Company's
lenders under its 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 1996, Prime spent approximately $1.9 million
on environmental matters, including costs related to remediation, compliance
and capital requirements, and has budgeted approximately $3.8 million in 1997
for such matters. As of December 31, 1996, the Company had a reserve for
environmental remediation of $6.7 million and a related receivable from state
trust fund programs and a previous owner of certain of the Company's equipment
yards of $1.9 million.
Prime incurred substantial indebtedness in connection with the 1994
Acquisition and the 1996 Acquisitions. At December 31, 1996, Prime had
indebtedness outstanding of $214.7 million, consisting of $148.0 million under
the credit facility and $66.7 million under the Senior Subordinated Notes. On
November 1, 1996, Prime generated net proceeds of $157.6 million from its
initial public offering. The proceeds were used to retire $33.3 million of the
Senior Notes, $10.0 million of Subordinated Notes and $113.7 million was used to
reduce the Revolver. In 1995, 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 of
obligations under the credit facility and the Senior Notes and to meet its
anticipated capital expenditures as described above.
The credit facility required 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, 1996, Primeco had outstanding
interest rate swap agreements (total notional amount of $80.0 million) placed
with financial institutions that effectively converted a portion of its
floating-rate debt to fixed-rate debt. At December 31, 1996, the market value of
the swaps represented a loss of approximately $483,000. See Note 8 to the
Consolidated
25
<PAGE> 26
Financial Statements. The rate swap agreements expired in February, 1997 and
March, 1997, respectively, and the Company currently has no plans to, and is
not required to, replace such agreements.
Statements in this "Liquidity and Capital Resources" section which are
not historical facts, so-called "forward looking statements," are made pursuant
to the safe harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended. Such forward looking statements include statements
regarding the sufficiency of the Company's cash to meet expected capital
expenditures and interest expense. General economic conditions, Prime's ability
to implement and manage its growth strategy, and the impact of significant
competition could all affect Prime's ability to meet its expected capital
expenditures and interest expense requirements. In addition, the Company's
primary source of funds for acquisitions will be debt financing, principally
under the Company's credit facility. As the Company's indebtedness increases,
the level of indebtedness could have important consequences to the holders of
the Common Stock, including the following: (i) an increasing portion of the
Company's cash flow will be used to pay principal and interest on the Company's
indebtedness, (ii) the ability of the Company to obtain additional financing for
working capital and other general purposes may be impaired, and (iii) the
Company's level of indebtedness may reduce its flexibility to respond to
changing business and economic conditions. Investors are also cautioned that all
forward looking statements involve risks and uncertainties, including those
detailed in the Company's other filings with the Securities and Exchange
Commission.
Quarterly Results. The following table sets forth certain unaudited
consolidated statement of operations data for the fiscal quarters in the years
ended December 31, 1995 and 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.
<TABLE>
<CAPTION>
1995 Quarters Ended 1996 Quarters Ended
-------------------------------------------- -----------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 55,889 $ 59,471 $ 62,876 $ 64,551 $ 70,930 $ 82,526 $ 86,139 $ 86,993
Gross profit 14,844 17,561 18,276 18,156 23,360 27,572 29,699 27,874
Operating income(3) 4,552 7,206 7,689 1,342(1) 11,078 13,508 15,119 11,259(2)
Interest expense
(net) 7,086 7,726 7,713 8,021 8,471 9,768 9,942 7,816
Income (loss)
before
extraordinary item (1,937) (623) (372) (4,457) 1,236 1,906 2,845 957
Extraordinary (loss)
net of tax benefit (1,268) -- -- -- -- -- -- (4,917)
Income (loss) (3,205) (623) (372) (4,457) 1,236 1,906 2,845 (3,960)
</TABLE>
(1) Reflects the write-off of noncompete recorded in connection with the
1994 Acquisition. See Note 5 to the Consolidated Financial Statements.
(2) Reflects the write-off of management agreement recorded in connection
with the 1994 Acquisition. See Note 6 to the Consolidated Financial
Statements.
(3) Operating income is the Gross Profit less the Selling, General,
Administrative and Other Expenses and the Depreciation and Amortization
Expense.
26
<PAGE> 27
OTHER MATTERS
In March 1995, the Financial Accounting Standards Board ("FASB") 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 FASB issued Statement of Financial Accounting Standards No. 123,
entitled "Accounting for Stock-Based Compensation" ("SFAS 123"), in October
1995. Prime adopted the new disclosure rules of SFAS 123 in 1996, (see Note 12
to the Consolidated Financial Statements).
27
<PAGE> 28
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
28
<PAGE> 29
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, 1996 and 1995
and the related consolidated statements of operations, stockholders' equity and
cash flows of the Company for the two years then ended 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.
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, 1996 and 1995, and the consolidated results of the
Company's operations and its cash flows for the two years then ended 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
February 7, 1997
29
<PAGE> 30
PRIME SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1995 1996
--------- ---------
<S> <C> <C>
Cash and cash equivalents $ 178 $ 10,161
Accounts receivable, net 36,467 48,225
Inventories 17,399 23,192
Rental equipment, net 181,798 268,992
Property, plant and equipment, net 22,334 33,857
Cost in excess of fair value of net assets
acquired, net 115,084 130,116
Other assets 18,719 14,040
--------- ---------
Total Assets $ 391,979 $ 528,583
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 14,968 $ 17,146
Accrued expenses 24,507 24,810
Debt 265,000 214,700
Deferred income taxes 21,876 34,181
Other liabilities 4,652 7,718
Commitments and contingencies (Notes 8 and 9)
Common stock (Note 11) 182 280
Paid-in capital 69,818 236,750
Accumulated deficit (9,024) (6,997)
Less Treasury Stock at cost -- (5)
--------- ---------
Stockholders' equity 60,976 230,028
--------- ---------
Total Liabilities and Stockholders' Equity $ 391,979 $ 528,583
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE> 31
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 FOR THE
JANUARY 1, 1994 DECEMBER 2, 1994 YEAR ENDED YEAR ENDED
THROUGH THROUGH DECEMBER 31, DECEMBER 31,
DECEMBER 1, 1994 DECEMBER 31, 1994 1995 1996
---------------- ---------------- ---------------- ----------------
PREDECESOR SUCCESSOR SUCCESSOR SUCCESSOR
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Rental revenue $ 108,272 $ 10,321 $ 138,983 $ 189,256
New equipment sales 29,728 2,668 34,601 45,177
Rental equipment sales 18,718 1,641 23,144 35,472
Parts and merchandise sales 26,551 2,236 32,223 37,791
Service revenue and other income 10,806 983 13,836 18,892
---------------- ---------------- ---------------- ----------------
194,075 17,849 242,787 326,588
---------------- ---------------- ---------------- ----------------
Cost of sales:
Depreciation - rental equipment 17,365 2,822 37,427 38,493
Cost of new equipment sales 25,269 2,251 28,960 37,944
Cost of rental equipment sales, net of
accumulated depreciation 11,809 1,134 22,853 28,394
Cost of parts and merchandise sales 20,175 1,736 24,157 27,283
Direct operating expenses 48,981 4,592 60,553 85,969
---------------- ---------------- ---------------- ----------------
123,599 12,535 173,950 218,083
---------------- ---------------- ---------------- ----------------
70,476 5,314 68,837 108,505
---------------- ---------------- ---------------- ----------------
Selling, general, administrative and other 28,030 2,871 36,821 50,793
Depreciation and amortization:
Noncompete agreements 5,008 123 5,877 52
Cost in excess of fair value of
assets acquired 2,983 232 2,955 3,314
Property, plant and equipment 1,893 191 2,395 3,382
Interest expense, net 11,605 2,247 30,546 35,997
---------------- ---------------- ---------------- ----------------
49,519 5,664 78,594 93,538
---------------- ---------------- ---------------- ----------------
Income (loss) before income taxes 20,957 (350) (9,757) 14,967
Income tax expense (benefit) 8,506 17 (2,368) 8,023
---------------- ---------------- ---------------- ----------------
Income (loss) before
extraordinary item $ 12,451 (367) (7,389) 6,944
---------------- ---------------- ---------------- ----------------
Extraordinary item - loss on early
extinguishment of debt, net of tax
benefit of $794 and $1,777 0 0 (1,268) (4,917)
---------------- ---------------- ---------------- ----------------
Income (loss) $ 12,451 $ (367) $ (8,657) $ 2,027
================ ================ ================ ================
Income (loss) per common share:
Income (loss) before
extraordinary item $ (0.02) $ 0.41) $ 0.32
Extraordinary item -- (0.07) (0.23)
---------------- ---------------- ----------------
Income (loss) $ (0.02) $ (0.48) $ 0.09
================ ================ ================
Weighted average common shares
outstanding 18,150 18,150 21,743
================ ================ ================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE> 32
PRIME SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Total
Common
Capital Stock Paid-In Accumulated Treasury Stockholders'
Shares Par Value Capital Deficit Stock Equity
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Predecessor:
Balance at December 31, 1993 1,000 $ 1 $ 128,736 $ (18,462) $ -- $ 110,275
Net income -- -- -- 12,451 -- 12,451
------------ ------------ ------------ ------------ ------------ ------------
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)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1994 18,150 182 69,818 (367) -- 69,633
Net loss -- -- -- (8,657) -- (8,657)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1995 18,150 182 69,818 (9,024) -- 60,976
Sale of common stock in
February, 1996 2,593 26 9,374 -- -- 9,400
Purchase of treasury stock -- -- -- -- (5) (5)
Sale of common stock on
November 1, 1996 7,250 72 157,558 157,630
Net Income -- -- -- 2,027 -- 2,027
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 27,993 $ 280 $ 236,750 $ (6,997) $ (5) $ 230,028
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE> 33
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, 1994 December 2, 1994 Year Ended Year Ended
through through December 31, December 31,
December 1, 1994 December 31, 1994 1995 1996
---------------- ----------------- ------------ ------------
Predecessor Successor Successor Successor
---------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating activities:
Income (loss) $ 12,451 $ (367) $ (8,657) $ 2,027
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 27,249 3,368 48,656 45,240
Deferred income tax provision (benefit) 4,465 9 (5,718) 3,895
Net (gain)loss on disposal of rental equipment
and property,plant and equipment (6,701) (363) 508 (6,005)
Provision for doubtful accounts 928 482
Extraordinary loss on extinguishment of debt 1,268 4,917
Effect of changes in operating assets
and liabilities:
(Increase) decrease in accounts receivable (6,611) 730 (6,291) (3,214)
(Increase) decrease in inventories (182) 22 (4,710) (1,421)
(Increase) decrease in other assets 597 (232) (572) 5,317
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 2,668 (385) 7,739 681
--------- --------- --------- ---------
Net cash provided by operating activities 34,864 2,782 32,223 51,919
--------- --------- --------- ---------
Investing activities:
Additions to rental equipment (48,830) (3,984) (89,372) (94,755)
Additions to property, plant and equipment (2,627) (223) (3,736) (7,817)
Payment to seller for the 1994 Acquisition (138,000)
Payments of acquisition costs (13,667) (328)
Proceeds from sales of rental equipment 18,862 1,680 23,079 35,358
Proceeds from disposals of property, plant
and equipment 1,075 4 154 146
Payments for noncompete agreement
related to acquisitions (450)
Purchase of AHL, Alpine and Skyreach, net of cash (84,380)
--------- --------- --------- --------
Net cash used in investing activities (31,520) (154,190) (70,203) (151,898)
--------- --------- --------- --------
Financing activities:
Proceeds from Predecessor revolving line of credit 10,000
Payments of Predecessor revolving line of credit (10,000)
Proceeds from revolving line of credit 26,000 119,500
Payments of revolving line of credit (20,000) (125,500)
Payments of Predecessor debt (133,000)
Proceeds from Successor debt 225,000 100,000
Payments of Successor debt (76,000) (34,300)
Payments of financing costs (13,974) (3,932) (2,166)
Proceeds from issuance of common stock 70,000 9,400
Proceeds from issuance of stock (IPO), net 157,630
Proceeds from issuance of Subordinated Notes 10,000
Payment of early redemption penalties (4,596)
Payments of Subordinated notes (10,000)
Purchase of Treasury Stock (5)
--------- --------- --------- ---------
Net cash provided by financing activities 0 158,026 26,068 109,963
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents 3,344 6,618 (11,912) 9,983
Cash and cash equivalents at beginning of period 2,128 5,472 12,090 178
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 5,472 $ 12,090 $ 178 $ 10,161
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE> 34
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 1994 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 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
-----------------
(UNAUDITED)
<S> <C>
Revenues $ 211,924
Net loss $ (546)
Net loss per share $ (.03)
Weighted average common shares
outstanding 18,150
</TABLE>
34
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Rental Agreements
The Company rents equipment primarily to the construction, industrial
and homeowner markets, primarily located in the Southern United States. Rental
agreements are primarily structured as operating leases, and rental revenue is
recognized in the period in which it is earned.
Inventories
New equipment held for sale is valued at the lower of cost or market,
with cost being determined by the specific identification method. Parts and
merchandise are valued at lower of cost or market, with cost determined by the
average cost 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 $66.4 million at December 31,
1994, 1995 and 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. Depreciation Expense was
$2.4 million and $3.4 million for the years ended December 31, 1995 and 1996,
respectively. Depreciation for the periods from January 1, 1994 to December 1,
1994 and from December 2, 1994 to December 31, 1994 was $1.9 million and
$191,000, respectively.
The estimated useful lives for buildings and improvements range from 10
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.
35
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $3.2 million and $6.5 million at
December 31, 1995 and 1996, respectively.
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 rate 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.
36
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1995 and 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, 1995 and 1996, the
Company had an allowance for doubtful accounts of approximately $925,000 and
$1,407,000, respectively. The increase in 1996 reserve reflects added revenue
resulting from the American Hi-Lift acquisition and overall revenue growth.
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.
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.
Reclassifications
Certain reclassifications have been made to prior year financial
information in order to conform with current year presentation.
3. INVENTORIES:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
New equipment held for sale $ 6,882 $10,405
Merchandise 5,970 6,515
Parts 4,366 5,724
Other 181 548
------- -------
$17,399 $23,192
======= =======
</TABLE>
37
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- --------
<S> <C> <C>
Property, plant and equipment at cost:
Land $ 6,068 $ 7,839
Buildings and improvements 11,160 17,716
Transportation equipment 1,817 4,590
Furniture and fixtures 3,594 5,440
Shop and other equipment 1,954 3,855
-------- --------
24,593 39,440
Accumulated depreciation (2,259) (5,583)
-------- --------
Net property, plant and equipment $ 22,334 $ 33,857
======== ========
</TABLE>
5. OTHER ASSETS:
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- --------
<S> <C> <C>
Deferred financing costs, less accumulated amortization
of $6,626 and $5,095, respectively $13,804 $ 9,657
Noncompete agreement, less accumulated amortization
of $52 -- 401
Prepaid expenses and other 840 2,105
Estimated reimbursements related to environmental
remediation obligations (see Note 9) 1,200 1,877
Prepaid management fee (see Notes 6 and 16) 2,875 --
------- -------
$18,719 $14,040
======= =======
</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 1995 statement of operations.
38
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. OTHER ASSETS, CONTINUED:
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 period from
January 1 to December 1, 1994, the period from December 2, to December 31, 1994
and for the years ended December 31, 1995 and 1996 were approximately $319,000,
$158,000, $2.8 million and $5.1 million, respectively.
6. RELATED PARTY TRANSACTIONS:
Under the terms of a management agreement, the Company paid an annual
management fee to Investcorp of $1.5 million. During 1995, the Company prepaid
the management fee for the next three years. As a result of the initial public
offering completed by the Company in 1996, the management agreement was
terminated and the Company wrote off the unamortized portion of the prepaid
management fee (see Note 16).
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 1994 Acquisition, the bank financing, and issuing
the Preferred stock.
The Predecessor paid the Seller an annual management fee of $500,000.
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 presented are as follows: weighted-average
discount rate is 8% for 1994 and 7% for 1995 and 1996, 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.
39
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. EMPLOYEE BENEFIT PLANS, CONTINUED:
Net periodic pension cost consisted of the following components (in
thousands):
<TABLE>
<CAPTION>
From From
January 1, December 2, For the Year For the year
1994 through 1994 through Ended Ended
December 1, December 31, December 31, December 31,
1994 1994 1995 1996
------------- ------------ -------------- ---------------
Predecessor Successor Successor Successor
------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Service cost $ 1,235 $ 113 $ 1,524 $ 2,040
Interest cost 379 34 549 701
Actual return on plan assets (173) (3) (1,111) (848)
Net total of other components (98) (21) 749 156
------- ------- ------- -------
Net periodic pension cost $ 1,343 $ 123 $ 1,711 $ 2,049
======= ======= ======= =======
</TABLE>
The actuarial present value of the accumulated benefit of the plan is as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
<S> <C> <C>
Vested $ 3,808 $ 4,850
Nonvested 1,152 1,551
-------- --------
Total $ 4,960 $ 6,401
======== ========
</TABLE>
The reconciliation of the funded status of the plan is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
--------- ---------
<S> <C> <C>
Projected benefit obligation $ 9,880 $ 12,655
Plan assets at fair value 6,740 8,939
--------- ---------
Projected benefit obligation in excess of
plan assets 3,140 3,716
Unrecognized net loss (1,142) (1,191)
--------- ---------
Net pension liability $ 1,998 $ 2,525
========= =========
</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 1, 1994, December 31, 1994, December 31, 1995
and December 31, 1996, approximated $540,000, $48,000, $633,000 and $832,000,
respectively.
40
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. DEBT:
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
<S> <C> <C>
Senior term loan $124,000 $123,000
Senior revolving credit loan 31,000 25,000
Senior subordinated notes 100,000 66,700
Subordinated notes to related party 10,000 --
-------- --------
$265,000 $214,700
======== ========
</TABLE>
The 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.
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 a subordinated loan facility plus accrued interest and $20 million of
indebtedness under the revolving credit portion of a senior credit facility.
The loss incurred on the early extinguishment of the subordinated loan facility
during 1995, resulting from the write-off of deferred financing costs, has been
reflected as an extraordinary loss on the statement of operations.
During 1996, the Company paid $33.3 million of the Senior Subordinated
Notes and incurred an early redemption penalty of $4.3 million. This penalty
and the loss resulting from the write-off of approximately one-third of the
related deferred financing costs have been reflected as an extraordinary loss
in the 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 which vary based on the terms of
the credit agreement as follows:
<TABLE>
<CAPTION>
REVOLVING
TERM LOAN CREDIT LOAN
--------- -----------
<S> <C> <C>
Alternate base rate margin 0.50 to 1.50% 0.00 to 1.00%
Eurodollar deposit rate margin 1.75 to 2.75% 1.00 to 2.25%
</TABLE>
The interest rates in effect at December 31, 1996 for the term loan and
the revolving credit loan were 6.8% and 7.3%, respectively. The interest rates
in effect at December 31, 1995 for the term loan and revolving credit loan were
8.8% and 8.4%, respectively.
A commitment fee of 0.30% to 0.50% per annum is charged on the unused
portion of the revolving credit facility.
41
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. DEBT, CONTINUED:
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 the 1994 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, 1996 and 1995 are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
NOTIONAL MATURITY PAY RECEIPT UNREALIZED UNREALIZED
AMOUNT DATE RATE RATE LOSSES LOSSES
------ ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
$40,000,000 February 27, 1997 9.13% 6 month LIBOR ($208) ($1,405)
$40,000,000 March 21, 1997 8.99% 6 month LIBOR ($275) ($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 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 were due on March 31, 2006 and bore interest at 14.0%. The Company
incurred a fee of $1.2 million in connection with the issuance of these notes.
This fee was capitalized as a deferred financing cost and was being amortized
over the term of the note using the effective interest method. During 1996, the
Company repaid the $10.0 million in Subordinated Notes. An early redemption
penalty of $350,000 and the loss resulting from the write-off of the unamortized
balance of deferred financing costs have been reflected as an extraordinary loss
in the statement of operations.
42
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. DEBT, CONTINUED:
Maturities of debt are as follows at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------
<S> <C>
1997 $ 1,000
1998 11,000
1999 21,000
2000 25,000
Thereafter 156,700
---------
$ 214,700
=========
</TABLE>
Cash paid for interest, including cash paid under interest rate swaps
and early redemption penalties, totaled $45.1 million and $25.3 million for the
years ended December 31, 1996 and 1995, respectively. Cash paid for interest in
1994 was $1.3 million in the Successor period, and approximately $12.3 million
in the Predecessor period.
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, 1996 are (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1997 $ 7,690
1998 6,385
1999 4,998
2000 3,749
2001 2,345
Thereafter 2,949
----------
Total Minimum Obligations $ 28,116
==========
</TABLE>
Lease expense charged to operations in the accompanying statements of
operations was approximately $9.0 million and $7.2 million for the years ended
December 31, 1996 and 1995, respectively. Lease expense charged to operations
for 1994 was $537,000 in the Successor period, and $5.1 million in the
Predecessor period.
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 financial position, results of operations or cash flows for any
period.
43
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. COMMITMENTS AND CONTINGENCIES, CONTINUED:
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 the Company to remediate a site to meet applicable
legal requirements.
The Company spent approximately $1.9 million and $1.3 million on
environmental matters, including remediation and compliance costs, in 1996 and
1995, respectively and has budgeted expenditures of approximately $3.8 million
in 1997 for such matters. At December 31, 1996, the Company had a reserve for
environmental remediation of $6.7 million and a related receivable from state
trust fund programs and a seller of certain yards of $1.9 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 of 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 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, results of operations or cash flows 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 $135,000 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, administrative and
other expenses in the statement of operations in the Predecessor period.
44
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. COMMITMENTS AND CONTINGENCIES, CONTINUED:
LETTERS OF CREDIT
As of December 31, 1995 and 1996, the Company had letters of credit
outstanding totaling $8.7 million and $5.6 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.
45
<PAGE> 46
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
Period from Period from For the For the
January 1, 1994 December 2, 1994 Year Ended Year Ended
through through December 31, December 31,
December 1, 1994 December 31, 1994 1995 1996
---------------- ---------------- ---------------- ----------------
Predecessor Successor Successor Successor
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Tax provision/(benefit) at
statutory rate (35%) $ 7,335 $ (123) $ (3,415) $ 5,238
Amortization of cost in excess
of fair value net
assets acquired 1,044 96 1,138 1,160
Utilization of net operating loss
carryforwards -- -- (668) --
Net change in estimate of
prior year net operating loss
and alternative minimum tax
credit carryforward -- -- 91 --
Change in valuation allowance -- -- 478 1,621
Other 127 44 8 4
---------------- ---------------- ---------------- ----------------
8,506 17 (2,368) 8,023
Tax benefit from extraordinary
item - loss on
extinguishment of debt -- -- (794) (1,777)
---------------- ---------------- ---------------- ----------------
$ 8,506 $ 17 $ (3,162) $ 6,246
================ ================ ================ ================
</TABLE>
46
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. INCOME TAXES, CONTINUED:
The classification of the provision (benefit) for income taxes consists
of the following (in thousands):
<TABLE>
<CAPTION>
For the For the
Period from Period from For the For the
January 1, 1994 December 2, 1994 Year Ended Year Ended
through through December 31, December 31,
December 1, 1994 December 31, 1994 1995 1995
-------------------- ---------------------- --------------------- --------------------
Predecessor Successor Successor Successor
-------------------- ---------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Current:
Federal $ 3,787 $ -- $ 2,194 $ 2,094
State 254 8 362 257
Deferred 4,465 9 (5,718) 3,895
-------------------- ---------------------- --------------------- --------------------
Total $ 8,506 $ 17 $ (3,162) $ 6,246
==================== ====================== ===================== ====================
</TABLE>
Income taxes payable as of December 31, 1995 and 1996 were $1.1 million
and $1.0 million, respectively.
The components of deferred tax liability are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of book $ 28,897 $ 42,796
Other -- 424
-------- --------
28,897 43,220
Deferred tax assets:
Accrued casualty losses 1,708 2,387
Allowance for doubtful accounts 356 649
Accrued interest 334 --
Accrued pension costs 785 1,057
Accrued medical expenses 539 539
Accrued environmental costs 1,116 1,855
Accrued bonus -- 563
Non-compete agreements 2,143 1,989
Net operating losses 33 84
Alternative minimum tax credit carryforwards 3,100 5,325
Other 40 --
-------- --------
10,154 14,448
Less: valuation allowance (3,133) (5,409)
-------- --------
Net deferred tax liability $ 21,876 $ 34,181
======== ========
</TABLE>
47
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. INCOME TAXES, CONTINUED:
As of December 31, 1995 and 1996, the Company has state income tax net
operating loss carryforwards of approximately $962,000 and $2,403,000,
respectively. The Company's net operating loss carryforwards begin to expire in
the year 2004. Additionally, as of December 31, 1995 and 1996, the Company has
federal alternative minimum tax credit carryforwards of approximately $3.1
million and $5.3 million, respectively. Cash paid for income taxes during the
years ended December 31, 1995 and 1996 amounted to approximately $3.5 million
and $2.5 million, respectively. The Company paid no cash for income taxes
during 1994 in the Successor period and approximately $2.9 million in the
Predecessor period. At December 31, 1996 and 1995 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. At
December 31, 1996 approximately $700,000 of the valuation allowance corresponds
to deferred tax assets for which any tax benefits recognized in the future will
be allocated to reduce cost in excess of fair value of net assets acquired.
48
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. STOCKHOLDERS' 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 December 31, 1996
Authorized -- -- -- 100,000 100,000
Issued -- -- -- 27,992 27,992
Outstanding -- -- -- 27,992 27,992
</TABLE>
All of the stock has a $.01 par value per share.
Conversion of Stock
As defined in the Company's Certificate of Designation, which is no
longer in effect due to the Company filing an Amended and Restated Certificate
of Incorporation upon completion of the Company's initial public offering, all
issued and outstanding shares of Class A, Class C and Class D Stock not
otherwise redeemed by the Company automatically converted into shares of Common
Stock on a one-for-one basis at the time of the initial public offering.
Dividend Rights
Dividends are payable to all stockholders on a pro rata basis upon
declaration of such dividends by the Board of Directors.
49
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. MANAGEMENT STOCK INCENTIVE PLAN
At the 1994 Acquisition, Prime adopted a Management Stock Incentive Plan
(the "Old Stock 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. In connection with the Company's initial public offering, the option
converted to a right to acquire an equal number of shares of Common Stock. The
exercise price of each option is $3.86 per share and each option is subject to
certain vesting provisions. The initial vesting provisions of these options were
modified concurrent with the Initial Public Offering (see Note 16) so that 40%
of the options have vested at December 31, 1996 and the remainder will vest 30%
per year on December 31, 1997 and 1998. The Company does not contemplate making
any further awards under the Old Stock Plan.
In connection with its initial public offering, Prime adopted the 1996
Management Stock Incentive Plan, (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
ISO's 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.
The Company granted options to purchase 346,665 shares of Company Common Stock
at an exercise price of $23.50 per share (non-compensatory) during the year
ended December 31, 1996. These options will vest over five years at 20% per
year.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting For Stock Issued to Employees" ("APB 25"), and related
interpretations in accounting for the Old and New Stock Plans. In October 1995,
the Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 123 entitled "Accounting for Stock-Based Compensation"
("SFAS 123"). The Company has elected to continue to account for the cost of
these Stock Plans in accordance with APB 25, but has included pro forma
information regarding net income and earnings, per share in accordance with
SFAS 123 as if the Company had accounted for its employee stock options under
the fair value method of that statement.
The fair value for the options issued in 1996 was estimated as of the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rate of 6.17%; dividend yield
of 0%; volatility of the Company's Common Stock of 33%; and an expected life of
options of six years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. Had
compensation expense for the options been determined consistent with the
provisions of SFAS 123 the Company's income and income per common share for the
year ended December 31, 1996 would have been approximately $1,906,000 and $.09,
respectively. This is based on an estimated fair value of options granted
during 1996 of $10.32 per option. The effects of applying SFAS 123 in this pro
forma disclosure are not indicative of future amounts. SFAS 123 does not apply
to options granted prior to 1995.
50
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. MANAGEMENT STOCK INCENTIVE PLANS, CONTINUED:
Management Stock Incentive Plan Activity is as follows:
<TABLE>
<CAPTION>
NEW STOCK OLD STOCK
PLAN PLAN
NUMBER OF NUMBER OF
SHARES SHARES
--------- ---------
<S> <C> <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 346,665 38,877
Exercised -- --
Forfeited -- (1,324)
--------- ---------
Options Outstanding December 31, 1996 346,665 259,727
========= =========
</TABLE>
Of the options outstanding, none were exercisable as of December 31,
1995 and approximately 104,000 of the options under the Old Stock Plan were
exercisable at December 31, 1996. None of the options under the New Stock Plan
were exercisable at December 31, 1996. The weighted average remaining
contractual life of all options outstanding was 9.39 years at December 31,
1996.
13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company has the following types of financial instruments:
o Cash and cash equivalents
o Accounts receivable
o Accounts payable
o Interest rate swaps
o Debt
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, 1996 and 1995 since they bear interest at variable rates.
The fair value of the interest rate swaps is disclosed in Note 8.
51
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. ACQUISITIONS:
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 $11.4 million including convenants not to compete. 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.
On December 23, 1996, Prime completed the purchase of certain assets of
Skyreach Equipment, Inc. ("Skyreach") for $7.9 million including covenants not
to compete. Skyreach operated one rental yard in the state of Washington and
one in the state of Oregon.
The following condensed pro forma statement of operations presents the
results of operations for the years ended December 31, 1995 and 1996 as though
the acquisitions of American Hi-Lift, Alpine and Skyreach 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 the Year Ended
December 31,
(unaudited)
----------------------------
1995 1996
--------- ---------
<S> <C> <C>
Revenues $ 310,877 $ 345,286
(Loss) income before extraordinary item $ (3,840) $ 7,604
(Loss) income before extraordinary item
per share $ (0.21) $ 0.35
</TABLE>
The aggregate purchase price for the American Hi-Lift, Alpine and Skyreach
acquisitions were allocated as follows (in millions):
<TABLE>
<S> <C>
Cash...................................... $ 1.1
Accounts receivable and inventories ...... 13.4
Rental equipment ......................... 60.4
Other assets ............................. 7.3
Covenants not to compete ................. 0.5
Cost in excess of fair value ............. 18.3
Other liabilities ........................ (6.8)
Deferred income tax liability ............ (8.4)
-----
85.8
=====
</TABLE>
52
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. RECENT ACCOUNTING PRONOUNCEMENT:
In March 1995, the Financial Accounting Standards Board ("FASB") 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.
16. INITIAL PUBLIC OFFERING:
The Company filed an initial public offering for the issuance of shares
of Common Stock. This offering was completed during the fourth quarter of 1996
with 7,250,000 shares of Common Stock being sold at a price of $23.50 per
share. The Company received proceeds from the offering of approximately $157.6
million net of costs incurred directly related to the offering. Upon completion
of the initial public offering, the Company (i) terminated its management
agreement with Investcorp, and (ii) used a portion of the net proceeds to
retire a portion of its current debt. As a result of the above, the Company
wrote-off the unamortized prepaid management fee of $1.4 million and deferred
financing costs of $1.2 million, and incurred redemption penalty expense of
$4.6 million associated with the redemption of the Senior Subordianted Notes
and Subordinated Notes, (see Note 8 above). With the completion of the
offering, Investcorp S.A. ("Investcorp") may be deemed to beneficially own
approximately 26.7% of the outstanding stock of the Company.
17. SUBSEQUENT EVENT (unaudited):
On March 17, 1997, the Company purchased substantially all of the assets
of Shipmates, Ltd. (which operated as Rental Depot) for approximately $13.3
million. Rental Depot operated eight rental yards in Virginia oriented toward
the construction industry. The Company used funds under its revolving credit
agreement to fund the transaction.
53
<PAGE> 54
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
54
<PAGE> 55
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Certain information required by this Item is incorporated by reference
to Prime's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this report (the "Proxy Statement").
ITEM 11 EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the Proxy Statement.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the Proxy Statement.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the Proxy Statement.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Financial Statements and Schedules:
(1) Financial Statements: The financial statements listed in
the Index under Item 8 are included in this report.
(2) Schedules: No schedules are included because such
information is immaterial, not required or can be derived
from the Financial Statements included in Item 8 of the
Form 10-K.
(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
- - --------
<S> <C>
3.1 Amended and Restated Bylaws of the Company (Incorporated by reference
Exhibit 3.4 to the Company's Registration Statement on Form S-1,
Registration No. 333-11517, originally filed with the SEC on
September 6, 1996 (the "IPO S-1")).
3.2 Form of Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 3.6 to the IPO S-1).
4.1 Form of Common Stock Certificate (Incorporated by reference to Exhibit
4.1 to the IPO S-1).
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")).
</TABLE>
55
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
- - --------
<S> <C>
4.3 Indenture between Prime Holding, Inc. and AIBC Services N.V., as
trustee, dated as of November 29, 1994 (Incorporated by reference to
Exhibit 4.4 to the IPO S-1).
4.4 Registration Rights Agreement, dated as of October 25, 1996, among
the Company and the Company's stockholders party thereto (Incorporated
by reference to Exhibit 4.5 to the IPO S-1).
4.5 First Supplemental Indenture, dated as of March 5, 1997, between the
Company and Texas Commerce Bank National Association, as trustee
(incorporated by reference to Exhibit 4.1 of the Company's Current
Report on Form 8-K filed with the SEC on March 6, 1997).
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).
</TABLE>
56
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
- - --------
<S> <C>
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. Philippin (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).
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
- - --------
<S> <C>
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 Amendment No. 1 to Employment Agreement, dated as of October 25,
1996, between Primeco and Thomas E. Bennett (Incorporated by reference
to Exhibit 10.29 to the IPO S-1).
10.28 Amendment No. 1 to Employment Agreement, dated as of October 25,
1996, between Primeco and Brian Fontana (Incorporated by reference to
Exhibit 10.30 to the ISO S-1).
10.29 Amendment No. 1 to Employment Agreement, dated as of October 25,
1996, between Primeco and Kevin L. Loughlin (Incorporated by
reference to Exhibit 10.31 to the ISO S-1).
10.30 Amendment No. 1 to Employment Agreement, dated as of October 25,
1996, between Primeco and Peter A. Post (Incorporated by reference to
Exhibit 10.32 to the IPO S-1).
10.31 Employment Agreement, dated as of October 25, 1996, between Primeco
and James O. York (Incorporated by reference to Exhibit 10.33 to the
IPO S-1).
10.32 Prime Service, Inc. 1996 Management Stock Incentive
Plan (Incorporated by reference to Exhibit 10.34 to the IPO S-1).
10.33 Form of Amended and Restated Credit Agreement, dated as of October 30,
1996, among Primeco, as borrower, The Chase Manhattan Bank, as
Administrative Agent, and The CIT Group/Business Credit, Inc., as
Collateral Agent (Incorporated by reference to Exhibit 10.35 to the
IPO S-1).
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
- - --------
<S> <C>
10.34 Termination of Management Agreement, dated as of October 25, 1996,
between the Company and Investcorp International, Inc. (Incorporated
by reference to Exhibit 10.36 to the IPO S-1).
10.35 Employment Agreement, dated as of February 3, 1997, between the
Company and Stanton P. Eigenbrodt.
10.36 Consent, Supplement and Amendment, dated as of February 24, 1997,
among the Company, Primeco, The Chase Manhattan Bank, as
Administrative Agent, and The CIT Group/Business Credit, Inc., as
Collateral Agent (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with the SEC on March 6,
1997).
10.37 Amendment No. 2 to Employment Agreement, dated as of November 1,
1996, between the Company and Thomas E. Bennett.
21.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule
</TABLE>
59
<PAGE> 60
(B) Reports on Form 8-K:
No reports on Form 8-K were filed by Prime Service, Inc. during
the fourth quarter of 1996.
60
<PAGE> 61
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 March 31, 1997.
Prime Service, Inc.
By: /S/ THOMAS E. BENNETT
-----------------------------------------
NAME: THOMAS E. BENNETT
---------------------------------------
TITLE: CHAIRMAN OF THE BOARD,
--------------------------------------
PRESIDENT AND CHIEF EXECUTIVE OFFICER
--------------------------------------
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.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
------------------------ Chairman of the Board, President and Chief March , 1997
Thomas E. Bennett Executive Officer
------------------------ Executive Vice President and Chief Financial March , 1997
Brian Fontana Officer
Controller, Assistant Treasurer and Assistant March , 1997
------------------------ Secretary
John D. Latimer
------------------------ Director March , 1997
Jon P. Hedley
------------------------ Director March , 1997
Robert M. Howe
------------------------ Director March , 1997
Christopher J. O'Brien
------------------------ Director March , 1997
Charles J. Philippin
------------------------ Director March , 1997
Christopher J. Stadler
</TABLE>
61
<PAGE> 62
Exhibit Index
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
3.1 Amended and Restated Bylaws of the Company (Incorporated by reference
Exhibit 3.4 to the Company's Registration Statement on Form S-1,
Registration No. 333-11517, originally filed with the SEC on
September 6, 1996 (the "IPO S-1")).
3.2 Form of Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 3.6 to the IPO S-1).
4.1 Form of Common Stock Certificate (Incorporated by reference to
Exhibit 4.1 to the IPO S-1).
4.2 Form of Indenture between Primeco and Texas Commerce Bank National
Association, as trustee (Incorporated by reference to Exhibit 4 of
Primcco's Registration Statement on Form S-1, Registration Statement
No. 333-87404, originally filed with the SEC on December 15, 1994 (the
"Primeco Registration Statement")).
4.3 Indenture between Prime Holding, Inc. and AIBC Services N.V., as
trustee, dated as of November 29, 1994 (Incorporated by reference to
Exhibit 4.4 to the IPO S-1).
4.4 Registration Rights Agreement, dated as of October 25, 1996, among the
Company and the Company's stockholders party thereto (Incorporated by
reference to Exhibit 4.5 to the IPO S-1).
4.5 First Supplemental Indenture, dated as of March 5, 1997, between the
Company and Texas Commerce Bank National Association, as trustee
(Incorporated by reference to Exhibit 4.1 of the Company's Current
Report on Form 8-K filed with the SEC on March 6, 1997).
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).
62
<PAGE> 63
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
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 1O(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. Philippin (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).
63
<PAGE> 64
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
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, Llovd 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 p1c, 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 l2b-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 Amendment No. 1 to Employment Agreement, dated as of October 25, 1996,
between Primeco and Thomas E. Bennett (Incorporated by reference to
Exhibit 10.29 to the IPO S-1).
10.28 Amendment No. 1 to Employment Agreement, dated as of October 25, 1996,
between Primeco and Brian Fontana (Incorporated by reference to
Exhibit 10.30 to the ISO S-1).
10.29 Amendment No. 1 to Employment Agreement, dated as of October 25, 1996,
between Primeco and Kevin L. Loughlin (Incorporated by reference to
Exhibit 10.31 to the ISO S-1).
10.30 Amendment No. 1 to Employment Agreement, dated as of October 25, 1996,
between Primeco and Peter A. Post (Incorporated by reference to
Exhibit 10.32 to the IPO S-1).
64
<PAGE> 65
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
10.31 Employment Agreement, dated as of October 25, 1996, between Primeco
and James O. York (Incorporated by reference to Exhibit 10-33 to the
IPO S-1).
10.32 Prime Service, Inc, 1996 Management Stock Incentive Plan (Incorporated
by reference to Exhibit 10.34 to the IPO S-1).
10.33 Form of Amended and Restated Credit Agreement, dated as of October 30,
1996, among Primeco, as borrower, The Chase Manhattan Bank, as
Administrative Agent, and The CIT Group/Business Credit, Inc., as
Collateral Agent (Incorporated by reference to Exhibit 10.35 to the
IPO S-1).
10.34 Termination of Management Agreement, dated as of October 25, 1996,
between the Company and Investcorp International, Inc. (Incorporated
by reference to Exhibit 10.36 to the IPO S-1).
10.35 Employment Agreement, dated as of February 3, 1997, between the
Company and Stanton P. Eigenbrodt.
10.36 Consent, Supplement and Amendment, dated as of February 24, 1997,
among the Company, Primeco, The Chase Manhattan Bank, as
Administrative Agent, and The CIT Group/Business Credit, Inc., as
Collateral Agent (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with the SEC on March 6,
1997).
10.37 Amendment No. 2 to Employment Agreement, dated as of November 1, 1996,
between the Company and Thomas E. Bennett.
21.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule
65
<PAGE> 1
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
This Amendment No. 2 to Employment Agreement (this "Agreement") is made
and entered into effective as of November 30, 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 (as amended pursuant to Amendment No. 1
to Employment Agreement, dated as of October 25, 1997, the "Employment
Agreement");
WHEREAS, Employer, Employee and Parent desire to amend the Employment
Agreement to return Employee's bonus percentages for fiscal 1996 to the original
percentages in the unamended Employment Agreement;
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. Replacement of Exhibit B. Exhibit B to the Employment
Agreement is hereby amended and restated in its entirety by the Exhibit B
attached hereto.
3. 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]
1
<PAGE> 2
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
-----------------------------
Brian Fontana
Executive Vice President and
Chief Financial Officer
PRIME SERVICE, INC.
By: /s/ Brian Fontana
-----------------------------
Brian Fontana
Executive Vice President and
Chief Financial Officer
EMPLOYEE:
/s/ Thomas E. Bennett
--------------------------
Thomas E. Bennett
<PAGE> 3
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
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<PAGE> 4
supporting such computation and shall have the right to challenge in good
faith such computation.
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 17-25
90 95 37-55
95 100 67-100
100 110 100-150
110 120 113-170
120 130 127-190
130 140 140-210
140 150 153-230
150 160 167-250
160 170 180-270
170 180 193-290
180 190 207-310
190 200 220-330
200 --- 223-350
- - ---------------------------
(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.
4
<PAGE> 5
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. EBITDA(2) 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 % of Base Salary
Target Achieved Payable 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 and may
differ among eligible employees.
5
<PAGE> 6
EMPLOYMENT AGREEMENT
This Agreement is made and entered into effective as
of February 3, 1997, by and between Primeco Inc., a Texas
corporation ("Employer"), and Stanton P. Eigenbrodt
("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 31, 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 6 hereof, the Period of Employment
shall expire as of the Date of Termination (as hereinafter defined).
2. Duties. During the Period of Employment,
Employee will faithfully perform those duties and
responsibilities assigned by the Board of Directors of the
<PAGE> 7
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 $140,000
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.
3.2 Incentive Compensation. In addition to
the Base Salary provided for in Section 3.1 hereof, Employee
shall be entitled to annual cash bonuses as set forth on
2
<PAGE> 8
Exhibit B hereto. Notwithstanding the foregoing, Employee's bonus payment, if
any, for fiscal 1997 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 1997 fiscal
year that Employee was employed hereunder. Employer agrees that it will not
amend or modify Exhibit B in any manner materially adverse to Employee's
interest thereunder without Employee's written consent.
4. 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 under any such fringe benefit programs 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 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.
5. 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
3
<PAGE> 9
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.
6. Termination of Employment.
6.1 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 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).
4
<PAGE> 10
(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 8.1,
Section 8.2, Section 8.3 or Section 8.4 hereof,
or
(v) has willfully failed or
refused to perform those duties reasonably assigned
or delegated to him by the Board or the Chief
Executive Officer, which failure or refusal continues
following (a) the Board 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.
(d) Not For Cause. At the option of
Employer at any time for any reason other than those referred
5
<PAGE> 11
to above or for no reason at all, whereupon the Employer shall become obligated
to make those payments set forth in Section 7.1(d) hereof.
6.2 Notice of Termination. Any termination of
Employee's employment by Employer (other than termination pursuant to Section
6.1(a) hereof) or by Employee shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 9.2. 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
except that with respect to Section 6.1(a) the "Date of Termination" shall be
the date of Employee's death.
7. Payments Upon Termination of Employment.
7.1 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
6
<PAGE> 12
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 5 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 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
7
<PAGE> 13
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 6.1(d), Employer's obligation 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
8
<PAGE> 14
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 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 7.1(d)
if the Employee breaches its obligations hereunder (including its obligations
under Article 8 hereof).
7.2 Release and Satisfaction. With respect to
Employee, his heirs, successors and assigns, payment by Employer of the amounts
provided under this Section 7 shall
9
<PAGE> 15
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.
7.3 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
7.2, 8.1, 8.2, 8.3, 8.4 and 8.5 hereof, which shall continue in full force and
effect with respect to Employer and Employee, and its and his heirs, successors
and assigns. Nothing in Section 7.1 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
6.1(c) hereof as a possible basis for termination of Employee's employment for
Cause.
7.4 No Duty to Mitigate. Subject to the
provisions of Sections 8.1, 8.2, 8.3, 8.4 and 8.5 hereof, Employee shall be free
to accept such employment and engage in
10
<PAGE> 16
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.
8. Non-disclosure of Proprietary Information,
Surrender of Records; Inventions and Patents;
Non-Compete.
8.1 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 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,
11
<PAGE> 17
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 8.3 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 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.
12
<PAGE> 18
8.2 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 8.1. above. All confidential records shall be and remain the sole
property of Employer during the Period of Employment and thereafter.
8.3 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 patentable 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
13
<PAGE> 19
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.
8.4 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 7.1 and 8.4(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 6.1(d) hereof, on the second anniversary of the Date of Termination or
(ii) if Employee's employment is terminated pursuant to Section 6.1(d) hereof
and subject to Section 8.4(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
14
<PAGE> 20
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 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
15
<PAGE> 21
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,
leased or rented by Employer.
(c) Employee understands that the
provisions of Section 8.4(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 7 hereof, is sufficient to justify
the restrictions contained in such 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.
16
<PAGE> 22
(d) If Employee's employment is
terminated pursuant to Section 6.1(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 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 8.4(d) if Employee breaches its obligations hereunder.
17
<PAGE> 23
8.5 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 8.5, 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.
8.6 Definition of Employer. For purposes of
this Section 8, 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
as any person to whom this Agreement is assigned as permitted by Section 9.8
hereof.
8.7 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,
18
<PAGE> 24
including, without limitation, the value of the proprietary
information and goodwill of Employer.
(b) Employee agrees that the covenants
and undertakings contained in Article 8 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 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
19
<PAGE> 25
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 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.
9. Miscellaneous.
9.1 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
20
<PAGE> 26
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.
9.2 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 9.2 shall be deemed to have been received on the third business day
following the date on which such notices are so sent.
9.3 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
21
<PAGE> 27
specifically provided in any written waiver under this
Section 9.3.
9.4 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.
9.5 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.
9.6 Captions. The captions used herein are
for ease of reference only and shall not define or limit the
provisions hereof.
9.7 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.
9.8 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.
9.9 Non-Transferability of Interest. None of
the rights of Employee to receive any form of compensation
22
<PAGE> 28
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.
9.10 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 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
23
<PAGE> 29
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.
(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.
24
<PAGE> 30
(f) Any arbitration under this Section 9.10 shall be conducted pursuant to the
commercial arbitration rules of the American Arbitration Association.
9.11 Jurisdiction; Venue. Subject to Section
9.10 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 9.2 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 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.
[SIGNATURES ON NEXT PAGE]
25
<PAGE> 31
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
Attention: Thomas E. Bennett
By: /s/ Thomas E. Bennett
---------------------------
Thomas E. Bennett
President
With a copy to:
INVESTCORP International Inc.
280 Park Avenue, 37th Floor
New York, New York 10017
Attention: Christopher J. O'Brien
EMPLOYEE
/s/ Stanton P. Eigenbrodt
---------------------------
Stanton P. Eigenbrodt
26
<PAGE> 32
EXHIBIT A
Employee's initial title shall be:
Corporate General Counsel and Assistant Secretary
<PAGE> 33
EXHIBIT B
Cash bonuses are payable to Employee in a given year if the
consolidated net income of Prime Service, Inc., a Delaware corporation and
parent of Employer (the "Company") 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. Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA")(1) 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 Employer 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
Target Achieved Payable
------------------------------------ as Bonus(2)
Equal To Or -----------
Greater But Less
Than: Than:
----------- --------
0 90 0
90 -- 35-50
- - -----------------------------
(1) The EBITDA target for each year shall be defined by the Board in the
budget for each year.
(2) 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.
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Company
Subsidiaries of Prime Service, Inc.:
Prime Service, Inc. owns 100% of the capital stock of Prime Equipment
Company, an inactive Texas Corporation.
<PAGE> 1
We consent to the incorporation by reference in the registration statement of
Prime Service, Inc. on Form S-8 filed on November 5, 1996 of our report dated
February 7, 1997, on our audits of the consolidated financial statements of
Prime Service, Inc. as of December 31, 1996 and 1995, and for each of the three
years in the period ended December 31, 1996, which report is included in this
Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Houston, Texas
March 27, 1997
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> $10,161
<SECURITIES> 0
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<INVENTORY> 23,192
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<PP&E> 302,849<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 528,583
<CURRENT-LIABILITIES> 41,956
<BONDS> 214,700
280
0
<COMMON> 0
<OTHER-SE> 229,748
<TOTAL-LIABILITY-AND-EQUITY> 528,583
<SALES> 118,440
<TOTAL-REVENUES> 326,588
<CGS> 93,621
<TOTAL-COSTS> 218,083
<OTHER-EXPENSES> 93,538
<LOSS-PROVISION> 768
<INTEREST-EXPENSE> 35,997
<INCOME-PRETAX> 14,967
<INCOME-TAX> 8,023
<INCOME-CONTINUING> 6,944
<DISCONTINUED> 0
<EXTRAORDINARY> 4,917
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